Too Smart For Their Own Good

 I was listening to a Dave Ramsey show podcast and just had to offer up a brief rant about one of the callers.  It seems that this couple was calling under the guise of wanting to buy a larger home and did not know if they were ready.  That is not such an unusual question and Ramsey certainly has a sound theory on the characteristics that indicate when someone is ‘ready’.

However, as he started to ask questions and the caller started to spin her yarn, the situation – while not necessary bad – was ludicrous.

It turns out the husband had previously moved, or essentially refinanced, their mortgage onto four credit cards.  The balance at the time was only $40,000 – I say only because we are talking about a mortgage.  The idea was to move from a 9% interest rate to a set of 0% credit cards.

On paper, the move makes sense because 0 interest is better than 9%, but it’s less than a good idea in the real world because, well there’s a number of reasons, but chief amongst them is that credit card companies to not make for the most trusted of business partners.

And alas, that was the situation these financial Einstein’s were facing.  It seems that no matter what verbal agreements or small print they may have consumed, the credit cards were jacking up the rates.  Hands were wrought and legal action threatened and the credit cards relented and backed out the increased interest payments but the snake had struck and the fallacy had been revealed.

But, as if that were not enough, the story really became exasperating as even more details were revealed.  It turns out the credit card saga had been a long running situation.  So long that the remaining balance on all the cards was now down to $4000.

Hey, that’s cool, we’re almost there, 6 more months of payments was the caller’s estimate.  While that seems long relative to the balance, it’s still a cool thought that we only have half a year before we’re free and clear – including the house!

“Then you can start saving for your emergency fund”, advised Ramsey to which the caller replied.  “Oh, we already have $23,000 saved in the bank.”

…the sounds you hear is that of thousands of hands simultaneously meeting foreheads…

To the very rational advice of “PAY OFF THE FREAK”N CARDS NOW” (paraphrased and emphasis added), the caller expressed fear of needing the money “in case something happened to the car”.

Are you %&#* kidding me?  What could possibly happen to your car that $19,000 cannot handle?

So let’s break this down.  The lure of 0% interest on a loan distracted these folks into refinancing their house onto credit cards rather than with a bank, wrangling monthly payments and minimum account activity on FOUR credit cards rather than set up a single auto draft, wrestling with credit card companies to the point of threatening legal action to preserve the low rate, and then unnecessarily sustaining this horrific situation for months and months and months while amassing a $23,000 balance in savings – a total representing over half the original credit card balance!

This is just evidence that some times, some people will over think their situation.  Getting out of debt may not be easy, but it is not complicated.  Shuffling rates and jockeying balances, and diversifying focus quickly becomes a high level of activity masking a low level of progress.

Find your goal and attack your goal.  The rest is noise and can only detract your focus.

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Category: Personal Finance

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