Scary Story: Billed for Service I Never Received

In the middle of December I received a bill for $5.30 from Sprint. There's nothing remarkable about this except that I've never had a Sprint account! I immediately called the customer service phone number on the bill. It only took a few moments to reach a live operator. "There must be some mistake," I told her. "Why am I receiving this bill?"

The operator tried to explain. "Well, sir, the Federal government recently approved a monthly fee for certain types of accounts." Notice how this phrasing is meant to make you believe the government is levying this fee.

"No," I said. "I don't care about all that. I mean why am I receiving this bill? I don't have a Sprint account. I don't think I ever have."

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Two approaches to debt elimination

Nearly every financial adviser — from accountants to brokers to books — advises that debts should be paid off in a particular order: from highest interest rate to lowest interest rate. While this method makes sense from a mathematical point of view, it makes less sense from a psychological point of view.

The Traditional Approach

Assume a typical young woman in her mid-twenties who awakes one morning to realize that she's in debt and who decides to do something about it. She might be burdened with the following hypothetical liabilities:

  • $20,000 college loan at 5%
  • $8,000 credit card balance at 12%
  • $2,000 computer loan at 10%
  • $3,000 car loan at 4%

Most financial gurus would advise that the debts be paid off in the following order:

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More about...Debt, Import