Dave Ramsey says: Pay off the debts in collection starting with smallest

Dear Dave,

I lost my job a couple of years ago. As a result, I ended up in about $25,000 of debt through credit cards and a consolidation loan. Now I have a great job making more than I’ve ever made before, plus a car loan for about $13,000.

The older debts went to collections, but I’m not being hounded by collectors at this point. I want to get control of my money and do things the right way, so how should I handle things? 

– Mike

Dear Mike,

Well, being hounded isn’t the issue. Morally, you owe the money. You took money under agreements that you’d pay it back, and that means you need to pay it — both the old and new debts.

I’d start by running two debt snowballs. Let’s do one for the car and any other active debts you have first since the collectors aren’t after you about the old, dead debt. Then, smallest to largest, start knocking out the debt that’s in collections.

When it comes to these guys, reach out and get an agreement in writing detailing exactly how much you owe and the monthly payment amounts. Remember, do not give any of these folks direct access to your bank accounts.

There’s no upside to not paying what you owe. It’s an integrity issue, it’s a legal issue, and it’s a credit issue. Did I mention it’s an integrity issue, Mike?

You want this stuff out of your life. If you don’t take care of it, I guarantee it’ll come back to haunt you somewhere down the road!

— Dave

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