The Ramsey Show - App - How to Pay Less for College and Avoid Student Loans (Hour 3)

Episode Date: July 20, 2018

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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. Thank you for joining us. Open phones at 888-825-5225. That's 888-825-5225. Ann is with us to start off this hour in St. Louis. Hi, Ann. How are you? I'm doing great, sir, and I know you're better than you deserve. I have a question. My husband lost his job in 2002, and he had to take a security guard job. And he was just getting so nervous that he couldn't

wait to get a full-time job. So him and I invested in this earring business. It turns out it was a scam, and the gentleman that made all these promises ended up going to jail for federal crimes, what is it, bank fraud, wire fraud, your fraud, my fraud, everybody's fraud. We invested $20,000, and we're supposed to get it back. My question is, how do I divide up the $20,000 and we're supposed to get it back. My question is, how do I divide up the $20,000? What I want to do is put $10,000 into the emergency fund and what could I do with the other $10,000?

We're both in our late 50s. All right. Yeah, I'd start the emergency fund. Do you have any debt? No, we're so debt-free. Debt-free doesn't even describe us. I love it. Good for you. Okay. Yeah, you make sure your emergency fund's in place, and then you're starting to invest long-term.

Do you have any money invested other than this? Yeah, my husband has $40,000. The $20,000 he took out of there because, and you're going to understand this being a male, he wanted to provide, and he was nervous in the service. He just wanted to make sure he could have enough money coming in. Every time I get desperate, I usually get stupid right after that, and that's what happened. And I told him, it's going to work out.

Be patient. And finally, I just said, okay, we we'll do it and i should have just said no because now we wouldn't have to be waiting yeah i'm not sure you're gonna i don't know why you think you're gonna get the money back why do you think you're gonna get the money well because what's going to happen is the courts have this guy in jail for five years plus the people that was working that were working with them and they have a lien against everything this guy owns. And there's a number of us that have pulled together a class action lawsuit on this guy. Yeah, but what makes you think he's got anything?

From the way it sounds, he does have something. It's just that they're waiting for him to get out of jail. He should have, no, I should have gotten, or I should have received my $20,000 last week. Okay. I hope so. I'm just being a wise guy here. I just want to know. Yeah, we do have an emergency fund, so we're fine there. I just want to take half of the $20,000, put that in and boost it up.

And the other 10 uh yeah i'm going to just move towards good mutual funds something uh conservative and uh as young as you all are i think the uh if he's still a security guard and that still makes him nervous then um you know the the real issue in this phone call is his career decisions and what he does from this point forward. That's much more important than what you can do with $10,000 above your emergency fund. I sure hope you get that money back. Truthfully, I'll be a little surprised if you do, but I hope you get it back. Lori is with us in Philadelphia.

Hi, Lori. How are you? Hi, Dave. I'm doing great. So glad to be able to speak with you. How are you? Better than I deserve. What's up? Wonderful.

My husband and I are wondering about priorities. We will have finished Baby Steps 1 and 2 by next month, debt-free except for the mortgage. And we have two teenagers. One is going to be starting college not this fall but next fall. And we really don't have much saved for college at this point. We owe about $250,000 on our house. We're wondering what's your household income?

Pardon me? What's your household income? After taxes, it's 92. Good. Okay. All right. Well, I would knock the debt out and obviously everything but the house, like you said you're doing, and then I'd finish your emergency fund of three to six months of expenses. That's not even in consideration. The next baby steps, and baby steps four, five, and six go together and happen at the same time.

Four is put 15% of your income into retirement. Five is vaguely mentioned as kids' college, which is a not vague situation for you. And six is you're not going to be putting anything on that right now, and that's paying extra on the house because your kids' college is going to sap everything you can get your hands on, right? Most likely. on the house because your kid's college is going to sap everything you can get your hands on right um most likely do we pay extra on the house even though we don't really like the house no i would pay extra you need the money to get your kid through school okay you have no money saved for college you make 92 000 a year okay you know it's going to be the strain point that's going to take every dollar above paying above putting money into retirement and paying and simply paying your house payment until you get the kids through school. It's not even going to come up.

You're going to have to squeeze every nickel to get the kid through school. A couple of points on getting a kid through school with no debt, which is your only option. Yes. And the biggest, by far, the biggest factor in going to college debt-free is college choice. Yes. Choosing a school that is within your budget. So choosing an in-state school, maybe doing community college the first two years and get some of the prereqs out of the way and that kind of a thing.

That's definitely our plan, yes. Good. The second thing is juniors are going to be working. Oh, yes. The third thing is?, yes. Good. The second thing is Junior's going to be working. Oh, yes. Yeah, the third thing. No doubt. Good. The third thing is right now Junior needs to start learning to apply for at least one or two scholarships every day.

He will be. Good. Because that'll help, you know, if you can get $10,000 or $12,000 worth of scholarships or $15,000 worth of scholarships, it changes this equation dramatically, right? So college choice, work, getting scholarships. The last one is a little minor, but it's worth fooling with, and that is make sure they're getting good high scores on ACT or SAT, depending on which way they're going, and even pay some money if you want to for them to take a class on how to more accurately take that test and

get their grades up. I was talking to a relative this last week that taking the test three times every time it has come up one to two points. Wow. And so that helps with the scholarships. It helps with admissions. It helps with a lot of stuff if we can get those test scores up on the ACT. And so concentrating on professional scholarships, signer-upper, and professional test-taker,

helps us qualify for more and more different scholarships and money and help and those kinds of things. And that'll get you there. So those things are the things we tell people on how to get there. That's the process. And so good luck with that. Okay. Hope it works out for you. But you got it on the run.

It's just going to be a tight time while they're in school because you don't have a lot of cash in your income with everything else going on to cash flow this but you can do it if y'all all work together and do the stuff i just talked about this is the dave ramsey show Can you believe this real estate market? Home shopping has become so competitive. There's a ton of new buyers in the market, and bidding wars are the new normal. Folks are under a lot of pressure to offer more money to get into that house. Don't do that. Get certified instead. The Churchill Mortgage Certified Home Buyer Program is a game changer.

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761 Old Hickory Boulevard, Brentwood, Tennessee 37027. Thank you for joining us, America. This is the Dave Ramsey Show. Lena is in Atlanta, Georgia. Hi, Lena. How are you? Hello, Dave. Thank you for taking my call. Sure. What's up? We are debt-free except our house. And I have a question regarding

my 401k. So I have after-tax contributions in my 401k, and my company has started offering Roth 401k as well, to which I'm contributing. And as a result of that, I have the option to convert my after-tax contributions to my Roth 401k. Correct. But in doing so, I have to convert the gains on my contributions as well, which is about $20,000, and which means I have to pay taxes on it. You'll have to pay taxes on the whole thing, not just the gain. Oh, I thought... You're moving it from an after-tax to a before-tax, and your gains are going to be taxable as well. So that whole portion of the account will be taxable.

Oh, okay. I thought I was told that because I'm converting to the Roth 401K, and because my after-tax dollars are already after-tax dollars, that I would not have to pay taxes on those. The Roth portion, there's no taxes on. The portion that you did before you converted, you did not pay taxes on it. It was before tax. You did the whole thing after tax? No, no.

So what I'm saying, so I have my regular 401K. Yeah, because that's what you're talking about converting, correct? No, no. I'm talking about only the after-tax contributions to my 401k that i want to convert to roth your after-tax oh you put after-tax not before-tax into your original 401k correct so i have my so my company allowed me to have my before-tax 401k, which I max out. Right.

And even once I max out, any contribution I make to my 401k goes in as after-tax contribution. Correct. Okay. Not many people do that. That's what was throwing me. Okay. Okay. Sorry.

So that portion you have already paid taxes on, correct? Correct. And you would only pay taxes on the gain on that portion, correct? Correct. I got you. Yes, you're right. You're right. So my question was, should I convert that after-tax to a Roth

and pay taxes on those $20,000 up front right now and let the money go tax-free in my Roth? Yes. Okay. Because it's going to grow to so much more. Assuming you can pay the taxes out of your pocket without touching this account to pay the taxes, can you come up with the $5,000 that's going to cost you in taxes or whatever it is?

Yes, you should be able to. Yeah, if you can do that, I would. And the same applies for the portion we didn't get to that I was confused about, your before tax. Okay. If you want to convert it over to Roth. How old are you? I am tax. Okay. If you want to convert it over to Roth. How old are you? I am 47. Okay.

And so all of the growth from this point forward on that would be tax-free if you make that conversion. How much is in the before tax account? It's about $250,000. Okay. That's a little stronger there. Yeah. So you'd have to come up with like $75,000 or something.

And so that might be something you want to look towards, though, in the next few years. Instead of doing other types of investing, that would be a great investment at some point. And you can actually move portions if you want to. Like out of your $250,000, you could move $100,000 one year and $ and $100 another year if you wanted to or something like that. As you save up the cash outside of there, I wouldn't touch the account. If you have to drain the account to pay the taxes, don't do it because there's no mathematical benefit. Okay. But it has the same effect of adding.

Let's say you move that $250 over and the taxes were $75,000. It has the same effect mathematically of having added $250,000 to your Roth. I'm sorry, $75,000 to your Roth. Okay. If you pay it out of your pocket. But you've got to have that as extra money and not disturb your emergency fund and not disturb the other things. But you're obviously in your household income making bank, it sounds like.

Yeah, you're doing pretty good. Yeah. You're up over a couple hundred, aren't you? Yes. Yeah, I thought so. Okay, cool. Very well done. Congratulations. You're up over a couple hundred, aren't you? Yes. Yeah, I thought so. Okay, cool. Very well done. Congratulations.

All right, Adam is with us. Adam is in Indianapolis. Hi, Adam. How are you? Hey, good, Dave. How are you? Better than I deserve. What's up?

Hey, not bad. I have a quick question. I am pure commission-based with a very small salary, and I have trouble making a budget or finding a budget every month. It's just because everything differs, you know, every time I get paid. Gotcha. Are you single? Yes, I am.

Okay. And what's your worst month been in the past, I don't know, six months or a year? Probably 15,000 to 20,000, somewhere in there. That's your worst month? Yes. Wow, you're killing it,000, somewhere in there. That's your worst month? Yes. Wow, you're killing it. Yep, doing pretty good. Well, so you ought to be able to run a budget on $15,000.

All right? Let's lay out a traditional budget as if you're on a salary of $15,000, because you're not going to dip below that. The only question is how much more you're going to make is what you're telling me, right? Right. I guess my average this year, I guess I'm on track for about 220 to 240, I guess, depending on where things pan out. So the number of times you drop below 15 a month is zero.

Right. Yeah. So run a budget out, a regular budget, as if you were on a salary of 15, meaning give every dollar a name before the month begins, every dollar an assignment, as if you were on 15,000. Then, whatever doesn't make the cut on that and you ought to be able to do a whole lot on that obviously okay you're killing right right you're killing it dude way to go proud of you and so then everything above that what are

we going to do well you still need a plan for every dollar before it comes in and here's how you do it okay after you've done your 15 budget, other things that you want to do, there won't be any needs, you will have covered your needs, but other things you want to do with money, other goals you have, saving or increased generosity or increased investing or a purchase of something that is above what is in your $15,000 a month budget, okay? I started paying off debts a few months ago. You ought to do a bunch of that out of the $15,000.

But, yeah, how much debt have you got? I've got about $65,000 in student loans, and that's about it. Okay, then that's going to be real high on this list. Extra on the debt is another one. And I've bumped up 10% on my 401K. I would stop that temporarily, and I would concentrate on this debt until the debt is done. Okay. All right, we're going to be debt-free.

Have your emergency fund in place. Those are your first two goals. Then we'll start investing again and start investing aggressively because you're going to have this huge cash flow with not a payment in the world. Right. Before I got to the debt paying down, I already had an emergency. I guess I had a savings set up that I haven't touched. How much is in it? I've got about $45 in in savings right now should i just throw that at the student loans

i'd throw like 40 of it at that okay and then maybe in the next two months pay off the student loan right right boom just like that you're done okay but back to our original question above your fifteen thousand dollar monthly budget make a list of things you want to do and then prioritize that list most important to you to least important and make that list longer than you could possibly make in a month what's your best month ever okay what's your best month uh probably 30 35 okay so20,000 needs to be on that list because we've already allocated $15,000. Mm-hmm. Okay.

And so we're going to plan for a $35,000 a month, and we're going to have $20,000 worth of stuff we would like to do beyond the $15,000 regular fixed monthly salary budget. Okay. All prioritized. And then however much you make above that 15, you go right down that list. Number one, oh, got that. Number two, got that. Number three, got that.

Oop, I'm out of money. Okay. Next month, do it again. Gotcha. And if that changes year to year, say I have a bad, I have a $12,000 a month, one to just, you know, drop it down and budget for that or just do worst case scenario? Unless that's a pattern, I would just pull a little bit out of savings and keep rolling okay you're gonna have built you need to build your emergency fund of three to six months of

expenses and pay off the student loan as your number one and number two on this priority list okay so you don't have a copy of the book the total money makeover yet i can tell no i don't all right i'm going to send you one. It's the step-by-step exactly what to do first, what to do second. And in the back of it are budget forms. One of the forms is called the Irregular Income Planning Sheet that will teach you again what we just talked about. But it will also give you what we call the baby steps,

which is what to do first, what to do second, what to do third. And if you've got $45, what do I do with that? Do I pay it towards the student loan? Yeah, I'll take it down to $5,000 and do that. And you're rocking and rolling, man. You're killing it. And you have to be really careful. You're in sales, and sometimes in sales we think we can out-earn our own stupidity.

So you need to get really nerdy and really organized on the budget because you're making bank, and you need to come out of this a millionaire. You really do. So hold on. I'm going to send you a copy of that is my gift, the Total Money Makeover. This is the Dave Ramsey Show. 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. Dustin is in the lobby of Ramsey Solutions. Heyin how are you mr ramsey how are you doing sir pleasure to meet you where are you from southwest missouri joplin springfield area cool very cool drove 500 miles to go swim in the pool such is hotel life with the little kids that's right there you go then they call that a vacation that's right we want to go downtown they want to swim in the pool seems like a fair trade to me how can i help today mr ramsey is uh solar panels considered a debt since how you would already be paying for electricity

if you're borrowing money to buy them yes that, that would be a debt. I would not recommend that. There's a lot of things you could borrow money to buy that would save you in savings somewhere as much as the payment, assuming it does. You could do that with, like for instance, I put some real high-grade sealant-type insulation in my home when I was building it. It was an upgrade. It costs more than standard insulation does. But the break-even on that is I paid more for it, but I'll get that back in utility savings. That is true with solar panels. The current version of solar panels, especially depending on the area of the country you live in,

your break-even on it is very reasonable because the technology is advanced on them, and they're just really efficient compared to the old ones. You know, they're really a good thing. But, no, I recommend solar panels, but I do not in certain situations for certain people in certain areas of the country more than others because you just run the math on it, you know, and, you know, I'm going to spend $12,000, and it's going to save me $1,000 a year. Well, that's 12 years to get your money back. Eh, not so good, okay? and it's going to save me $1,000 a year. Well, that's 12 years to get your money back. Eh, not so good, okay?

But it's going to save me $4,000 a year. I'm going to get my money back in three years. Hey, that's pretty strong. If you got the 12 grand, that's probably a good play. Okay. You know, and you look at, that's called a break-even analysis, which is how they sell solar panels, but they sell them against payments a lot of times. Right. But the thing is, if you have a payment and a payment book with a bank, you have a debt.

That is borrowing money. And you can even say that in business. I'm going to borrow money to buy a truck, and the truck's going to make me more than the payment costs me. It might, but it might not, too. And then you've got a truck payment. And so if something happened with the solar panels or something happened with the worst year of weather that we've seen or something, and we didn't see the sun or something weird, I mean, not crazy weird, but just a little more cloud cover than usual, your break-even analysis changes, suddenly you're paying a payment. You're in the red on the thing.

So, no, I don't borrow money on hopeful repayment on things and not to call that debt it's debt i figured that's what you'd say i'm fairly predictable yes honor to meet you enjoy your time in nashville you too thanks for coming by wendell is with us wendell's in kansas city how are you wendell you're fine how are you better than than I deserve. How can I help? Well, we just started our Baby Steps, and we're on Baby Step 2, my wife and I. And she's wanting to put the mortgage in Baby Step 2 because the amount is low, and I want to get your opinion on that. She's wanting to put the mortgage in Baby Step 2 because the amount is low. How low is it?

It's $19,000. Okay. And what is her household income? Our household income is $63,000. Okay. And how much other debt do you have? Right now, our only debt is $13,000 in credit cards. Okay.

Well, here's the point. It doesn't matter much. Yeah. Okay. Because here's the point it doesn't matter much yeah okay because here's what it matters by putting it in baby step two you're going to do it before you have an emergency fund and before you start putting 15 of your income into retirement uh and before you start doing anything for kids college have you got kids yes. So what I would do is to say, you know, if you make it baby step six with your numbers out of a $60,000, or it should be, you're going to be putting 15% of your income, which is $7,000, $8,000 a year into retirement before you get to this, it's going to delay paying off your home about two years by putting it in there. But you're going to have retirement underway during that two years.

You're going to have an emergency fund done during that two years. And that's really the only difference we're talking about is about two years. So if you want to do it, that's what the consideration is. I wouldn't. I'd make it baby step six. I want you to pay off your house, and I agree. It's a very small amount, and you're going to knock it out. And so I think it changes the numbers about 18 months to two years based on what I'm hearing.

You're still going to pay off your home, but it's going to be about 18 months later using baby step six, maybe two years later using Baby Step 6. That also depends on how intense you all are, how much your income goes up during the next three years. Because from here to debt-free on the house is only about three years from today. And so otherwise it would be, if you put it in baby step two you'll be there in 18 24 months so yeah it really it doesn't change about 18 months it really doesn't okay so i i would leave it there because i want you to get your emergency fund in place and i want you to get your retirement underway and even if you just start 50 a month on the kids college it's not much but you get

something started on it then knock out the house and come back and beef up retirement and beef up college is the way I would get after it. So good question. Good question. It's cool that you're there, man. I mean, that small amount is a nice place to be. Merritt is with us in Little Rock. Hi, Merritt. Hi.

Thanks for taking my call. Sure. I got a divorce about a year ago and got into some financial problems, which I resolved through paying off debt. I've recently become debt-free except for my house. Good for you. Thank you, except for my house and car loan. And I have a car loan because my car was totaled last year. They didn't give you insurance money?

They didn't give you insurance money they didn't give you insurance money they did but i listened to everybody else telling me you're a newly single mom so you moved up in car yeah so how much do you owe on your car about seventeen thousand dollars what's your income um here's where my income per year per month per year or per month? Per year. $116,000. Wow. Good for you. What do you do? My second problem is I bought too much house. I'm a physician assistant. Okay.

Good. Good. So what is your house payment? $1645 a month, but total housing costs with insurance utilities is around $2,000 a month. And with the car payment and with a child in daycare, I find myself, even at this level of income, living paycheck to paycheck. So I kind of wonder, should I bite the bullet, sell my car, and just take the equity I have in the car to buy a used car and then put that money towards baby step number two. You don't have anything in baby step two except your car?

Yeah, I mean, put the money in the baby step three, building up the savings. Okay, all right. Do you have any money? To balance the cars? Do you have any money at all? Sorry, go ahead. I have money in checking in and savings totaling about $4,000. Okay.

Do you have any retirement? I do. I have retirement through my company at work, and I have an individual IRA that's worth about $50,000. Good. Are you putting money into it now? I'm putting money into retirement at work, but not into the Roth separately. Stop. Okay. Stop putting money into retirement at work but not into the Roth separately. Stop. Stop putting money into retirement at work?

Yes. Stop putting money into retirement, period, while you're in baby step two and three. Retirement is baby step four, 15% of your income. You're trying to do too many things at once is where your strain's coming from. Okay. Your numbers are, I agree with you, you bought a lot of house and you bought too much car given that you couldn't pay cash for it, but it's not too much car for the money you make. Okay. So would I sell your car? Do you like it? I like it

and it's only 0.9% on the financing. I don't care about that. Okay. There's nothing that makes the car loan smart. That's stupid, period. But if you like the car, it's only $17,000. You make over $100,000 a year. You can get that paid off and keep it, but you're going to have to completely concentrate on that. No eating out, no vacations, a written budget on everydollar.com every month,

completely focused. And you should knock that out in six months. Then you should knock out your emergency fund in another six months. I wouldn't sell you the one. I'd tighten up your budget, if it were me, and tighten your lifestyle down. You're probably doing a little bit of spending on you and the kids as you continue to grieve this divorce process. That'd make you normal, if you were. But I'd tighten that down rather than sell my car if

i were you this is the dave ramsey show guys let's talk about that timeshare pitch that you fell for they promised you exclusive access to travel anywhere you want, tropical beaches, mountain getaways, or whatever. Oh my gosh. They claimed it was the affordable way to travel, and then they convinced you it was a good investment. But here's the deal. Search any auction site for your exact timeshare and see what it's selling for. It's listed for a dollar with no bids. That's not a good investment. Now, I know I'm just adding salt to a very old wound, but look, if you tried calling the resort and they won't take it back, if you tried selling it and no one will buy it, call Timeshare Exit Team.

Timeshare Exit Team will get you out. You'll have to be patient. It can be a long process, and it costs money, but it works. They're so confident in their exit service that if they don't get you out, you get a 100% refund. Call 844-999-EXIT. It's free to talk. 844-999-EXIT. TimeshareExitTeam.com. our scripture of the day ephesians 4 32 be kind to one another tender-hearted

forgiving one another as god in Christ forgave you. The Dalai Lama said, if you want others to be happy, practice compassion. If you want to be happy, practice compassion. Christian is with us in Lynchburg. Hi, Christian. How are you? Hey, Dave. Thanks for taking my call.

Sure. How can I help? Yeah. So I've got a bit of a situation here. I'm looking to go back to school in the fall. Me and my wife recently bought this house, and at the time I was not thinking about going back to school. But now I've been interested in the medical field, and I plan on going back to school, hopefully to med school, very soon.

And so right now we have a little bit of debt, but we have too much debt, $27,000 to be exact, and that has been some old school loans, $3,000 on a credit card, and then like a debt consolidation loan that was around $7,000. So basically with all that and our mortgage payment being about $805 a month and our energy bill being a little bit over $200 a month, we are a little bit pinched on, you know, month-to-month expenses and income. So we're just a little bit tired of living paycheck to paycheck, and I would wonder if you would advise us to move into an apartment

and rent at a cheaper rate per month. What is your household income? Household income right now is, let's see, I think it's $3,600 a month. But I'll be going back to school and won't be able to work part-time. How much of the $3,600 is you? Half, exactly. Wow. Yeah.

So how do you intend on getting through med school? Because it doesn't sound like you can live on her income. Right, yeah. So med school, and that's the thing. We were thinking about selling eventually when I go back, but I have to do prereqs for a year, prerequisite classes, before I can go back and get into med school. And how are you going to pay for those?

Right now we have about $3,000 in savings, and then she gets a tuition benefit through the school. So those will cover part of my classes. Okay. What will cover the rest of your classes? So we'll be paying, that we calculated, about two classes out of pocket, and that would be approximately $1,000. The rest of the classes will be covered for free.

Okay. So you've got a plan to cover the classes with a tuition plan, basically, and $1,000 of your $3,000. And will you be quitting to go do that uh yeah because the the classes are about at the full-time load um and i'll be doing working part-time as much as i can um being a scribe at the local hospital and what does that pay um that pays only nine dollars an, but it also provides good experience, and it looks good on your resume for med school acceptance.

But you've got $27,000 in debt. Correct, yeah. And you're taking a sucky part-time job during this process, and it's not going to move that debt at all because you're going to be starving to death. Right. I think you're going to have to have two part-time jobs. That's what it sounds to me like. You're going to do the scribe job, not for the money, but for the resume,

and then you're going to be delivering pizzas for money. Because if you're going to deliver pizzas five nights a week, you can probably make another $1,500, which is about what you're making now. Yeah. And you add that with the scribe money and you go to school, you're not going to get a lot of rest, but so what? You're young. Right. And, you know, you can get through this and maybe you can get that debt cleaned up.

I probably would move to a cheaper property. Okay. Because the good news about Lynchburg is you actually can rent something cheaper than $800, right? True. exactly. Yeah. And because you need – that $400 swing didn't sound like – you know, if you move from an $800 to a $400 one-bedroom or something, it didn't sound like much when we first started talking. But your income is so low, and it's going to be even lower, that you're going to be facing –

you're going to have to make those kinds of decisions to make these goals happen. Because I really do want you to make some progress on this debt while we're doing all of this. Sure, sure. Because if you can knock that out, if you could go into med school debt-free by having worked your butt off while you were doing all that undergrad stuff, that would be a very good move on your part, a really good direction to go for sure. So good question. Thanks for calling in.

I hope it works out for you. Gene is on Facebook. Is there a recommendation for the amount to put in a 529 plan for college? No, there's not. Because it depends on the age of the kid as to how much you need to be putting in there. The older the child, the more you need to be loading that thing up because you're late to the game. But if you'll fund it about $2,000, $3,000 a year for a baby, you'll have plenty of money

for them to go to college. Katie is with us in Milwaukee. Hi, Katie. How are you? Hi, Dave. Better than I deserve. How are you? Better than I deserve.

What's up? I just actually graduated residency, so the opposite of the previous caller. Oh, yeah. And I have a huge debt of about $500,000 from medical school and a little bit from grad school. It's my only debt outside of my home, and my question is, where would that fit in my baby steps, given that it's so big? How did you get a half a million dollars for med school well i had 50 000 um from graduate school i have a master's degree and then um i went to a private

medical school that was about 60 000 a year and i wasn't married at the time so and they don't allow you to work in medical school so i i didn't have any living expenses so you went to a very very expensive med school is what you're saying. Yeah, exactly. You paid double what other people paid. And I lived down south in Fort Lauderdale. You paid double what other people paid. Right.

Good Lord. So you have a specialization? I'm sorry, what was that? What field of medicine are you going into? Oh, I'm a family medicine doctor. And I'm just about to start my new job as an attending. As a resident? No, no, no. I'm finished with resident.

Oh, you're finished. I just finished. And so my schedule is about to get very big. And I just want to know how to do this. So what is your income? Right now, my husband and I make together about $150,000. With a new job? No.

With a new job, we'll make about $400,000. Okay. Then you don't do anything. You clean this debt up. Right. You are in a very deep, unbelievable hole that is taking my breath away. That's the bad news. The good news is you have a very large shovel.

Use it. Right. Live like a college student and pay it off as fast as you possibly can. Should I not pay for retirement? No. Just pay this debt off quickly? No. You should do nothing but get rid of this disaster that is looming over your head as fast as possible. $400,000 means you're going to pay taxes of about $150,000,

and you're going to live on about $50,000. So that leaves you about $200,000. It's going to take you about two and a half years to clean this up. But you're not doing nothing. No vacation, no cars, no houses. Don't go out to eat. Honey, you should be scared. Get rid of it.

Fast. Got it. scared get rid of it fast got it because if something if something happens to you you know that causes you to have an inability to work for some reason at the level that you're working now you have a really serious nightmare of a situation right the only saving the only saving grace in this conversation is your fabulous income oh yeah and my husband and i paid off both of our cars and his student loans and this is our only debt left besides our home and so great do it do it all right very very very very fast and then then think about it then you've got a four hundred thousand dollar income to live the rest of your life with oh my gosh i know i don't know what i'm

gonna do with that kind of money they They didn't give, I guess. Outrageous generosity and change your family tree. Sounds awesome, Dave. Thanks so much. Hey, thanks for calling in. That takes my breath away. I can't imagine $500,000 in student loan. Good news is she got a great job.

Oh, God, thank you, Lord. Oh, my goodness gracious. That puts this hour of the Dave Ramsey Show on the books. Thanks to James Childs, Blake Thompson, Zach Bennett, and the booth. I am Dave Ramsey, your host. We'll be back with you before you know it. In the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus.

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