We are ready to start Baby Step 2 and have a total debt of approximately $35,000.
Our two smallest debts, a credit card and a truck that we financed, are both $4,500 now, and we have a combined income of about $95,000 a year.
Since the credit card has a higher interest rate, my wife thinks we should pay it off first. For me, the truck is a necessity and we should first pay for it for this reason. What are you saying?
– To agree
When the rule of paying off debt from smallest to largest does not apply, I think you should attack the one with the highest interest rate first. In your case, that would be credit card debt.
I understand what you’re saying about the truck. And I agree that transportation is a necessity. You could be in a bind if something happened and you lost a vehicle, but it’s also a situation you could probably sidestep for a little while if you had no choice.
I assume you have friends or relatives who could lend you a car in a pinch and public transport is an option for some people. So yeah, knock out the credit card first, then move on to the truck.
Do you understand my reasoning, Grant? Going this route has two purposes: first, it will save you some money. And two, I have a feeling it’s going to turn your wife on, and get her to accept the idea of you putting your finances in order even more than they already are.
She takes it all very seriously if she watches interest rates, mate. She likes the idea of you being in control of your money. Use that momentum to work as a team and eliminate that debt!