Dear Dave,

I’ve started following your plan, and I’ve got a beginner emergency fund of $1,000 saved. Now that I’m ready to start paying off debt in Baby Step 2, do you recommend paying off credit card balances before or after closing the accounts?

Maeve


Dear Maeve,

I’m really proud of you. Congratulations on starting the journey toward getting out of debt and gaining control of your money!

Honestly, either way is fine. The point is to get rid of them and stop using the stupid things. I like the idea, and the finality, of going ahead and closing the accounts and cutting up the cards. Personal finance is 80 percent behavior. Getting credit cards – and credit card debt – out of your life is a great first step in really learning to behave with your money.

Remember, you don’t build wealth or save money by using credit cards. And you’re naïve if you think you’re going to play around with a multi-billion-dollar industry and beat them at their own game. The only way to win against credit card companies is by refusing to play around with them!

Dave


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Paying extra on car loan

Dear Dave,

I’d like to start paying a little extra each month on my car loan, so I can get out of debt faster. Would it be a good idea to write a separate check for this extra amount?

Steve


Dear Steve,

I think that’s a great idea! You can include the extra check in a separate envelope with the regular payment. In addition, write “principal only” in big, bold letters on the extra envelope and on the extra check. Make sure to also include the account number in the notation line at the bottom. Follow these guidelines, and you’ll be much less likely to run into problems as result of someone at the bank not paying attention.

Some companies use payment booklets that have a box specifically for entering any amount you want applied directly to the principal. See if this is available to you, as well. Regardless, make sure you keep an accurate, written record of the monthly and overall amounts you’re designating as “principal only.”

Great question, Steve!

Dave

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