After you've paid off the first debt, move to the second-smallest. Take everything you were throwing at the first one and add it to the minimum payment for the second. Once that debt is paid off, move on to the next one and the next until you've paid off everything.
Here's how it works: List your debts from smallest to largest—regardless of interest rate. Attack the smallest debt with a vengeance while making minimum payments on the rest of your debts. Once you pay off the smallest debt, take that payment and apply it to your next-smallest debt.
Dave Ramsey is so against debt that he thinks consumers should steer clear of credit card usage completely. And he's even gone as far as to suggest that home buyers purchase properties with cash if they have the means to do so -- even though mortgages are generally considered a healthy type of debt.
Here's the truth: Debt creates enough risk to offset any possible advantage. Given time—a lifetime—risk will destroy any possible returns. Dave actually used to believe the myth himself and could repeat it very convincingly. He even sold rental property that was losing money.
Key Takeaways
Paying off high-interest debt is likely to provide a better return on your money than almost any investment. If you decide to pay down debt, start with your debts with the highest interest rates and work down from there.
Is being debt-free the new rich? Yes, as long as you have money and assets, in addition to no debts. Living loan-free is a fantastic way to stay financially secure, and it is possible for anyone. While there are a couple of downsides to being debt-free, they are minimal.
Dave Ramsey earns an estimated salary of $15 Million Per Year.
By and large, good debt is borrowing that helps you build long-term wealth. Bad debt, on the other hand, can harm your credit and deplete your finances. The difference comes down to two factors: risk and cost.
Ramsey's net worth is estimated to be around $200 million as of 2021.
Benefits of Cash
"There are no mortgage origination fees, appraisal fees, or other fees charged by lenders to assess buyers," says Robert Semrad, JD, senior partner and founder of DebtStoppers Bankruptcy Law Firm, headquartered in Chicago. Paying with cash is usually more attractive to sellers, too.
A lot of money experts swear up and down that you should save at least 20% of your paycheck each month. And that's a great number to shoot for if it fits into your savings goals. Sometimes, you might need to save more or less depending on where you're at in your money journey and what fits in your budget.
In general, there are three debt repayment strategies that can help people pay down or pay off debt more efficiently. Pay the smallest debt as fast as possible. Pay minimums on all other debt. Then pay that extra toward the next largest debt.
In this step, Suze Orman is in agreement with Dave Ramsey.
Net Worth at Age 40
By age 40, your goal is to have a net worth of two times your annual salary. So, if your salary edges up to $80,000 in your 30s, then by age 40 you should strive for a net worth of $160,000. Additionally, it's not just contributing to retirement that helps you build your net worth.
Key points
Dave Ramsey has discussed credit cards extensively. Ramsey suggests you can build credit without using a card and that credit card rewards aren't worth it. Ramsey isn't completely right about credit card rewards and whether they are worth it.
And yet, over half of Americans surveyed (53%) say that debt reduction is a top priority—while nearly a quarter (23%) say they have no debt. And that percentage may rise.
Kevin O'Leary, an investor on “Shark Tank” and personal finance author, said in 2018 that the ideal age to be debt-free is 45. It's at this age, said O'Leary, that you enter the last half of your career and should therefore ramp up your retirement savings in order to ensure a comfortable life in your elderly years.
Being debt free to start with means having minimal to no bad debts and average good debts. Being debt free doesn't mean you have no mortgage, bills, or car payment. It means you carry a manageable amount of debt, and are cognizant of your borrowing and DTI.
A general rule of thumb is to have one times your annual income saved by age 30, three times by 40, and so on.
Without debt, you can focus on building more savings, investing those extra funds and just simply having more peace of mind about your finances. Paying off all your debt, however, doesn't always make sense.
Make sure that no more than 36% of monthly income goes toward debt.