‘You Bought $26,000 Worth of Crap on Plastic’: Ramsey to New Parents Making $10K a Month

Alyssa and her spouse owe a total of $108,500 in debt, despite earning $10,000 per month. This debt includes $26,000 in credit card balances, two car loans totaling $2,500 and $20,000, and around $60,000 in student loans. They recently had a child and liquidated two properties, leaving only $15,000 in savings after expenses. Dave Ramsey's debt snowball plan recommends tackling the smallest debt first, regardless of interest rate, to build momentum.

The couple could eliminate their $26,000 credit card debt in approximately two years if they stop using the cards and redirect $1,300 of their monthly income toward principal. However, the real cost of the debt is the interest, which amounts to roughly $5,400 per year on a $26,000 balance at an average 21% APR. If this household continues to charge their cards, the interest costs could stretch out the payoff period to over a decade.

The urgency of this financial situation is heightened by the current national savings rate being at a record low, and households facing the impact of high credit card rates. Ramsey emphasizes that the plan only works if new charges are stopped immediately.