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Ask Dave

A Right Order, And A Wrong Order

When making a budget and working your debt snowball, one of the most important things is to pay your debts off in the right order.

QUESTION: Heather ran some numbers and thinks she can pay off their house in 6 years. When Dave finds out that she hasn’t paid off her other debts though, he wants to make sure that she goes about the debt snowball in the right order.

ANSWER: Before you start paying off the house, I want you to be out of all other debt. You should start a baby emergency fund of $1,000, then pay off your debts smallest to largest using the debt snowball. Once you’re debt free but the house, save a fully funded emergency fund of 3-6 months of expenses. Once that’s done, start saving 15% of your income for retirement. Doing that will probably turn your 6-year deal into an 8-year deal. That’s all right.