The Ramsey Show - App - How to Go From Stressed Out to Debt-Free (Hour 2)

Episode Date: January 1, 2019

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🎵 Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. You jump in. We'll talk about your life and your money. It's a free call at 888-825-5225. Carmen is with us in Pittsburgh. Hi, Carmen.

How are you? I'm doing well, sir. Thank you for taking my call. Sure, man. What's up? Oh, I got a question. My wife recently just got a new job. Her old retirement wasn't a lot.

New job's a lot better. And we didn't know whether to roll it over into her new retirement, or if we took that, we could just about wipe out all of our debt, minus the house and a couple thousand. How much is in the account? Approximately $13,500. $13,500? Yeah.

And what's your household income? Right now, it just went up to about 85. Cool. Okay. And, well, what we normally tell folks to do when you leave a job anytime, whether you got debt or not, is do a direct rollover, a direct transfer rollover into an IRA, a traditional IRA, in good growth stock mutual funds. There's no taxes due if you do that.

If you were to pull this money out to do what you're talking about, the government charges you a 10% penalty plus your tax rate. You are in the 25% tax bracket, plus 10 is 35. So it's kind of like saying, Dave, I want to borrow $ to borrow 13 500 at 35 interest to pay off my debt you would never ask that question okay you wouldn't do that i'm sure would you absolutely not yeah and that's why we tell you to roll it over the only time we tell you to cash out retirement to pay off debt is if it's to avoid a bankruptcy or foreclosure and you're certainly not facing that you're just excited about getting out of debt, which I'm happy for.

Yes. Yeah. So let's get a SmartVestor Pro. If you don't have a mutual fund investor to help you, a mutual fund advisor to help you, just jump on DaveRamsey.com, click SmartVestor, and you'll find a list of people that we endorse in the Pittsburgh area there for you. And you can sit down with them if you don't have somebody, and they'll help you do that rollover, and that's what you need to do.

Sarah is with us in Denver. Hi, Sarah. How are you? Good. Thanks for taking my call. Sure. What's up? I am wondering about bankruptcy.

I didn't think we would end up here, but sure enough, we are. We previously already had about $82,000 in debt, and then I had a medical emergency with no insurance that put me in the hospital, and now on top of that $82,000, I have a $65,000 medical bill. So that puts us around $147,000 in debt. And I didn't calculate our take-home pay but adjusted gross income is only about eighty thousand okay and and uh what is the other eighty thousand dollars in debt break it down for me i have twenty seven thousand in credit card debt we have forty two thousand

in two car loans sixty eight hundred in a signature loan, $700 in a personal loan, and we still owe $600 on cell phones. Okay. No student loans? No student loans. Okay. All right. Well, there's two kinds of bankruptcy, Chapter 13 and Chapter 7, that are primarily available to somebody in your situation. Chapter 13 is where you pay a payment plan, and everyone gets repaid some or all of what

they are owed, but they are kept under control while you do that to keep them from suing you or taking something or garnishing your wages or that kind of stuff. Okay. The second type of bankruptcy is called a chapter seven. And that's what we usually think of when we think of bankruptcy, and it's the atom bomb dropped on it. It's the clean slate, okay? And under Chapter 7, you're allowed to keep a certain amount of personal assets and your personal exemption, it's called, and it's different from state to state. I don't know what it is in Colorado. It's typically around $10,000 worth of stuff,

which usually means like your used furniture in your house you could keep. Do you own your home? We don't. We're renting. So we're definitely thinking Chapter 13 because we need to keep a vehicle. We have a big family, so we could probably sell one of the vehicles, but the other vehicle is a passenger van. So it's not like we could sell it and buy a car.

We wouldn't be able to transport everybody. So you have a large family. We do. It's myself and my husband, and we have seven children. Okay. So Chapter 7, in a Chapter 7 as well, going back to that, you can only keep secured assets if you agree to pay them. So you technically could file in 90-something percent of the cases, you could file a Chapter 7,

wipe off everything that you've given me except the cars or car. If you want to turn in one of the cars, you could. But you can reaffirm the debt if the lender will allow it, and most of the time they will. Reaffirm the debt. And so you would just pick back up and keep paying the payment. If you don't pay the payment, you don't get to keep whatever it is as a lien against it. So you're going to come out of this with one car or two cars with debt against them, regardless of which type of bankruptcy you go through.

Okay? Okay. So that's all a possibility. And they do what's called a means test, which is a mathematical formula when you sit down with the attorney that is mandated by the federal government because bankruptcy is federal court, that to see if you can repay, I think the means test would likely throw you into a payment plan. You're probably not qualified for a 7. That's what we were thinking.

Yeah. So it probably throws you into that and you're so basically in a chapter 13 you're going to pay all of this or some percentage of it and um so i never really understand why you would do a chapter 13 if that's the case why not i think for us we we're having a hard time monthly every month we're so barely making it so if they could so don't pay it you're acting like this is a debt consolidation bankruptcy is in the same category as divorce Monthly, every month. We're barely making it. So don't pay it. You're acting like this is a debt consolidation. Bankruptcy is in the same category as divorce. It's what you do after you've tried everything else and the world has come to an end. We have tried everything else.

I was a stay-at-home mom. I'm now working at home while my kids sleep. My husband's working 40 to 60 hours a week. I mean, we're not making it. What's the balance on the passenger van? $31,000. How many children do you have? Seven. Okay.

You're going to have to get a used old passenger van. You have too expensive a passenger van. I know, I know. And I even told my husband, that's what you were going to say. But the thing is, really and truly, and I'm not making an excuse, the old ones don't have headrests, and they're so dangerous for kids. I mean, their necks can snap in accidents because they don't have headrests. You're talking to someone who used to sleep in the back window of a car.

Not buying it. And I'm not asking, you know're you literally have made this such a drama that your children's lives are at risk because the car doesn't have a headrest come on darling i mean that's just absurd seriously your family is completely broke you don't even have health insurance and you're talking to me about headrests. This is just crazy. So I think you can work your way through this with some coaching, but you're going to have to sacrifice some things. I don't think bankruptcy is going to give you the land of rainbows and skittles that you think it's going to give you.

It might. You can work your way. You can try it if you want, but you call me, and I will tell you, I would move down in van, I'd sell the other car, get a beater for daddy, and I'd work it from there. Thanks for the call. I get asked all the time, when in the baby steps is the right time to buy life insurance? My answer is typically now. Life insurance is not part of the baby steps because it's needed when your family has debt

and not enough savings to provide for their financial needs. That's when they're at the highest risk. And no matter where you are in your baby steps, it's a necessity, not a choice. This includes working husbands and wives, as well as stay-at-home parents. It's pretty expensive to replace those stay-at-home parent responsibilities. I only recommend term life insurance since it's the most affordable way to get the right amount of coverage and not break your budget. Go to Zander.com or call 800-356-4282.

These are the guys I personally use. Term life insurance is inexpensive and your family needs this no matter where you are in your baby steps. That's Zander.com. Or call 800-356-4282. Zander.com. Thank you for joining us, America. This is the Dave Ramsey Show. Tim is in Grand Rapids, Michigan.

Hey, Tim, how are you? Not too bad, Dave. Yourself? Better than I deserve. What's up? I have been recently divorced, and through that I was able to become debt-free through your program. Cool. With the one exception of I screwed up prior to listening to you and co-signed a student loan for my second son, who has now not paid the student loan,

and I just found out from Wells Fargo that they have written it off. And I owe $53,642.48. And I don't know the best way to do it. Well, is it a federally insured student loan? I believe so. Yeah, it's a Sally Mae loan then. Okay. All right.

Well, the problem is when you co-sign something, it means also sign. And if the person that is the primary doesn't pay, you're liable. And so you're 100% liable for this is the problem. And I assume he's going to do nothing. That's the plan for him? Right now, I don't believe he can. Okay. And what do you make a year?

$60,000. Okay. And I'm you make a year? $60,000. Okay. And I'm guessing you don't have $53,000 laying around, right? I do not. You know, they offered a settlement of $34,861.11. Really? I know. I don't have that sitting around unless I draw it out of a retirement fund.

Really? We've already given half of that away to my wife. That's why. Okay. retirement fund. Really? I've already given half of that away to my wife. That's why. Okay, there's something wrong, because you're not going to get a settlement offer that low on a Sally Mae government-insured loan. This is not a Sally Mae loan. Okay.

It's through Wells Fargo, that's all I know, a student loan. Yeah, it must be a private student loan. Okay. What kind of school did he go to? He went to Full Sail University down in Orlando, Florida for computer animation. Yeah. Or he went for computer programming. Yeah, he didn't get a Sallie Mae loan. Is that school still open? Yes. Okay.

Do you have the ability to borrow it anywhere else? Because, I mean, you're getting a deep discount here to get rid of this thing. And, you know, if you could put together even $25,000, I'd offer them that. I mean, do you own a home you can get a second mortgage on? No, that's what I sold and got out of debt. So I rent right now, and with this on my credit, I'd have to find a friend or family. Yeah, don't want to do that.

No, no, don't want to do that to anyone. Okay, how much is in the 401K? I think I've got about $80,000 left. Yeah. Here's the problem. You pull money out of that 401K, you're in a 25% tax bracket. You're going to get hit with 25% plus 10% penalty, 35%. And they're not discounting it that far.

Or they're discounting it about that far, actually. But so what I would do is one of two things. First thing I'd probably do is just tell them I can't pay you anything. It's bad credit. It's bad on your credit. It's just sitting there. And then I would get about the business of piling up cash as fast as you can pile it up. Because if you waive $20,000 or $25,000 cash in front of their nose, they're probably going to take it.

But it's going to take you like a year of beans and rice to put that together, right? Right. And that will get rid of the loan completely. It will be completely gone at that point. And for your son and for you. So, you know, that would be a way to do it. But it's not going to make mathematical sense to cash out the 401K to do this. Okay.

So the only thing I hear is the only place I hear for you to make money is income. And, you know, how much does your son make a year? He's trying to be self-employed. I think that's the biggest issue. From what I've gathered from him is he's got enough to pay his rent and pay his electric and food. So he's single? He's single.

How old is he? He's 27, and him and I are going to have a big discussion on getting his butt out and working. Yeah, yeah. Because he's going to pay me back, but he's going to also help me get this thing taken care of. Exactly. I think you pile up as much cash between the two of you as quickly as you can. And again, I'm thinking if you wave 50 cents on the dollar you know 20 25 thousand dollars under their nose they're going to take it because i'm thinking they they don't

figure they're going to get money they figure this is gone and you're just settling basically this is regardless of what it what kind of a loan it was originally it's basically a large unsecured personal loan that the two of you have signed. And that's the way Wells Fargo is looking at it. And so they're running the numbers going, this 27-year-old, this self-employed is not going to pay us. This recently divorced guy making 60 grand is not going to pay us. We're up a creek. That's what their numbers are telling them.

Okay. And before I do anything again, get everything in writing that they agree to, correct? Always, always. Okay. But I'm going to make them some kind of a cash offer that I throw, you know, because I've thrown some money in a pile and able to do that in the next year or so between you and your son and the two of you lock arms and say, okay, we have a mutual problem here that we're going to mutually jump on and solve.

And that's how I would do it. Scott is in Boston, Mass. Hey, Scott, welcome to the Dave Ramsey Show. Thank you very much, Dave. I had a quick question. I'm in the process of selling my business and getting our personal financial lives together and moving forward. And I went to get a payoff balance on a couple pieces of equipment that we had leased that I thought had a dollar buyout at the end of the lease.

And apparently it is a fair market value lease. And so they proposed, you know, the fair market value, you know, settlement figure, if you will. And he indicated that, you know, if I disagreed with it, I could come back with a different proposal. And I'm wondering if there, you know, is there sort of a rule of thumb as to what to propose back to a leasing company for something like this? No. I mean, it sounds like they have title to the equipment,

and if you don't settle with them, the equipment's going back to them, right? That is correct. And so if you put their shoes on and walk around for a minute you can kind of understand how to negotiate we have to take this equipment back we have to go through the legal proceeding to do that and then we have to sell this used equipment and so you know truth is you're not going to get quote unquote fair market value if i go through all that if i'm the leasing company and so um you know i'm just going to shoot low and i'll tell you the other thing you could do is this you could just say look there is no possible way i'm able to do that so you guys need to come at me with something that's very real and very low and very quick and okay and get them to name the next number. They might name a number lower than you were getting ready to shoot at them with.

Okay. Well, the number they've come back with is already below what it would get on the open market. Well, so what would it get on the open market? About 15 or so. Okay. And the number they came back with is what? Seven. Okay. And you're getting came back with is what? Seven. Okay, and you're getting what kind of proceeds out of the sale of this business?

We will have just enough, I believe, after everything is settled to pay off all the creditors and walk away. Including the seven? Including the seven, yeah. Okay. But I'd like a little more breathing room. Okay. Well, I mean, then, you know, you're not going to trim 7 a bunch. No.

Because it's just 7. It's not 70, you know. Okay. And so, you know, if it were 70, we might jump on it at 50. But if you jump on it at 5, you know, using that same ratio, you know, they may take that. And that gives you a little bit of a breathing room. But there's not, it's only $7,000. So it's not going to be a lot, no matter what you do. But, you know, if you just turn around and make them an offer somewhere in there,

whatever you do, be sure you get it in writing. Oh, yes, yes. That this amount is settling this deal completely, and with each of your creditors that you're cleaning up, make sure you're getting, you know, your settlements in writing as you go along, because it may come back to haunt you later. Some of these people have short memories or the people that work there don't work there anymore two years from now, and that makes it for another short memory and just a bad deal all the way around.

So always get it in writing. If it's not in writing, it didn't happen. This is the Dave Ramsey Show. Are high health care costs getting you down? Are you confused trying to navigate your options? Do you wish you could find an affordable, biblical solution to your health care costs? Based on New Testament principles, Christian Health Care Ministries, or CHM, helps Christian families, churches, and ministries join together as the body of Christ to share their major health care costs. Christian Health Care Ministries is the

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Stephanie is with us in Richmond, Virginia. Hey, Dave. I see on my screen you're debt-free. Congratulations. Thank you. Thank you. It's been a long time. Way to go. How much have you paid off? $48,600 in 21 months. Good for you. And your range of

income during that time? I started at $45,000 up to $68,000 with a bunch of part-times and then back down to $47,000. Good for you. Well done. What do you do for a living? I currently work in a brewery in Richmond as a taproom and events coordinator. Oh, good for you. Well done. What do you do for a living? I currently work in a brewery in Richmond as like a taproom and events coordinator. Oh, good for you. Cool. And what kind of debt was the $49,000? Oh man, what it wasn't. I had a car loan, a house loan to bridge when I sold my house. I had a student loan, 401k, credit cards, nine of them. I owed my parents some money. I had an iPhone, taxes, and then even lawn care. You were a mess. Yeah, I was. I really was. Wow. How old are you? I am 32. So what happened at your 30th birthday 21 months ago? Sounds like that's about the time, huh?

Yeah, right before I turned 30, actually. But yeah, so it goes back a lot further than that. It actually started back in 2008 when I bought the house. I was making like $24,000 a year. And with a cosigner, they sold me a $185,000 house that I most definitely could not afford. Ouch. Yeah, so once I got into the house, it just felt like crises just started happening left and right. Like a branch fell through my skylights the first month I lived there. Yeah, so once I got into the house, it just felt like crises just started happening left and right. Like a branch fell through my skylights the first month I lived there.

I lost my job eight months later, and it just kind of felt like I was always in crisis. So just kind of always living off credit cards and just kind of wondering, you know, what the heck was going to happen next. So it kind of just, so it goes all the way to the fall of 2015, right around my 30th birthday, I was hiking. I broke my phone while I was hiking, and I didn't have the money to even replace it. Not just the replacement money, but to do the $200 to get the insurance money. So I knew it was pretty bad when I couldn't even afford $200 in any of my accounts or even on my credit card. So it was pretty terrible. So that kind of was the final straw like I've had at Moment. Awesome. Yeah.

So then what happened? So the very next morning, very next morning, I woke up and I Googled how to get out of debt, and I just kind of found a bunch of different people, and more than a few people kind of wrote something like, I paid off $20,000 in nine months on an income of 40 with a family of four. And then I kept seeing your name pop up, and I kept wondering how can this family, and I'm a single person, how can they pay off all this money, and I can't do it as a single person.

So I kind of felt very ashamed but also really, really mad, which is obviously what it takes to get going. So I just kind of got your book from the library, read it twice in two days just because the information wasn't enough the first time. I had to read it again. So I just kind of started going, every dollar, the podcast, the book, and then eventually Financial Peace. Sort of towards the end of the journey, I just wanted to make sure I wasn't missing anything, so I took it back just like four or five months ago. Wow.

Okay. So the Financial Peace class ends up being the icing on the cake rather than the push. Yeah, it sort of felt like I was kind of like the old kid in the class because I was watching people kind of say the same excuses that I had before I started, so it was kind of enlightening to see it from the back end. I guess so. You were probably handy to have around to smack a couple of those and get them heading in the right way.

No, I would never do that just because I, no, no. You would think so, but no, no, no. It wasn't like that, and it just was more enlightening in the fact that it helped me reaffirm that I was on the right path, and that even though I wasn't debt-free quite then, I was almost on the way, and it felt really nice. Yeah, but you ought to be able to look at them and go, I used to think that way too, and now I'm winning. So you ought to, you know, oh, my gosh, it's an encouragement. It's not just smacking them, but hey, good for you.

Congratulations. What do you tell people the key to getting out of debt is? You paid off $49,000 in 21 months. Just a lot of what everyone says, not going out, not spending money, sticking to a budget. Every dollar was amazing. I started using it, I think, six months after you guys put it out, and it just, on my iPhone and on the computer, I just, I use it every single day. I check it three times a day just because I like to see what I'm doing. I'm kind of the nerd of myself, so I just like to kind of just see where I am every single day.

And every time I put something, it's just a behavioral switch. So you pay a toll. You pay for coffee. I don't go anywhere until I put it in my every dollar. And that just like retrains my behavior. Gotcha. Well, well done. Good for you.

That's fun. That's very fun. So was it worth it, all this sacrifice? It really was. It's actually a whole mind shift. You talk about doing something that's really hard just for a season of your life. And so I had lived stressed out through my whole 20s. And then I just decided to rip the Band-Aid off and just work 70 hours a week and do a bunch of different part-time jobs to get things done. And now that

I've been out of it for five or six months, I just, it, I can't believe I used to be that person who was stressed out all the time and cried and wondered if my credit card would go through. So now it just feels good. And, you know, I'm on, you know, number step three, just trying to save up for my three to six months and then just kind of move on from there. There you go. Well, well done. Good job. Good job. Proud of you. Did you have more people cheerleading or detractors? I had a very supportive friend system and parents. So even if people don't understand it, I think because I had such a firm resolve and I wasn't going to let, you know, people don't really make fun of me,

so I wouldn't stand for it anyway. Well, you had that I had it moment, which changes the way you walk. Right, right, exactly. Once you're disgusted with yourself, there's nothing that anyone could say could make you feel that way again, or I would want to feel that way again. So, yeah, no, very awesome parents, very awesome friends, and you find out who your friends are when they're there on the other side still asking you to hang out. So, yeah, so it's good.

It's very good. Yeah, after you go through this swamp that you went through. Well, congratulations. Well done, well done. You did it really fast. It's amazing. Yeah, yeah. You've been working like a crazy person.

Yeah, it helps. It helps to pick up a bunch of different jobs. What was the best part-time job you had? Well, actually, the job that I have now. Best paying. The one that I have now. So I started the working in the taproom and events coordinator job at the brewery. Started as a part-time job making not very much, and then through other people being let go and then me showing myself,

they put me in a pretty decent managerial position, and I was able to make it my full-time job. Wow. Cool. That's neat. Part-time job evolves into a different career. That's cool. Yeah, yeah. It's also freed me up because I've always had a couple of part-time jobs plus a full-time,

so now that's freed me up to quit my part-time job, which I had a couple months ago, and now I'm kind of getting into the health and wellness certified personal trainer kind of realm right now. So that's freed me up to do that. You're ready. This is awesome. Well, we've got a copy of Chris Hogan's Retire Inspired book for you. We want that to be the next chapter in your story, that you're a millionaire and outrageously generous along the way.

Way to go, Stephanie. $49,000 paid off in 21 months, making $45,000 to $68,000. Count it down. Let's hear a debt-free scream. Three, two, one. I'm debt free. Love it. Well done. Very, very well done.

That's as good as it gets right there. That is fabulous stuff. Heath is on Facebook. Dave, what is your opinion of businesses who no longer accept cash you know i don't think much about it most of them are doing it um for one or two reasons one is they're just think they're cool they think it's cool do you know like it like cash is like old school or something and they want to be cutting edge in technology or something. A few of them do it because their sales are higher with plastic sales than with cash.

They generally sell more that way, whatever it is. Some of them, you know, I don't know of any of them. Very few that I run into do it on a philosophical basis, like they don't believe in cash or something. So I don't think that much about it. I mean, uh, you know, in some situations I might walk away and not do business with them because I'm a cash guy. I might not have anything, but cash in my pockets, I can't do business with them. Uh, at that moment that could happen.

Um, but most of the time, if it's, you know, if it's not some kind of weird thing or something, I'll just use my debit card and buy something and go on. I don't think that much about it, whatever they want to do. Um, but it's, it's kind of stupid because you cut off part of the number of transactions you can do because there's a certain number of people only do cash and you cut your, you know, you cut your market share down when you do it. So from a business perspective, it's pretty stupid, really. There's a large number of transactions still done in cash, especially depending on the space Ramsey Show. We're glad you're here.

Sarah is with us in Jonesboro, Arkansas. Hi, Sarah. How are you? Hi, Dave. Good. How are you? Better than I deserve. What's up? Thank you so much

for taking my call. We were just wondering we have about $90,000 to $100,000 in equity in our home. We bought a short sale and we've considered selling it and we could be completely out of debt and have

our three to six month emergency fund fully funded if we did that and just bought something smaller or i don't know if we should just keep the house we love our house but we just know there's so much equity in it yeah and how much debt do you have, not counting the house? We have $45,000. And what's your household income? $120,000. If you like the house, I would keep the house and just pay off the debt over the next year and a half. Okay.

But you need to be willing to cut your lifestyle and, you know, get on beans and rice and clean the debt up fast. But you should pay off $40,000 out of $120,000 in way less than a year. And it's really just cars and student loans. I mean, I'd sell cars before I'd sell a house. Right. Okay. Now, if you like the house, I'd keep the house. I wouldn't do that. I do love the house. How much do you owe on the cars?

We've got three different cars at about $10 to $11 each. Okay. So most of this is cars. Right. Why do you have three cars? Teenager? No. Husband.

Mm-hmm. Okay. Farm truck, work car, family vehicle. Long before I had toys that I had debt on, and I would sell those long before I'd sell my home. Okay. I mean, I'd be driving three hoopties in 20 minutes before I discuss selling this house. Right. But I'm not sure you even have to do that.

You make enough money to get all this paid off in a year. But you guys are going to have to get serious about doing this. Right. Yeah. Is he? Yes. He's on board. He's on board.'s on board on your program um for a while we've kind of lost our intensity somewhat but yeah if we get refocused we could definitely pay them off

if you like your house i would get refocused to be intense and or sell some cars and get out of debt but i think you can keep them all you can afford them all, but you need to get them paid off. And, you know, 40 as a percentage of 120, you're making plenty of money to get this mess cleaned up in well under a year. And so I wouldn't sacrifice my home when you can do it that quickly. But that does mean you're sacrificing almost everything else lifestyle-wise. You're going to have a year of no life, but you're ready for that, I hope. If you're not, then it's another discussion.

Colin is with us in Mississippi. Hi, Colin. How are you? I'm doing just fine. How are you, Dave? Better than I deserve. What's up? I've grown up listening to your program.

I'm 19 years old. I've grown up listening to your program. Right now, I'm a student in college, up listening to your program. I'm 19 years old. I've grown up listening to your program right now. I'm a student in college and, uh, I followed your steps. I moved to a cheaper school, uh, right now only pay $1,200 to go there per year. Wow. And, um, I have $2,500 in an unsubsidized loan, so I don't have to pay on it till I'm done with school. My question is right now, should I save up money to pay, help pay for my master's? I plan to go to seminary. I'm declaring my life to church work, and I want to become a minister of music. I'm wondering, should I just not pay on that since it doesn't accrue any interest on that

and save as much as I can to ease the burden of that master's degree instead of just trying to put – I make about $350 a week now of part-time jobs doing church work. I'm wondering, should I just pay that off, or since I don't have any interest on it, should I just leave it there? How much is it again? It's $2,500 from my last school. It was a bad choice of school, and I've gotten it down to that by now. You've gotten it down to $2,500?

Mm-hmm. Okay. Your first goal is to do whatever Further education you're going to do Debt free So your first goal is save up enough to make sure you can have that happen Then your second goal would be to clear this debt But

No more borrowing Period And so you've got to draw that line in the sand And so what you do there is just Yeah you save towards your future education Until you've got that draw that line in the sand. And so what you do there is just, yeah, you save towards your future education until you've got that covered. You lay out the budget. When you've got that covered, then reach over. If you continue to earn past that, then you reach over and knock the debt that you've got left over from the other school out as fast as you can.

So, hey, good question. Sarah's with us in Portland, Maine. Hi, Sarah. How are you? Hi, Dave. Good, thanks. I'm calling to ask. I'm an FPU.

I think we're on week five or six. And I think I've done some things backwards, so I'm just looking for a little guidance from you. I'm still contributing my 401K. I have three months of savings. I started myself and got my other half in November. I'm down to $11,000 just left of my debt, and I just don't know if I should be doing something different because I am chipping away so much of this.

All right. And what is your household income? It's just mine currently, but it's $94,000. Okay. And you have $94,000. Okay. And you have $11,000 in debt left. And how much do you have in your emergency fund? $7,931. $8,000. $8,000, yep.

Okay. All right. And normally what we tell folks to do, the baby steps are stop investing and take any money that is in non-retirement savings and throw it at your dad down to $1,000, which is baby step one. So in your case, we would stop the 401k investing temporarily. Okay. stop the 401k investing temporarily okay and we would throw eight thousand dollars at or not eight thousand dollars we would throw seven thousand dollars approximately at your debt which leaves you four thousand you're going to pay that off in like one month or maybe two at your current rate am i right yep exactly Okay. So because you're doing that so quickly in your case, you're going to stop the 401K,

and by the time you get the paperwork done, you're going to restart it. Right. Yeah, so I wouldn't stop it because it's just right there. But the proper execution of the baby steps, as you said, would be to stop it until you have your emergency. Well, wait a minute. You don't have your emergency fund done by then. No. So, no, I am going to stop it.

You are? Okay. Yeah, I am going to stop it because I want you to build your emergency fund back before you, up to three to six months of expenses. And, I mean, unless you are limited to no i would just stop it i would stop it you can probably start and stop it twice a year and so i would just stop it and then once you get your emergency fund in place of three to six months and you're debt free other than your home then i would restart the 401k and yeah that's exactly what we do and here's the thing folks some

of you are freaking out that are just the first time listening or whatever. I know you're missing out on the match. I know you're missing out on compound interest. It's six months in this case that we're talking about here. And so it's not like it's going to change her world. What does change her world is the ability to focus on one thing. When you focus on one thing emotionally, spiritually, mathematically, it changes everything. It causes you to get traction we're in an area called money where most people never get traction

if you will focus on a clear path submit yourself to a plan submit yourself to a proven process you'll get traction you'll see the results and you know you can do anything if you're seeing results when you're seeing results you keep going you ever try to lose And, you know, you can do anything if you're seeing results. When you're seeing results, you keep going. You ever try to lose weight and, you know, you go down to the Y and you're just sweating, sweating, sweating, sweating, you gain three pounds? You know, nobody keeps doing that unless they're weird. But if you go down there and you sweat and you sweat and you lose three pounds, then you lose two pounds, then you lose six pounds.

And, my goodness, I've lost 15 pounds. I've lost 20 pounds. I've lost 30 pounds. You look up and you go, oh, my gosh, this is working. Then you'll stay with a plan where you're able to see legitimate progress. But you will not stay with your monthly budget. You will not stay with your savings. You will not stay with your growth of your money.

I mean, the whole process, you won't do it. You just won't do it if you're not seeing the progress. Traction is probably one of the most powerful psychological ideas out there. You've got to get traction in any area of your life to continue to do whatever it is you're doing. If you want to change something, you've got to see the results to stick with it. And that's why we teach this stuff the way we teach it. That puts us out of the Dave Ramsey Show and the books. Our thanks to James Childs, our producer, Blake Thompson, our senior executive producer,

and Kelly Daniel, our associate producer and phone screener. I'm Dave Ramsey, your host, and we'll be back. Hey, guys, it's Kelly Daniel, associate producer and phone screener for The Dave Ramsey Show. Hey, this hour of the show is over, but you can find our podcast on iTunes or Google Play. We're everywhere, for free, here to serve you.