Which debt should we pay off first?

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  • Pay off biggest first: paying off debts should normally start with those that carry the highest interest rate

    Pay off biggest first: paying off debts should normally start with those that carry the highest interest rate

Dear Dave,

We just started following your plan, and we have $39,000 in debt. We make $55,000 a year, and two of our smaller debts ó one car and a credit card ó are both $7,500. The credit card has a higher interest rate, so my wife thinks we should pay it off first. I look at the car as a necessity, and for that reason I think we should pay it off first. Whoís right?

ó Pat

Dear Pat,

When the rules of paying off debts from smallest to largest donít apply, I look at things this way: If you have two debts that are of equal amounts, I would attack the one with the larger interest rate first. In your case, that would be the credit card debt.

I get what youíre saying about the car. You guys might be in a bind if something happened and you lost one car. But itís also something you could work around if you had no other choice. So yeah, knock out the credit card first then move on to the car. Going this route will serve two purposes: First, it will save you some money. And second, Iíve got a feeling it will fire up your wife and get her on board with the plan even more than she already is.

Sheís taking this seriously if sheís eyeballing interest rates, Pat. So use this momentum to work together, and knock out that debt!

ó Dave


Dear Dave,

What are your thoughts on transferring retirement investments over to gold?


Dear Sandy,

Honestly, I think thatís about the dumbest thing a person could do. I hope I wasnít unclear.

Gold is going down like a rock right now as people start to believe in the economy and the economic direction of this country again. The stock market indicates this is true, and in the process, gold becomes worth less and less. Gold is essentially a fear-based product, and the less fear thatís out there, the cheaper gold is.

Thatís not how you want to fund your IRA, Sandy. You want to fund it with something that has a long track record based on growth due to the performance of the companies involved ó not someoneís greed or fear. Gold is a horrible investment, and I donít own any except for one nice watch and a pair of cufflinks. Thatís it!

ó Dave

Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 12 million listeners each week on 575 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

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Published Dec 17, 2016 at 8:00 am (Updated Dec 16, 2016 at 7:16 pm)

Which debt should we pay off first?

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