Let Sleeping Dogs Lie For Now

John has accumulated various kinds of debt, and it's sitting out there somewhere. He wants to begin paying the debts off, but how does he wake these debts up?

QUESTION: John in Chicago is a recovering alcoholic, and over the last 12 years, he's accumulated various kinds of debt, and it's sitting out there somewhere. He wants to begin paying the debts off, but how does he wake these debts up? Dave explains.

ANSWER: For right now, I would let sleeping dogs lie. I would dump everything into an account until I had $1,000 in there. Then I would work Baby Step 2, which is listing your debts smallest to largest, not counting the old debts—just your current debts. Pay minimum payments on everything but the little one, and attack that with everything you can lay your hands on. When it is gone, attack the next one down. When it's gone, attack the next one until you're debt-free except the old debts and your home.

Then I would work the same debt snowball on your old debts, but I wouldn't work that until a second stage of Baby Step 2. On your old debts, you're probably going to be settling those because they probably accrued a lot of fees and a lot of interest. If you can settle them for what the original amount was 12 years later, that's a good deal. Get that in writing from them before you give them any money that that completely settles the debt for that amount.

If one of the old debts wakes up and comes after you in the meantime, you may have to stop and deal with him and get him under control. Work your debt snowball with active debts first and old debts second. Once you're debt- free but the house, you move on through the Baby Steps.