1. Paying the Minimum … Forever?

    Digging through my piles of personal-finance books this weekend, I came across the very first money book I ever purchased: Carol Keeffe’s How to Get What You Want in Life with the Money You Already Have (1995 edition).

    It really is quite amazing how much different the advice can be from one author to the next. On page 111, Ms. Keefe summarizes why she advocates paying only the minimums on installment bills:

    Why should anyone pay only the minimum payment due on his or her installment bills instead of getting them paid off as fast as possible and eliminating those high finance charges? Two main reasons. One is to diffuse the emotional grip bils have over us by putting them in last place, making them unimportant. The other is to free up money so we can begin to pay ourselves. Paying the minimum on the bills is a tremendous boost in moving us from the credit card trap to the freedom of choice that comes with having money.

    What? Diffuse the emotional grip bills have over us? That sounds precisely like the kind of psychobabble crap you’d get from an author who’s made her paycheck by telling people what they want to hear. (It’s what the guys at Chase and Citibank want their customers to hear, for sure.)

    I didn’t think much, one way or another, of this advice back when I first read it. It didn’t make much of an impact on me, apparently, because not long thereafter I was back at the bookstore, buying copies of other (better) money books. (If memory serves, Mary Hunt’s Debt-Proof Living and Joe Dominguez’ Your Money or Your Life were the next guideposts on my debt-free journey. Both were, and are, fantastic.)

    What Keeffe advocates in her book, to be fair, is that one should pay the minimums on all bills until s/he has six months’ salary tucked away in savings. At that point, s/he won’t need credit cards any longer for month-to-month living and emergencies — making it easier to get rid of the things once and for all.

    FACT: When you take your focus off the bills and pay the minimum, the installment bills do go away.

    FACT: You can do it.

    FACT: Paying the minimum will make you want to quit using the cards and start living in the present.

    FACT: By choosing to pay the minimum on your credit card bills, you are taking action that says, “My goals and I are more important than the bills.” You have taken charge.

    I’m sorry, but Ms. Keeffe is reaching into the realm of the absurd. Readers who take this path are playing right into their creditors’ hands.

    Obviously, we’re all different in how we react to money. Perhaps Ms. Keefe’s advice would work for someone out there. Like all finance authors, she has plenty of satisfied-client stories dabbled throughout the book.

    But there’s a reason why card companies love customers who make minimum payments. And for an author to advocate that people do this for an extended period — how long would it take most folks to save up SIX MONTHS’ SALARY? — strikes me as … pathetic. And ridiculous.

    I suppose I could give this book away, but I won’t. Probably better that I keep it stuffed in a dismal corner of my bookshelves, never to escape and/or pollute the mind of some naive debt-choked consumer who thinks How to Get What You Want in Life actually offers a valid way out.

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  2. 9 Responses to "Paying the Minimum … Forever?" ...

    1. On July 12, 2010 @ 12:52 pm,
      Denise wrote:

      Wow. Okay, if I squint at this, it makes sense, to a point. It’s not all that far from DR’s suggestion of setting up an emergency fund before starting the debt snowball.

      If it gets the reader to break out of the financial rut, it’s good.

      However, the writer doesn’t seem to have a great grasp of money psychology. (Not that I do, either, but really, “Paying the minimum will make you want to quit using the cards and start living in the present.”? Since when?)

      Quick wins are good, the quicker the better. It takes some work to save $1000, but it can be done in a matter of months for many (if not most) people. Six months worth of expenses? Unless you’ve got some windfall heading your way, that’s likely a multiyear project. If you have some credit cards with $1000-$2000 on them, you could zap a half-dozen of those in the same time. And you’d get the thrill, the absolute knowledge that you are further on your way.

      If it breaks the reader out of the financial rut, I can’t argue with it. But… I don’t think it would have worked for me.



    2. On July 12, 2010 @ 1:32 pm,
      Michael wrote:

      To me, there is a WORLD of difference between Dave Ramsey’s plan of making minimum payments until you can get $1,000 (or sometimes just $500) saved up, and then throwing everything you have at your debts … and Keeffe’s strategy of making minimum payments for what will amount to eternity, simply due to human nature.

      Your average Joe and Jane Sixpack saving six months’ worth of salary before they even make more than a smidgeon of progress on their debt? Seriously?

      Maybe — MAYBE — one percent of folks can pull that off without ending up in a WORSE financial place than they were when they started.

      (At least Keeffe suggests that all but one credit card should be cut up. That’s worth something, I suppose.)



    3. On July 12, 2010 @ 2:20 pm,
      JENN wrote:

      Wow – I am so glad I’ve never run across that book. That is completely horrible advice. There are so many approaches to paying off debt, but I can’t believe anyone out there would feel good about paying just the minimum month after month and continuing to get a bill that never goes down each month. All that would do make me sick.



    4. On July 12, 2010 @ 2:50 pm,
      Denise wrote:

      Eh, it’s a continuum. The basic idea of getting an emergency fund *first*, before paying extra on debts, is fine. But how much? $100? $500? $1000? One month’s expenses? Two?

      When you get to the ends of the range, things are pretty close to black-and-white: one cent is too little, a million dollars is too much.

      In the middle of the range, things are mushier. $500 might be a perfectly acceptable first-step amount for one person, but another might need $2000.

      Having said that… I agree with you. I think six months savings is an unrealistic initial goal, and it’s setting the vast majority up for failure, where failure = eternal minimum payments + an emergency fund that never quite breaks the two-month level.

      It’s a good goal as part of an overall plan, but it’s too large at the outset. Like telling someone who’s 50lbs overweight that they should focus on running the Boston Marathon before they even start worrying about how many veggies they’re eating.

      It might work for a tiny percentage of people, but it wouldn’t work for me. (And by “tiny percentage”, I mean that I would be surprised if it worked for even the 1% MAYBE you mention. I’m thinking more along the lines of parts per million.)

      Combine that with the dubious logic of some of the other statements you mentioned, and the overall impression is that the author doesn’t really understand how the average person relates to money.

      Makes me wonder if the author’s views have changed over the past 15 years – and if they have, whether her writings reflect that.



    5. On July 12, 2010 @ 8:48 pm,
      Denise wrote:

      Huh. I’ve spent too much time in support forums, I think, because the more I thought about it, the more I realized what this reminds me of. There’s a website (flylady.net) for helping people (mostly women) get a handle on housework. It’s not to everyone’s taste, but the people who find success with it generally seem to be able to take what works for them and leave the rest: “I follow the FlyLady method, but I…”

      And I see this book as having the same potential. It may be nigh-impossible for 99.99% of the world to follow as written, but it may be a good starting point for rethinking the attitudes.

      And it wouldn’t surprise me at all to find that people who had success with Okeeffe’s methods ended up modifying things into a close approximation of Ramsey’s Baby Steps: “Well, I can’t justify saving six months of expenses, but I can do one month. And then I’ll start paying the bills in earnest.”

      But there, I’m projecting. I struggled to keep any amount of money in savings when there were debts to pay off. (I had $2000, but that was only because that was the minimum for free checking.) Beyond that? Ha. I wanted those debts gone gone gone far more than I wanted a cushy safety net of savings.

      In 1995, I was earning about $28000. Six months of expenses would have been about $8000. Keep $6000 extra in savings? Not a chance.



    6. On July 22, 2010 @ 11:21 pm,
      Lou wrote:

      That idea is the biggest bullshit I have ever read!



    7. On July 27, 2010 @ 8:08 pm,
      Shaun wrote:

      I got into thinking about that idea. Either ways have their own way but as to practicality, It still does not give justice to what its purpose is. Elimination of debt is something almost everyone adheres but it is also a hard work to do. For me, taking a dignified self control is the most effective way out.



    8. On February 14, 2011 @ 7:50 pm,
      Yadgyu wrote:

      Debt is a part of life. 

      The sooner you realize that, the less time and money you can waste trying to eliminate it. The debt really isn’t the problem: the worry about debt is. As soon as you become ambivalent to your debt, the better quality of life you can live.

      Besides, being debt-free is not going to make you rich. Many rich people are in debt and they even manage to get richer while being in debt. The fantasies about wealth were written decades ago. You NEED debt in order to get rich!



    9. On April 17, 2017 @ 10:32 am,
      Jason Brady wrote:

      I think you are being unfairly dismissive of what the author is saying.

      If you read the entire scenario it makes sense – because I’ve been there. I diverted money away from my living expenses to pay extra on credit cards…then, because I was short of funds for living expenses at the end of the month, used the same credit cards I was trying to pay down to make up the difference.

      What Ms. Keeffe is saying is to break the cycle by
      1) Stop using the cards
      2) Pay the minimum on the cards
      3) Take control of your finances and build a solid foundation
      4) After taking control and building the foundation, then pay off debt

      Yes, traditional wisdom says to pay off debt as soon as possible. But if we haven’t taken control of our budget and finances, if we haven’t broken the cycle of relying on credit cards to make up for shortfalls in our monthly budget, we are spinning our wheels month after month and never get anywhere.

      She is correct about treating our attitudes toward money as a psychological relationship. It’s all about conditioning, emotions, patterns we learned from childhood and developed through adulthood.

      Whatever techniques and ideas she presents that help us move forward and develop a healthy attitude (and practice) toward managing our finances are surely a good thing, right? Take what works, discard the rest.



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