Fans of the Dave Ramsey Show probably recognized that line in the title. Dave’s got a few variations – pay off the Tahoe, amputate the Tahoe, etc. Over the last few weeks I’ve been hinting at how close we were to paying off my wife’s Tahoe (our family vehicle). My old van was paid off long ago, but our family ride has been dragging a debt payment behind it for the last four years. I’ve been personally dragging around car debt even longer, and I can’t tell you how good it felt to make the last payment on Friday.

It might not seem like a big deal to some, but for me it represents finally freeing ourselves of the bondage of car debt. It was a journey that’s taken over a decade. I’ve gone through the sordid history of my ill-conceived car purchases in the past in great detail, so I’ll simply summarize them here.

• My first car was a 1985 Buick Century, handed down from my grandparents. It was a nice car, but it wasn’t a “cool” car, so I didn’t fully appreciate it as a teenager. However, it didn’t have a payment, and the insurance was relatively cheap, which is a big bonus for teenagers. I drove that Buick until the wheels fell off, almost quite literally. It developed serious electrical problems, and one night while parked in my dorm room parking lot in college it caught fire under the hood. We tried to replace some of the wiring, but it was cooked…literally.

• At 21 years-old, and newly married, I leased a brand new Isuzu Rodeo. It was a stupid decision considering the annual salary I was earning at the time was only a fraction more than the lease amount!

• At 26 years-old I was still driving the Rodeo, having paid off the lease by taking out another loan, extending the payments another three years.

• At 27 years-old our family was growing, so we bought a used (the only thing smart about it) 2001 Chevy Tahoe. Since I still owed money on the Rodeo, the bank was nice enough to roll that into the loan for the Tahoe since the sellers were letting it go for far less than Kelly Blue Book.

• After a number of months of trying to sell the Rodeo via private sale, I made the mistake of stopping by a car lot and started stalking a beautiful, gently used Chevy Silverado pickup truck. The salesman worked his magic and talked me into trading in the Rodeo and driving off with the Silverado (and even more car debt).

• It only took a few months of making both payments for me to realize something had to give, and that something had to be my Silverado truck – as much as I loved that truck. I put a “For Sale” sign in the window, and advertised it in the local credit union bulletin. In two weeks she was being backed out of my driveway by the new owner for $1,000 less than what I paid.  I wrote that $1,000 off as stupid tax.

We diligently kept up payments on the Tahoe, but at some point I just got downright tired of having a car payment. I told my wife in April that I wanted to move the Tahoe up in our debt snowball, following what I now know to be the Debt Tsunami style of debt snowballing. It didn’t make sense mathematically, as it was an incredibly low interest rate, and it wasn’t our lowest balance. It was personal. I had decided we had been dragging around a car payment long enough, and since we were within a few thousand dollars of paying it off, I wanted to make a final push and be done with it.

Last Friday we did just that, making a final payoff of about $700, which I scrounged up from freelance work, and from Friday’s paycheck from my full-time gig. The budget will be a tighter for the next two weeks because it was a stretch to pay it off, but I couldn’t wait another two weeks. The instant I pressed “submit” for the final loan payment online I felt the load of eleven years of car debt being lifted.

Now I look forward to receiving the title from our credit union, and for the first time in my adult life, being car debt free. Dave Ramsey’s right; they do drive better when they aren’t towing a car payment!

Stacy writes in with the following questions regarding getting out of debt:

Q: If you have a canceled credit card and its balance is the lowest should you work on paying that one off first or one that isn’t canceled? Also, would you work on paying over the credit limit cards or paying off payday loans first?  We have ideas but just aren’t sure where to start and attempt to tackle the debt.

A: Stacy, there are about as many ways of paying off debt as their blogs dedicated to the subject!  First of all, I commend you for taking control of your financial situation and eliminating the temptation to go even deeper into debt. The usual advice is to wait until your card is paid off to close it, because it can be detrimental to your FICO score to reduce the amount of credit available. Having said that, I’ve violated this advice myself and closed an account before paying if off because of the way the credit card company treated me.

From your question, it sounds like you have a variety of debts including a canceled credit card, an over-the-limit credit card or two, and some payday loans. The standard advice is to pay off the debts in the order of the interest rate – paying off those with the highest rates first. In my own experience, I have found that method of snowballing debt to be tougher to work through because of the lack of emotional reward returned.

I recently linked to an article over at Man vs. Debt about the Debt Tsunami method of paying off debt.  According to this debt snowball style you line up the debts giving priority to the one that is most emotionally charged. or gives you the biggest emotional boost when paid off. In your example, that might be the payday loans, or a personal loan that you’d like to clear from your list of debts. For me, it was my car loan, because since marrying my wife eleven years ago I’ve never known freedom from a car payment.

The other thing to consider is the fees associated with the over limit credit cards. Perhaps it makes sense to prioritize those first until the point that they are all safely under the credit limit and current. Then you can regroup and reorder your debts in the priority that works best for your situation.

Finally, there is no easy way out of debt. For me, the climb out of debt has taken more dedication, more perseverance, and more sacrifice than anything in my life up to this point. However, the rewards at the end are just as sweet. I suspect because you took the time ask for help with lining up your debts that you also have a gameplan for paying them off, and I have little doubt that you can do it. Let us hear from you again when you are debt free!

After being in debt for some time you find yourself struggling to remember what it feels like to not owe anyone. Unless you have been deep in debt, it is hard to describe the feeling to others. At times it feels like a tractor is parked on your chest, and other times it feels like two tractors are parked on your chest.

The best way I can sum it up is to say that being in debt sucks. Sorry, I know that’s a bit crude, but when it comes to debt all rules of verbal civility must be tossed. Without further apologies, here’s my list of reasons why being in debt sucks.

1. Debt limits your opportunities. How would you like to pick up and move across the country, or maybe just closer to relatives, or to the beach, or to the mountains?  Perhaps you would like to make a career change, go back to school, or take that international assignment for a couple years. Forget about it. You are in debt.

2. Debt forces you to put up with more crap. Debt forces us to put up with bad jobs, poor living conditions, broken down cars, and cubicle creeps with headsets, also know as debt collectors.

3. Debt is the first thing you think about each morning. Seriously, you know you are in trouble  when you hit the alarm clock at 5:30 in the morning and think, “Hey, that’s the same amount as my car payment – $530. And I have no idea how I’m going to pay it this month!”

4. Debt is the last thing you think about each night. Money problems is a leading cause of insomnia. Instead of drifting off to sleep counting sheep you lie there counting the months until you will be debt free.  You obsess over it.  You worry over it. And the reality that you can do little to get rid of it right away leaves a feeling of helplessness that is truly depressing.

5. Debt eats away at future earnings. For every dollar you pay in interest on debt it is a dollar that could have been spent on something else, and a dollar taken away from your earnings.  It’s like a little debt monster snatching $100 from each paycheck and depositing it in their bank, laughing all the way!

6. Debt makes you desperate. There is a reason people applying for positions with financial authority are scrutinized more carefully. Of those who commit financial crimes, it is not unusual to find out they were deep in debt. It has a way of challenging your morals for the promise of freedom.

7. Debt affects your entire family. Kids may not fully understand the financial ramifications of debt, but they recognize Mom and Dad sure fight about that “d” word a lot.  They don’t know what debt is, but from listening to you they think they’ll always be in it, and being in it must be bad.

8. Debt is a lousy employer. When you are in debt, and over half of your income is going towards repaying that debt, you might as well consider yourself working for the debt. And debt is a lousy employer!

9. Debt plays by its own set of rules. Don’t believe me? Try carrying a large balance on a credit card. One month your statement reflects an APR of 6%, the next 29%. What did you do to deserve it? You just appeared risky to their scoring model.

10. Debt makes even the sweetest life events taste sour. Getting married, buying a house, and having a baby should all represent some of the highlights of your life. But if you are deep in debt, these event only provide temporary relief. Until the bills arrive, that is.

If you find yourself deep in debt, you’ve probably experienced some or all of these feelings.  I hope you are working to get out of debt. If you are not in debt, or have never been in debt, consider this ten reasons to never go into debt. Trust me; it sucks.

Credit cards have been up to some nasty tricks lately.  They are raising interest rates with only a subtle notice, and cutting credit lines with no notice.  Angry consumers are looking for ways to consolidate their debt.  I have had some first-hand experience with both scenarios, which led to me canceling one credit card and moving the small remaining balance to another card. Those with three or four (or more) may look to other forms of credit card debt consolidation.

Pros and Cons of Credit Card Debt Consolidation Products

1. Social lending
Two years ago this would have probably been at the bottom of the list, if it made it at all.  However, social lending organizations such as Lending Club have introduced great debt consolidation loan options.  The benefits of consolidating debt with a social lending service is that you can bypass traditional bank politics to score a lower interest rate, fixed terms, predictable payments and pay off dates, and avoid many of these “gotchas” the credit card companies are currently engaged in.

2. Personal loans from small, regional banks and credit unions
Often times small, regional banks and credit unions are more willing to work with you than the larger banking institutions.  Chances are you can actually walk into a branch, look a human being in the eye, explain your situation and discuss what consolidation loan opportunities might be available. Try doing that with one of the larger banking firms headquartered in New York with hundreds of branches around the country.

3. Home equity lines of credit
While there are tax advantages associated with tapping home equity for credit card debt consolidation, I would rather save this as a last resort option.  Here’s why.  When you secure unsecured debt using your home you are putting your primary residence, your source of shelter, at greater risk.  Having a mortgaged home in this economy is risky enough, no sense piling on additional risk.

4. 401(k) loans
Borrowing from 401(k) plans used to be a popular option, back when people still had money in their 401(k).  Now days few of us have enough money in our plan to consolidate debt, and even fewer of us can assume such a risk with an unstable job market.  Remember, in most cases if your employment ends the 401(k) loan is due within 60 days, or you face early withdrawal penalties.

5. Family and friends
In general, I don’t like the idea of borrowing money from friends and family.  It changes the relationship dynamic, and often leaves one or both parties with a bad experience.  Having said that, there are times when, as a last resort, you may turn to family or friends for help in consolidating high-interest credit card debts. If you do, I suggest having a formal promissory note drawn up outlining the terms of the loan and what is expected of both parties.

Regardless of the approach to credit card debt consolidation you take, the most important thing to do is to close out the accounts of paid-off accounts once the transfers have been made.  I made the mistake of leaving a couple accounts open, just in case, after I consolidated debts a few years ago.  As you would expect, those debt balances began to creep up over time so then I was left with a consolidation loan and new credit card debt.  This is  definitely a trap you will want to avoid.

The other day I was listening to a local radio show about personal finances.  The host took a call from an emotional listener (I’ll call her Kelly) who had recently lost her mother to cancer. Kelly’s mother left behind a $100,000 life insurance policy, along with a number of other assets to be split between Kelly and her sister.

Over the last year or so Kelly and her husband have been getting their financial lives back on track. They had whittled their outstanding debts down to about $30,000 (from $50,000), spread evenly across a couple credit cards, an old student loan, and a car note.  It turns out their portion of the inheritance was just enough to pay off all the family’s debt plus $20,000.  Kelly felt conflicted about paying off debt with her inheritance money.

The show’s host seemed equally conflicted, even though the answer was obvious to me. Yes, the caller should use the money to be debt free by the end of the day.  How did I arrive at this answer so quickly?  A number of factors were at play.

Three Questions To Ask When Deciding To Use Inheritance To Pay Off Debt

1. Will I need to live on this money in the near future? This might be the case for a spouse who wasn’t working prior to their spouses death, or in the case of two retirees living off of the now deceased’s salary.  In Kelly’s case, her husband earns a good income, and they had some emergency savings already in place.  It wasn’t likely they would need to live on any of this inheritance.

2. Has my lifestyle changed? Consider whether or not the lifestyle that led you to debt has changed. If you are still overspending, using credit cards, and financing emergencies, then chances are you will go right back to that behavior after your debts are paid. This is the very reason most lottery winners grow broke – their lifestyles never change, just the amount of money they have to blow.

3. If you had the same amount of inheritance already in savings, would you go into debt to avoid spending it? This is really the same question in reverse.  Not using inheritance money to pay off debt is the equivalent of leaving money in savings while financing something(s) of equal value.  The only time this might make any sense is when financing a home at a very low interest rate, but even then, a free-and-clear home looks pretty attractive, too.

An Emotional Decision

Deciding whether or not to use an inheritance to pay off debt is a very emotional decision.  Any time you mix emotions with money you have the opportunity to make a very big mistake. But after losing a loved one it is hard to remain objective, and the tug of our emotions often leads to irrational decisions.

If you find yourself in this position, and aren’t sure what to do with the money, simply park it in a bank savings account for a couple months while you allow your emotions to heal. After that “cooling off” period you can again evaluate your financial picture and make a smart decision about how to handle the money.

Part of what bothered Kelly about using her mother’s inheritance money to pay off debt was a feeling that her mom would somehow disapprove, or be upset to know Kelly owed that much money. As a parent, I would want my kids to do what’s best for their family, and if being debt free was a goal for them, and it freed them from the bondage of being indebted to banks, then I would be happy to know that’s how they used the money.  I suspect most parents would feel exactly the same way.

Over the last several months my family’s top two financial priorities have been to become credit card debt free, and establish an emergency fund of six months of expenses.  I’m proud to report that we have made a lot of progress, and should accomplish both goals by year end.

We rarely do things as prescribed, and our debt snowball plan was no exception.  Thanks to a combination of events – from the broader economic slowdown, to a life-threatening illness in my family – I have becomes less and less aggressive at paying off debt, and opted to rearrange our priorities a bit to accumulate savings faster.  But I did not want to completely abandon our goal of paying off credit card debt.

The Recession-Proof Debt Snowball

One of my biggest complaints about debt snowball plans is that they usually begin before an adequate cushion is saved.  After all, a $1,000 emergency fund does not last very long in a period of unemployment, or a long illness, or a string of visits from Murphy.  I consider $1,000 to be an absolute bare minimum amount for an emergency fund.  It’s a good start, but not a balance to rely on for months while working to pay off debt.  I’ve read from other bloggers who have modified their own debt snowball plan to address this lack of security, and I came up with a plan that would work for us.  Here’s what we decided to do.

1. Pay minimum payments on all credit card accounts. Making at least the minimum payment lessens the chances of credit card issuers jacking up interest rates for no reason, or lowering your credit limit.

2. Save $1,000 in an emergency fund. Continue to pay minimum payments on all debts, and use any additional money to save up $1,000 in a separate savings or checking account.  This did not take us very long, and after a few paychecks, a yard sale and putting up a few items on eBay, we had $1,000 in savings.

3. Save amount of lowest debt plus $1,000, and then pay off the debt.  In our case, we had an old $2,600 consolidation loan at our credit union.  Rather than making extra payments on the loan, we just continued to put any extra money in savings until we had accumulated $3,600 (it was actually a little lower because we had made a couple payments).  When we hit the pay off amount, we wrote a check for $2,450, taking the loan to zero, and our emergency fund back to $1,000.  Then we targeted the next highest debt balance.

It was not long before we were targeting a $4,000 credit card balance that I accumulated while finishing up school.  Over the next few months we watched our savings balance grow, and it was comforting to know we had a few thousand in savings. In an emergency, we knew we could have simply used some of the savings and avoided going back into credit card debt.  Under a traditional debt snowball plan we would have kept the $1,000 in place and used the extra money to make large debt payments, leaving with very little savings to cover an emergency.

This recession-proof debt snowball does not get you out of debt any faster.  In fact, you will pay a little more in interest for not paying down your debt balances sooner.  But it will allow you to keep more in savings for longer periods of time.  For us, this peace of mind was worth the additional interest.

In September, our plan was put to the test when my mom suffered a stroke at 53 and lost her income while hospitalized over 100 days. We were able to “circle the wagons,” and help her thanks to our savings.  Now that things have stabilized, we can again turn our attention to using the savings towards paying down our debt.

A couple weeks ago I asked Twitter followers a question that generated quite a few responses:  “Why do you hate debt, in five words or less?”  Five words was probably too strict, but I had some great responses.  I’ve shared a few of my favorites below.  Feel free to add yours in the comments, and this time it doesn’t have to be limited to five words.  Thanks to all those who participated.

Why do you hate debt?

“It robs my children.” by DoodlesPlace

“Debt turns working into bondage.” by Heather

“It’s like being in prison.”  by uneekdolldesign

“Debt fuels anxiety; strangles.”   by Momsatwork

“It weighs down your potential.” by bargainr

“Limits freedom, binds to past.” by NCN

“It limits our possible futures.” by Mrs. Micah

“Debt makes everything harder.” by thewriterscoin

“Debt = An immortal money-sucking leech” by prosperousfool

“Debt delays one’s financial freedom.” by LazyManAndMoney

“Anchor weighing you down.” by glblguy

“Debt harbors dependence upon others.” by jakematic

“Debt makes your decisions.” by TheHappyRock

“Takes the freedom outta life!” by by dreamingescape

“Compound interest works against you.” by ericabiz

“Debt kills your dreams.” by Green_Panda

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