The Ramsey Show - App - I’m Scared To Only Have $1000 for Emergencies (Hour 2)

Episode Date: January 18, 2023

George Kamel & Jade Warshaw answer your questions and discuss: "I'm scared to only have $1000 for an emergency fund" from the blog: Is a $1,000 Emergency Fund Enough? Why you should never pay your girlfriend's student loan, "Should I buy a truck at 19 years old?" "How quickly can I get this debt paid off?" Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Want a plan for your money? Find out where to start: https://bit.ly/3nInETX Listen to all The Ramsey Network podcasts: https://bit.ly/3GxiXm6 Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

Девочка-пай Live from the headquarters of Ramsey Solutions, broadcasting from the Pods Moving and Storage Studio, it's The Ramsey Show, where America hangs out to have a conversation about your life and your money. I'm George Camel, hosting with my good friend Jade Warshaw this hour, and we want to hear from you. Give us a call with your questions at 888-825-5225. 888-825-5225. Andrew kicks us off in San Jose. Andrew, welcome to the show. Thank you. What's going on? So I'm having a really hard time getting behind the idea of dropping my savings down to $1,000 and trying to pay off some debt I have. Okay. How much debt do you have?

Well, I have two car payments. One of them is about $24,000. The other one is about $72,000. I hope your income is just baffling. Blow us away. What is it? My income is I think I made around $210,000

last year. Okay. I feel better. I do feel better. Okay. So you got two car loans. What else? That's it. Okay. Do you need both cars? Is there another person in the picture here? My wife.

My wife has one eye and the other. Okay. And are you guys combining finances? So is that all of the debt between the two of you? That's all. She's saving all my eye work. So tell us more about this issue with the emergency fund, the $1,000 saved. So my guess is you have a bunch of money in liquid cash right now.

How much do you have? I have about $42,000. Okay. And you want to get on the Ramsey plan? I do. My biggest issue with it is that going under $1,000 to me is just scary, especially when you have random bills and expenses. An example for me is I had a dishwasher go out in December and I had a fence fall

over in the last couple of days. So to me, going down to that low is just, I don't know if I can personally do that or not. Well, here's the thing. It's not, it's not, it's temporary. It's not for the long haul. This is a very temporary action so that it lights your butt on fire so that you get this debt paid off super fast. And in your situation, you've got a great income. You've got

money saved. There's no reason that you can't get out of debt very quickly to where that thousand dollar emergency fund is a distant memory. And pretty soon you're going to be up to having three to six months of savings. So it's not intended to be a long-term fix. And the reason we say that is because many people can make the argument, George, that, oh, $1,000, it's not enough. What happens if this happens or what happens if that happens? But the fact is 36% of Americans have no money saved. And those who have a little bit of money saved, they don't have $1,000. 56% of Americans could not pay for $1,000 emergency. So Andrew, that's why we have it set up that way. It's multi-purpose. So in this case, you knowing that you've got a family, you knowing these things,

you're going to work even faster and be more intent about getting out of debt. And here's the thing. It's $1,000 emergency fund. But if something were to happen, you still have your normal monthly cash flow, right? It's not to say that you wouldn't be able to add more money to that in order to make a repair or make something happen. I can tell you from firsthand experience, it took us seven and a half years to get out of debt. We had four hundred and sixty thousand dollars of debt. We had a $1,000 emergency fund. And do you want to know what happened? We'd use it and then we'd have to replace it. Then we use it again and have to replace it. That's, I mean, that's what it's there for. And if it was something that costs a little bit more than what we'd have to do is we'd have to sell something or find a way to get that money.

And we always could. And I think that you'll be surprised at how well that thousand dollars serves you. And even for my area, which is generally a bit more than most, it's a thousand is still sufficient, you find. Yep. Well, it was never meant to be sufficient because truthfully we go, well, it should be 15, it should be 3,000. It should be 6,000. Yeah. You could say. I mean, a new roof is more than $5,000. So let's make it $10,000. Right. So part of it is to get people started on the plan. Obviously, you have an incredible income. And so let's just do some napkin math here. You said you've got $42,000 in savings. So if you took that down to one, that means you can throw $41,000 at that $96,000 of debt. Which means the first car's paid off.

And now you free up a payment and you're left with $55,000 left, right? Now you make $210,000. You could throw probably $10,000 a month at this debt, right? Give or take. The one thing I would say is I get paid bi-weekly. So technically speaking, I'm missing a portion of that because I get two extra payments one to two different months. Sure. So it's slightly different is how that works out. But roughly each month you could probably throw about 10k. And so this debt is, if you do the Ramsey plan, in five months you're completely debt free. Yeah. And then those next few paychecks, restock that emergency fund back up to $30,000, $40,000. And so we're talking a period of six to eight months to do all of this.

That's right. If you get gazelle and tents. Now, the other side is... My fear would be is it might be a little bit longer than that because we have a mortgage payment to also take into account and do it. Okay. And is it a reasonable mortgage for your take-home pay? That's $3,000 a month is my current mortgage,

which everyone tells me is good. Yeah, I mean, your take-home pay is what? About $12,000 or more? $3,000 a month is my current mortgage, which everyone tells me is good. Yeah, I mean, your take-home pay is what? About $12,000 or more? $15,000? Yeah, it varies from, yeah, it's about $12,000 to $15,000, give or take. California taxes. They'll get you. Then you're fine as far as the percentage of your mortgage.

But, I mean, think about what George was saying. If you take that savings, you knock out that first car payment, $24,000. How much is the car payment on the car that's worth $24,000? The car payment is $500 a month. You're freeing up $500 a month right there, just right there. If you had an emergency, suddenly you have $1,500, not just $1,000. Do you see what I'm saying? So it's kind of like understanding that the $1,000 is there, but you still still have your income you still have the money that you're budgeting every month and there's always something

that you can cut down slim back whenever you know if murphy does come into your house a new budget this year i definitely have little room in my budget to pay more for things so that's fine yeah no i think i think that the baby steps works for everybody you know everybody you know it's it's fine to have questions about it and we're happy to answer those questions but i want you to go into this andrew knowing that this is the proven method this is the smartest way to do it and in your case like like george said you're going to be out of this in six to eight months okay yeah let's go do it like jay said if something happens you get another fence that falls down well we're just gonna pause the baby steps and go all right the next paycheck goes

towards replacing the fence that's right and uh you don't lose any sleep over it and so that's the the truth about the thousand dollars is it's not as big of an issue as people make it out to be because you have future cash flow coming in that That's right. And it's okay if you pause. And you know, something else I like about the $1,000 saved George is it forces you to calm down, to pause and think about your actions. Because a lot of times something unexpected happens. And we think we got to do it now, you know, and you start spending this money, you put on a credit card, you pull your savings. But you want to know what? If your washer and dryer breaks, do you know what? You'll be okay. You'll be okay for a while.

You'll be okay. You don't have to go to Home Depot that night and replace it. You don't even have to go that week. You want to know what I did? I drove over to my mother-in-law's house. I did my laundry over there until we had the money. That's what's up. It makes you wait.

It makes you think. Think! We have the illusion of safety when we have a pile of money in the bank, but yet we owe a lender $96,000 with interest. It's a facade. I feel a whole lot safer getting rid of that and being back in control of my greatest wealth building tool, my income. I love it.

We're rooting for you, Andrew. Thanks for the call, man. Good call. This is The Ramsey Show. I'm George Campbell, joined by Jade Warshaw this hour. Our question of the day comes from Jake in Maryland. Here's what Jake has to say. I've been dating my girlfriend for three years, and she's in her first year of med school. She'll have over $300,000 of student loan debt by the time she graduates. I'm planning to propose to her after I graduate and get a good paying job a year from now.

I'm 24 and I'll graduate debt free with a finance degree later this year. I've got $20,000 in savings and I'm wondering if I should use that and the income I'll have for my future job to help pay for her med school since her debt will be mine once we get married. I don't like debt, and $300,000 just feels overwhelming to me. I don't know if it's a good plan to pursue, and my parents don't think I should do it since we're not married yet. I was initially planning to use my savings to put a down payment on a house once I graduate and get a job. I would like to get a second opinion on this. We'll give you that. We might give you a third one. Yeah, we'll give you some opinions, Jake. Here's the deal. Until you're, and this is for everybody, until you're married, we don't suggest combining

finances. We don't suggest paying for your girlfriend's this, paying for your boyfriend's that. Even if you're fiance status, we don't suggest going to that level because here's the thing, you don't know if it's going to work out. And if it doesn't work out and you've dropped the 20K that you've painstakingly saved for a home down payment, man, you're up a creek and you're feeling terrible at that point. Now, let's talk about this 300K in student loan debt. Let's just pretend, George, that everything goes right, that in a year from now, he's able to graduate. He pops the question. She says yes, and they get married. Let's say that happens a year from now. Then, and only then, they could start talking about, okay, how are we going to pay this debt off together? But until then, it's simply just a conversation. They can start plotting out.

They can make sure they're on the same page moving forward. And that's probably where you need to start, Jake, is having some conversations with her because you're not okay with debt, but she was okay with taking out $300,000 of debt. And you guys need to have a conversation about that because if she's okay with debt and you're not, then you guys are going to run into some friction ahead. Now, I would advise this,

if she hasn't already taken out the student loans, because you said she's got a couple of years until she graduates, let's try to convince her to pay cash and pay as she goes, slow down a little bit, see if she can find some programs that'll help supplement her education so that she's not having to go into this student loan debt. There is always a way to pay for school. And we have a Ramsey personality here, Christina Ellis. She specializes in that, George. She was able to earn over $500,000 in scholarships and went to amazing schools. Vanderbilt, man. She's way smarter than me. Yeah. So I'm telling you, there is a way to do this I think you

need to have that conversation but I do not I repeat I do not want you spending your money on her education especially now in this boyfriend girlfriend zone definitely not in the fiance zone not until you get married what do you think George well the end of the question was I want to use my savings for a down payment on a house once I graduate and get a job. And the truth is, if you plan on marrying her, this could delay that dream. Good point.

And that stinks. And that's one thing that debt does to your life. It delays your dreams. And if you don't believe me, go watch Borrowed Future and hear the numerous stories about how student loans have held people back from becoming homeowners. Hope deferred makes the heart sick. from having kids. And it's heartbreaking. And so I would suggest you two sit down and watch

that together and you can help her develop a plan to try to graduate debt-free, but don't put a dime towards it. And I would pause on this home purchase until we know more. Are we going to get married? Because Lord knows she's going to want to move somewhere else and you didn't pick the right place and the wall color is not the right one. And so I would just put pause on this. Keep saving up that down payment. Have the emergency fund in place. You keep living your life debt free and have those values conversations around money. That's right. Thanks for the question. Good stuff. All right. Let's go to the phones. Mason is waiting for us in Indianapolis. Mason, welcome to the Ramsey Show.

Hello? Hey. What's going on? Well, I'm looking at buying a truck. All right. And I'm also looking at buying a house, but it will be a flipping house, so I want to make some money off of it. I'm wondering, though, if I should buy this $12,000 truck, which is kind of, it's towards the top of my budget, or if I should buy a less nice truck for like $7,000 or something like that. What's your income? My income, I'm making, I'm paid by the hour. I'm getting 17 an hour and I'm usually getting 2,200, 2,500 in that range every month. Okay. So between 2,200 and 2,200. Yeah. How old are you? I'm 19. Where'd you hear about all this house flipping stuff? Well, I work construction with my grandpa.

It's really just me and him doing our own kind of business. And I guess it was from him. Okay. Well, you know, I'm in the boat of focusing on our primary residence for you first and getting that paid off. And later on down the road, we can become real estate investors. But at your age, I would focus on, what does my future look like? How do I get my income up? Are you debt free? How much money do you have saved?

27,000. Oh, awesome. And part of that's your emergency fund? Yeah, I guess so. I don't really, I don't know. I'll figure that out later. I don't know how much. We'll figure it out right now. Take a month of your expenses and multiply it out. Let's call it by four months. What does that add up to? Probably 10, 12 grand. That's a big emergency fund. I was thinking 5,000. Whoa. Well, do you not have any expenses? Are you renting right now?

What are you doing? No. Well, I live with my parents. Okay. So that's one expense taken care of. I do have a phone bill, so that's $50. And then I don't pay insurance. I'm with that on my dad.

And I don't have truck payments or car payments or insurance, but I am going to pick that up once I buy this truck and have insurance payments. So based on my estimate, if you're working full-time, you're probably making right now about $27,000 to $30,000. And so I wouldn't spend more than that $12,000 for a truck. You've got the money. I want you to do this in cash. Don't go near a car loan. They're going to try to sell you on one when you walk into that dealership or wherever you go to buy it. Don't fall for it. So I would start looking for a $12,000 truck if that's what you need. If you don't need a $12,000 truck, get something cheaper. I'd rather

you have more money for your future goals like a down payment. Okay. So, and I would focus on a primary residence for you first.'re only 19 man you're so far ahead of the game already that's right so imagine what happens if we can double your income what kind of work are you doing right now uh construction right now we're uh working remodeling a funeral home cool and you're working with your grandpa is it his business yeah and he kind of just owns the job it's not a like a company are you going to take this over one day or are you just wanting to do your own thing it doesn't really matter if i take his company or not and we're not that big it's kind of a word of mouth business

uh potentially but i would rather make my money through real estate. Yeah, I like what George is saying. I think that we do this right and we do it in the right order. And it seems like for you, you know, the truck is right on track. You know, it's right in line with what you're earning. So it's not it's not overboard. But after that, you know, you're living at home, your expenses are low, save up and save up to buy whatever you're doing with either a very large down payment or in your situation, you're doing with either a very large down payment or in your situation, you're a young guy, you might be able to save up and eventually buy something outright in cash. Yeah.

I mean, I was 32 before I spent more than $6,000 on a car. Yeah. And so you got plenty of time and you're not doing anything irresponsible here by going, I need a truck for work and I'm trying to spend 12 grand. Now that's going to be an older truck. It may not be fancy, but it'll transport your materials just fine. And so the part of the emergency fund now is what happens when something happens to the truck and what happens when you're on your own and you're renting or you're a homeowner and you've got to cover the big bills like the HVAC goes out. And so that's why we want you to have a

fully funded emergency fund. But man, you're doing great. Sure. 27K in the bank at 19 with no debt, wanting to continue a debt free life. This kid's going to be OK. I just love that he called us. I love that these 19 year olds are calling us George. I don't know what I was doing at 19. I was a knucklehead. At 19, I was couch surfing. I was sleeping. I was sleeping on a friend's couch. We lived in the apartment and there were no rooms left, so I got to sleep on the couch. It's like that. No more couch life. Took control of her money.

That's what it's all about. We're pulling for you, Mason. More of your calls coming up. 888-825-5225. Right here on The Ramsey Show. I'm George Campbell, joined by Jade Warshaw. This is The Ramsey Show. And on the debt-free stage, we've got some special guests with us. Jim and Debbie are here. How are you guys? We're doing great. How are you? We are so glad to

have you. Where are you guys from? Buckeye, Arizona. That sounds wonderful. I've been there. Wow. Really? That's a fun fact. Fun fact. I never heard of it. Well, we're glad you made the trek to Nashville to celebrate your debt-free journey with us. How much did you pay off? $708,719.60. Woo! Oh, no! I am bewildered is the only word for that. Okay, how long did that take?

32 months. Wow. Okay, now I'm extra bewildered. Yeah, I have so many questions. A lot of stupid tax in there, George, trust me. What was your range of income during that time? Averaged $180,000. Okay.

Okay. There is so much to unpack here, Jim and Debbie. Yes. Tell us how this happened. What got you on this journey? How did you get here today? Well, we got started in 2020 with the pandemic. We took Financial Peace University at our church. We've got to give a

shout out to our coordinators, James and Charlotte Green, and our pastors, Ron and Sue Rockwell at Harvest Church in Peoria, Arizona. Took the class and I'm not really sure, but it just clicked for us. We were sick and tired of being sick and tired, and we just knew we had to get out of the mess we created. So you had almost three quarters of a million of debt. What kind of debt was this? We had about, we had 150,000 in consumer debt between IRS, credit cards, a lot of stupid tax. We had a piece of property in there, just credit cards maxed out and just a bunch of it. We're just getting started with 150. What's the rest? Well, then we have our, we're self-employed. We're fire protection contractors in Arizona

with the backflow plumbing side. And we have a business. So that had an industrial condo that we had a mortgage on. Okay. And then we had our personal residence. So we've also paid off our house. Wow. Weird people.

Goodness gracious. What a 180. We're happy to be weird. I'll tell you. What was the mortgage worth? $300,000. Wow. Guys.

What's your personal residence worth today? Last we checked, Zillow was about $650,000. Oh my goodness. My goodness. Are you guys Baby Steps Millionaires? We're close. We're on the short side of the retirement side, so we've got some catching up to do there, but now we've got a lot of money and a

big shovel so you're gonna be there once that stock market comes back yep you guys will be right there oh that's so exciting we're hooked up with a smart investor pro in arizona already he's been guiding us the last year and a half so we're on track that's incredible so how does it feel i mean you've paid everything off you don't have a payment in the world I mean how long has it been by the way since you paid off that final debt July 11th of 22 oh so you're just out here living yes ma'am you get that money and it's your money how does that feel tell the people how it feels wonderful um I just had to share with Jim here a while ago that when you have your mortgage payment, that's a clue to pay your electric bill, the light bill. Okay, honesty here.

I have been late a couple months because no mortgage. You forgot about the bills. You know what? I'm here for that. I'm not mad at that. Transparency, you know? Wow. I love that.

She said the money does not matter so much that I am not even thinking about it. I forgot about it. Turn the water off again. I am that I am not even thinking about it. I forgot about it. Turn the water off again. I am not mad. Jim, Debbie, I'm confused here. The numbers don't add up. Tell us how you paid off $708,000 in 32 months. That's a good question. Well, we just have a big shovel, fortunately, and we worked a lot of extra hours.

Did you sell stuff? Well, we did. We sold the industrial condo that the business was leasing from. And with the proceeds from that, we paid off the home mortgage and the condo mortgage. So what were the net profits you used to throw at the debt from that industrial condo? How much of the 708 was the sale? 560. Wow. I love it. I love it i love it and so another you know 150 or so that was all you guys hustling grinding sacrificing using your income and putting it to good use we hit the ground running in march of 20 and we didn't stop till december of 20 and we worked ungodly amount of hours we just we were just working all the time and we didn't have a side hustle our side hustle

was our extra business work that we could create through the inspection work that we do and we just piled it on just put the work in i saw on my screen there's bags of coins tell me tell me what's up with the coin bags of quarters are please after the class you know they talk about getting your thousand dollar in your emergency fund well we have a five gallon jug of at home of change that we would just throw in there well we got so excited we went home and emptied out the jug that night didn't go to bed till like two in the morning just sitting out the piles all over the wow i love this i am in love that is some next level sacrifice right there it really is you do this is a lesson to all the people don't don be afraid to count that change now. The coins count.

It all adds up. The coins count. Shocking how fast it adds up for sure. I bet. So you guys were clearly running your business, kind of leveraging some debt to run this thing. Are you now running the business debt free as well? Yes, we are. Wow. Does that change the decisions you make? Oh man, yes it does. Big time.

That's incredible. It's funny when you have debt, you don't think about your dollar where it's going. But now since you're out of debt, it's like, okay, where's that going to? Why is it going there? And you protect it a little bit better. Yeah. When your business is in a much safer place. We saw with the pandemic, so many got wiped out because they were leveraged out their eyeballs.

And the ones that were running with cash went, all right, we got money in the bank. We don't owe people money. We're going to be safe. We kind of stumbled on that in the pandemic because we thought it was going to shut us down as well. But with all the commercial properties not being open, they got a lot more of the work done, repair stuff done. So that became an opportunity for us. And we just capitalized on it big time. That's so great. So so tell me what's the plan now you've paid off all your debt you worked like maniacs you saved up the coins what is the plan now how are you guys celebrating this well we've done this today is our 35th wedding anniversary congratulations

thank you so i was gonna say what's the secret to getting out of debt but what's the secret to 35 years of marriage marry a strong God-fearing woman. Let's go. And trust her, baby. Let's go. I still got a long way to go there, but that's the secret. Have you guys ever been debt-free in 35 years of being married? We have not.

Wow. Never. This is new territory. This is a new frontier. New frontier for sure. So what do you do? You're here to celebrate, obviously. Is there anything else?

I mean, you're here in Nashville. What else? We did. We've done a couple of trips. We went to Wisconsin and gave my dad a surprise 85th birthday party last year. And we've done some travel

to Colorado this past year and got some furniture for the house. I've got a barbecue island going in when we get home. So y'all better live like no one else. Just have fun, man. You know, the barbecue island is the new American dream

for men out there. Should be for what it costs. That's for sure. Goodness gracious. Well, we are so proud of you guys. We're honored to have you. Happy anniversary. We're going to give you an anniversary gift today.

It's the Live and Give box that includes Dave's bestselling books, The Total Money Makeover, Baby Steps Millionaires. That's the next chapter for you, as well as a year of Financial Peace University. Maybe you go back through it again, take a friend with you. Maybe you give it away and get someone else started on their journey. Is there one other thing that I can share, please? Please. This was a scripture that came on early on in the journey for us, and it really ministered to me a

lot, especially in the hard times. It's Ecclesiastes 11.6. It says, In the morning sow your seed, and at evening withhold not your hand, for you do not know which will prosper, this or that, whether both alike will be good. Jim is preaching. Yeah, I love that. Very encouraging. That's so good. Oh, my goodness.

Well, what an incredible story. You guys have accomplished so much in 32 months, and it's a great reminder that it's never too late. Even after 35 years of marriage, the old dogs can learn new tricks, and I'm talking about Jim. Debbie's as young as ever. You guys ready? All right, we've got Jim and Debbie from Arizona. $708,000 paid off in 32 months, making $180,000,

selling the industrial condo off the business to help clear this debt. Count it down. Let's hear a debt-free scream. Ready? Three, two, one. We're debt-free! Woo!

And just like that, another one bites the dust. Almost three-quarters of a million dollars. And they just decided. They just decided. These folks don't have business debt. They don't have a mortgage, George. It's just such a great reminder that in today's world, you can decide. You can decide.

They went 35 years of marriage and never were debt-free until this moment. Wow. That's powerful. Can you believe that? You have the choice to America. You could be the next Jim and Debbie, regardless of your age, regardless of how much debt you have. You can do this stuff, but it has to start today with your I've had it moment. You go, I don't want to live like this any longer. My future is too important for me to stay in debt, giving my money to lenders every month. I want to build a legacy. I want to build a future.

And that is how it's done. Amazing story. They're heroes. Jim and Debbie, y'all are heroes. I'm proud of you guys. This is The Ramsey Show. I'm George Campbell, joined by Jade Warshaw this hour. Well, about this year on The Ramsey Show, we get flooded with calls because everyone's looking for a fresh start with their money, especially after a tough couple of years. So if that's you, you can't wish for things to change and expect it to happen. You've got to do some things differently with your money and you've got to have a plan. And we can teach you that plan in Financial Peace University. This is the course that will help you rethink how you manage your money and you will learn step-by-step how to pay off debt and how to build wealth.

And nearly 10 million people have taken FPU now. They followed this plan. They've changed their lives. It works. Don't try to reinvent this. And when you intentionally follow this plan with focused intensity, this year will be different. You'll have more peace in your finances and in your life.

So get started today. Go to ramseysolutions.com slash FPU. That to ramseysolutions.com slash FPU. That's ramseysolutions.com slash FPU. John is up next in Dayton, Ohio. John, welcome to the show. Hi, thanks for having me. Absolutely. What's going on? I wanted to call. I'm about $34,000 in debt, $14,000 through a personal loan, $11,000 on a credit card, and then I owe $9,000 to a family member. I kind of took the personal loan out in a panic and just want to see what your guys' opinion is on it, on what I can do with that. What was the panic about?

Just to pay off the money that I owed. So you don't owe family anymore you do i do owe the family uh nine thousand still okay so it only paid off some of what you owed the family yes interesting okay what's your income um together with my wife is our take-home is about $75,000. Great. Okay, so what's your question today? Basically, the personal loan has a pretty high interest rate. And I took one out without really knowing much about it. So I'm trying to see basically what my options are with that.

What's the interest rate? 14%. Ouch. Yeah, that's painful. And what about the credit cards? What's the interest rate? 14%. Ouch. Yeah, that's painful. And what about the credit cards? What's the interest rate there? 25. So I'm taking it that you don't have any money saved up. Otherwise, you probably wouldn't have done this loan.

But do you have any money saved anywhere? We have about $1,500 saved. Okay, $1,500. You know, if this was my situation, John, I would just walk it down through the baby steps. And I would, I mean, that's going to be your quickest, most efficient way out of debt. So we start with baby step one, which is getting that $1,000 saved. You've already got $1,500. So let's keep $1,000 of it. And then we're going to roll the next $500 into our debt snowball. Now, I know you're concerned about these interest rates, but the way we do the debt snowball

and the way the debt snowball works is you list the payments from smallest to largest. And the reason that we do that is so that you can get a win quicker, so that you can feel the excitement of that win. And so that will motivate you to keep going. And in this case, I think that's actually going to serve you well because that first debt on your list is family. And obviously, you're trying to get that knocked out because you were willing to take out a loan at 14%. So let's keep it like that. Let's hit that family loan with everything that we've got. We're going to pay minimum payments on everything, but we're going to take any and all money that we can find. And as quickly as possible, this might be working more hours. This might be selling things. We have got

to get this debt paid off. Is it possible that you and your wife could pick up some extra income here or there? Yes. Yeah. So I'm doing that. You know, I think that with you guys's income, $34,000 of debt, you guys should be clear of this. I think you could probably do this if you really whittled this budget down. Are you guys on a budget? We actually just started this week. Okay, great, great. That's going to be the secret sauce, man, because once you get on the budget, you're going to start seeing all the ways that you can give yourself a raise. You're going to see all the ways that you've been maybe overspending a little bit, areas where you've gotten a little bit flabby that you can tighten up on. And I, you know, the average person who starts working the baby steps, they're out within, you know,

24 to 36 months. I definitely think for you guys, it's going to be closer to 18 to 24 months. You can do this. I think you could do this in a year. If you get intense and you pick up some side work and you start shaving down those expenses because you're doing the budget, you're looking around paying attention going, yeah, we could cut that for now. And that builds a little, let's reshop the insurance. Let's start shopping a different grocery store. It's amazing how much money you'll just find when you start doing that budget. So was that kind of how you saw this, John? Was I can be debt-free within a year or so? Yeah, that's what we were trying to aim for was at least about a year.

Oh, good. And the way you'll get there is using that debt snowball, which means that high interest loan is just hanging out. It's the last one you're going to tackle, isn't it? That personal loan. Yes. And that hurts. Let that fuel your fire though. Let that 14% fuel you. The problem is you attack the high interest one first. And what happens is you kind of get comfortable and you go slower. But when that's just hanging out there, 25% interest on the credit card, 14% on the personal loan. Number one, you're never going to touch debt again because you felt the sting of that as the interest racked up and you realize these lenders are not my friend.

They weren't doing me a favor by letting me go $14,000 into debt in a panic without even explaining to me how this all worked. I'll tell you what else. Once you start changing grocery stores and you have to cut that budget, you guys are working more you you talk about feeling the sting george That'll make you feel it when you thought your work day was done for the day But then it's time to clock into the next job That'll get you never again you're like i'm doing this for a year or no longer and whatever it takes We're getting rid of this day ever again john. I'm going to gift you one year of every dollar premium, which will help you get control of that money. It'll connect to your bank account, bring all the transactions in. We've

got a paycheck planning tool as part of that. So hang on the line. Austin will pick up and we'll gift you one year of every dollar premium. Awesome. All right, let's move on to Troy in Topeka, Kansas. Troy, welcome to The Ramsey Show. Hello. What's going on? I am currently, me and my wife are trying to figure out, we're trying to get back on track with our money. I went through financial peace like five years ago with her, and now we're trying to get back on track. I took a loan out myself, and it's about $1,400, and it feels like I've been paying on the last six months and

I'm just ready to get rid of it. I have other debt on top of that. So I'm wondering, should I start with this loan so I can get it out of the way? Because this loan is taking money out of my account. If I don't make that payment, it will pull that money payment out of there. The minimum payment? Yeah, the minimum. So what's the minimum payment on that? It's about $190. And what other debt do you have? And then I have my car payment, which is, I pay that every two weeks as well. How much is that?

What's the loan total? The car loan is $16,000. Okay, what else do you have? And then I just have other small debt. I have $600 in credit card debt. And then just some hospital debt. What's that? I'm still trying to figure all that one out.

I don't know 100% right now. All right. So this is very similar to the previous call. Yes, when you're working, the debt snowball. we want to list these debts from smallest to largest. And when we do that, we're still making minimum payments on all the debt, right? Because we don't, trust me, you do not want debt collectors calling you. That is the most annoying thing. It takes a toll on your self-confidence. You want to keep those guys out of your hair. So do make minimum payments. Are you able to make minimum payments while still throwing money at the debt snowball? What's your income? I make approximately $38,000 a year. My wife just quit her job because really her paycheck was just going to daycare. Okay.

So she's staying at home now? Yeah, she's going to be a stay-at-home mom for now. She's going to try to find... She does baking. She bakes, so she's going to try to sell some products while baking. Okay. Just to make some extra cash. Yeah. And what are you doing to bring in some extra money?

Because right now, you guys got to pull up that income so we can make this snowball work does she have a car too she does not she drives my car i have a company vehicle so i drive that most of the time she drives the other vehicle what's your car worth um what's it worth i don't know what it's worth okay my my feeling is we might need to sell this car. Yeah. If it's worth $16, my guess is... Now, you're going to need some money to buy something used. But if you can get, let's say, you can sell the car for $20, you owe $16, and that leaves you with $4,000 to go get a clunker, which you're not driving around much, right?

Right. It's mostly the company vehicle. So that can help speed this whole process up. And so we start attacking the smallest debt first, probably that credit card. Then we're going after that personal loan, the medical debt, and then you could be debt free soon, even making 38K. But I'd try to pick up some extra outside jobs, bring in some extra income to speed this whole thing up. And that might look like selling the car. And if you have any savings laying around, that's over a thousand K, drain that down to a thousand and put that money towards your debt snowball.

You guys can do this. Appreciate the call, Troy. That puts this hour of the Ramsey Show in the books. My thanks to my co-host, Jade Warshaw, all the folks in the booth and you, America. Thanks for tuning in. We'll be back real soon on the Ramsey Show. Hey, what's up guys?

It's Jade. Look, if you like what you heard in this episode and want to know more about getting started on the ramsey baby steps go to ramseysolutions.com and click the get started button we'll help you figure out the best next step for you based on your specific situation that's ramseysolutions.com and click get started