It Defeats The Purpose

Wayne says his wife uses a credit card to pay her tuition and books. Wayne wants to know if they should pay the car off before they save anything toward school.

QUESTION: Wayne in Omaha and his wife are ready to attack their debt snowball. His wife uses a credit card to pay her tuition and books. Every time they get it paid off, the balance rises again. Wayne wants to know if they should pay the car off before they save anything toward school. Dave recommends cash flowing school before anything else.

ANSWER: You’re not going to get out of debt, so it doesn’t matter. You’re not working the plan. You can’t get out of debt while you keep borrowing money, dude. How about saving up and paying for school?

You need to stop borrowing money as your first step to get out of debt. Your second step is to start paying down debt. We’re going to cash flow her school going forward so she never uses a credit card again. That means you need to put $300 a month in your budget to cover $900 every three months for her to go to school. We have to get ahead of the curve on her tuition so she doesn’t have to pop it on the credit card. If you’re dancing around with these credit cards, you’re not going to get out of debt. You haven’t changed anything. You’re just running in circles. If she runs up credit cards on the right hand and you pay down the car on the left hand, you didn’t make any progress. That’s mythology. That’s not working for you.

You need to cut up the credit card and develop a game plan to pay cash for her school before you do anything else. The second step is to begin to pay down your debts and do that on a smallest-to-largest basis. List your debts smallest to largest and pay them in that order.