Personal Finance Advice

If you follow the financial tips of experts like Dave Ramsey or other experts with similar ideas, you probably are in the process of aggressively paying down your debt while your savings goals are put on hold.  Dave Ramsey’s plan urges participants to build up $1000 into an emergency fund and then put money toward debt until it’s all paid off.  This plan works, but only if you stop using the credit cards and aggressively pay the debt down. 

This plan doesn’t work for people who still want to utilize their credit cards and open a new account here or there.  If you fall into this pattern you’ll wind up in a bad situation: You’ll still have plenty of debt, but you won’t have any money saved up other than the $1000 you originally put into your emergency fund. 

What happens when three or four years down the road you still have the same amount of debt - or a slightly reduced amount of debt - yet you haven’t put a dime into your savings account and your retirement fund is nonexistent? You may feel as though you’re doing the right thing by making an effort to pay your debt down, but unless you’re willing to make a concerted effort then plans like this don’t work.

You can pay off your debt and ignore savings for a short period of time, but you can’t ignore your savings for long.  There will come a time when you need to make a decision: Are you going to continue with an aggressive effort to pay down your debt, or will you find a balance where you put money toward debt yet also contribute to your savings? Has your effort to pay down your debt actually been aggressive, or do you find yourself more often than not simply making minimum payments and promising yourself you’ll pay more next month?

Your frame of mind has a huge impact on how you manage your money.  You might tell yourself that you’re in the mode of paying down debt, but if your balances aren’t budging then something isn’t working.  If you aren’t willing to give up indulgences and follow a steady plan of debt reduction then you need to find a way to pay your bills down while also contributing to savings.  

You should pay particular attention to your retirement savings.  Retirement gets closer every day, and there is only so long you can blame your efforts of paying down debt for avoiding contributing to retirement savings.

Make no mistake about it: Debt elimination methods like Dave Ramsey’s work, but only if you follow them aggressively and make a real effort to get everything paid down quickly.  If you have been following a debt reduction plan for several years - but haven’t really noticed much difference because of your passivity in the matter - it’s time for a change.  You need to either jump wholeheartedly into the process, or find a different way to pay down debt that will include savings contributions.