The Ramsey Show - App - The Answer to Your Student Loan Problem (Hour 2)

Episode Date: July 5, 2018

The show about you

🎵 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 am Dave Ramsey, your host. You jump in, we'll talk about your life and your money. It is a free call at 888-825-5225. That's 888-825-5225. Matthew starts off this hour in Oklahoma City. Hi, Matthew. How are you? Hi, I'm doing very well. This is a complete honor to talk to you. You too, sir. What's up? Well, I had a question. I am 17 years old, and I've talked with my parents about college, and they said that they haven't really done anything to help me save for college. So I'm on my own for right now. I have a job, and I probably have about $5,000 in the bank right now.

Good for you. That's a good start. I've been thinking about starting a mutual fund. I've been doing some hardcore research on investors and which company I should go through and using your SmartVestor search online. And I was wondering if you'd be able to give me some advice on what I should do. Should I start a mutual fund, or what should I do to help me prepare for college? Well, mutual funds are not good short-term investments because the market goes up and down, and you could lose money as easily

as you can make money on a one to three year time horizon which is what you have they are only good if you're going to leave the money alone at least five years and you're not able to so i would not use mutual funds to save for college when you're 17. i think you i think i don't think the investment is your secret sauce answer to your problem. I think you are. $5,000 is very cool, Matthew. You've done very well doing that. So how much money are you making at your job?

I probably get about $300 to $350 every two weeks. Okay. All right. And you have finished your junior year or your senior year? I finished my junior year. I'm going into my senior year right now. So you've got a year of that to keep saving. That'll get you well on your way.

So the things that we tell people to do that don't have money to go to college, how you can go to college debt-free, is basically three or four things. The most important element of going to college debt-free is college choice. Choosing a school you can afford. If you can knock out some of your basic necessity, your basic prereq stuff, in the first year or two at a community college, it will be about a fourth the cost in most areas, some areas even less than that. So check out a community college for your first year at least,

maybe your first two years, and make sure that the credits transfer, make real sure to where you want to go. Then you're probably looking at an in-state school to keep your tuition costs down. All right? So college choice is number one because it keeps your costs down. The cost between an in-state school in Oklahoma versus going across state lines to another state school or versus going private, the difference is astronomical, three, four, five, ten times more than what you would pay there in the state.

So you're going to go in-state unless some miracle occurs, okay? The second thing, other than college selection, is in addition to work, which you're already doing, that's the third one is work, you're already doing a good job of that, and you're probably going to do that all from now until you finish college because you're going to need the money from work. Oh, yeah. Okay. If work is number two, then we'll call number three getting scholarships.

And I want you to budget a certain number of hours every week starting now to apply for scholarships. Go online. Go to myscholarly.com and check that app out and it'll help you with your research for some lists of scholarships that you might apply for or might qualify for. I want you to apply for them, qualify for them, and I want you, you know, here's the numbers. If you apply for a thousand of them over the next year, you might get turned down for, say, 970 of them, like all of them.

But if you got 30 of them and they averaged $500 to $1,000 apiece, you just went to college free. You see? So it's a law of large numbers. Apply for a lot of scholarships in the next 12 months. All kinds, any time. Think of anything you can do. You know, if you have blue eyes, look for scholarships for blue-eyed guys named Matthew. You know, that kind of thing.

There's all kinds of weird stuff out there in the scholarship world that may be few people. And here's the thing. A lot of people don't even bother to apply for the little ones, the $250 ones and that kind of stuff. Apply for everything. So apply for lots and lots, the $250 ones and that kind of stuff. Apply for everything. So apply for lots and lots and lots and lots of scholarships. It adds up. Go to a school that's affordable.

Plan on working. Those three things will get you through college debt-free. More than the investment vehicle that you use. I personally, if I woke up in your shoes, sir, I would not invest in mutual funds or college money that you're going to need in the next little while because it could go down as quick as it could go up. North Korea could burp, and all of a sudden,

your stock market goes way down, and your $5,000 turns into $3,000 at precisely the wrong time. And that's what we don't want here. So I don't know when that's going to happen, if that's going to happen. I don't know anything like that. But I'm a big-time mutual fund investor, but you need a time horizon five years or more to make it a safe investment. Lee is with us in Mesa, Arizona.

Hi, Lee. How are you? Doing terrific, and thanks for in Mesa, Arizona. Hi, Lee. How are you? Doing terrific, and thanks for taking my call, Dave. Sure. What's up? Well, I'm 67 years old and retired. I'm debt-free except for my house, but I have a house on the market. I'm trying to sell it for around $320,000. Wow. My mortgage is about $200,000. I'd like to move closer to my

grandkids, but if I do that, I'm going to end up having to get a house with a mortgage because there's no way I'm going to be in, it's a fairly expensive area, and there's no way I can pay cash for a house. So my question, it's kind of simple. Do I go ahead and bite the bullet at my age, move someplace where I'm closer to my grandkids, or do I try to move someplace where I can buy a house and be completely debt-free? Okay.

Where are the grandkids? They're in California. Okay. Where are the grandkids? They're in California. Okay. Where? Near Los Angeles, just outside. Some of the most expensive real estate in the country. Tell me about it, yeah. And one of the highest tax rates as well.

So you've got income tax. That's right. And Arizona doesn't have an income tax. Very little. Yeah. So what I'm going to try to do is try to balance that and say, what if I could live an hour or two hours away and be able to get over there fairly often, but the idea of being 15 minutes away with $100,000 in your pocket in Los Angeles,

that's going to be a tough one at $67,000, brother. I'm afraid you may be stepping onto a trap here, and I don't want that thing to rip your leg off. So I'm going to try to balance it. The further away from them you get, the cheaper the real estate's going to be, but hopefully you can get something that's close enough, but far enough out that you get better prices. That's what I'm aiming for here. This is the Dave Ramsey Show. I get asked all the time about what people need to do to improve their family's money situation. Two of the most overlooked things are term life insurance and disability insurance.

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Call 800-356-1780 or visit zander.com and compare online. That's 800-356-1780 or zander.com. Thanks for joining us, America. We're glad you are here. Open phones at 888-825-5225. You jump in, we'll talk. Timmy is with us in Atlanta. Hi, Timmy. Welcome to the Dave Ramsey Show.

Hey, Dave. Thank you for your time. Sure. What's up? I had a question. I just graduated college in Atlanta. Hi, Jimmy. Welcome to the Dave Ramsey Show. Hey, Dave. Thank you for your time. Sure. What's up? I had a question. I just graduated college in May. I'm coming out of college with no student debt. I'm living with my parents until I think December. I just started a full-time position. I'm making $55,000 a year with very little expenses per month. I just didn't know what to do with the extra money. I plan on moving out in December and maybe finding a house or something, but I don't feel like spending so much money on an apartment in downtown Atlanta because that's $1,300 a month. I don't know what I should do with the money I save up or where I should live in December.

Congratulations. Very well done. What was your field of study? What's your job? I graduated management information systems. Right now, I'm doing some IT consulting for Capgemini. Great. So you got a degree in an area that is actually marketable, and you were able to land a job. How'd you get through school debt-free?

Well, I took 18 hours a semester um i had really good grades um tuition at school wasn't very expensive um my parents helped me out a little bit um but i did do i did a lot of work um in my college years over summer and during the school year um so i know i knew i wanted to get out of college debt free um just because i hate the feeling of debt. So you worked your way through college. I did. You got a degree in management information systems.

And you graduated in four years? Yes, sir. Okay. What was the best-paying job you had while you were in college? I worked several jobs. Over summer, I managed a pool at a country club, and I made like $21 an hour. And during school, I worked for the parking and transportation committee, and I made $10 an hour.

But I worked 15 hours a week plus on top of school. So I worked really hard. Where did you go to college? I went to Georgia College in Millersville, Georgia. Yeah, very good. Okay. Which worked definitely for you landing a big job making $55,000 a year at 22 years old. Yes.

Way to go, dude. Very well done. Excellent. Thank you. I appreciate it. Okay. Well, what I would do is, first thing I'd do is make sure you had your emergency fund in place. And where are you on cars?

Is your car in good shape? It is. What have you got? What kind? What model? I have a 2003 Toyota Corolla. Okay. How many years of life has it got left, do you think? Probably six or seven. Okay. So you plan to drive it that much more or drive it a couple of years or what? Yeah, I plan to drive it until it dies okay well you need to you need to have an emergency fund and a plan for replacing the car i'm not in a rush for you to buy a home it's okay with me if you rent for a little bit right now because you're in your first job you're coming out of the house and if you rent for the first year you'll get a better scope on what's going on in the area that you're going to live in

and where you actually do want to buy. Are you dating anyone? I am. Okay. How seriously? Pretty seriously. I've been with her for two and a half years. Okay.

That's another thing to pile up money for then. And another reason to wait on the house. If you think that, and you don't have to decide this today and certainly don't want to decide it on the air i'm just giving you the information so don't respond okay but if you think that you might get married the next two years then i would wait to buy the house after marriage because you'll choose a different house and i would just pile up cash towards that end instead of buying a bachelor house. And then she comes on the scene.

Now you get to sell the house and move, which is real expensive. So your life is going to go through a lot of transition in the next 18 to 24 months probably. And as it does, a big pile of cash won't hurt you to do that. So let's just have a big pile of cash and say, hey, we're heading towards buying a home, maybe towards a ring, maybe towards a wedding, and maybe towards an upgrading car all in the next two to three years, give or take. And, you know, pile up cash for that. And then go rent something for a year. Well, you know, let's pretend in December you moved out and during the year that you rented, you got engaged. And during the following year, you got married.

You're only going to rent for two years. I know it feels like a waste, but, you know, get some roommates, cut your costs down, that kind of thing. And renting is patience to make wiser purchases. That's what renting is at a point in your life where you're still at a real heavy transition period, meaning there's a lot of different changes in your life right now, and cash really greases the wheels of transitions. It makes transitions happen smoother and easier when there's a pile of money in the bank.

And so, man, you have done so good. That's why I wanted to ask you all those questions, because you're such a model on what to do. So, hey, good question. So isn't that interesting? We did not set that up. God sets the calls up in the order they come in, God and Kelly. And Kelly sits at the right hand of God. So, not.

And so, anyway, she's insulted. I can't. I actually got her. She never gets insulted. But anyway, so but I get a call. Teenager says, I want to put money in mutual funds to go through college. What did I tell him? Go to a school that's affordable, work a job and get scholarships.

And then I get a call from this young man who says what I do. I went to a school that's affordable. A lot of you never even heard of the college he went to. Does he care? No. Does the people that hired him that are paying him $55,000 a year at 22 years old care? It's pretty stinking impressive right there. Do they care no did he get a degree in german polka history and then whine because society is unfair because he got

a degree in something that is not marketable at all no he got a degree in information systems the hottest degree levels out there so he was able to land a job. Obviously, he's a poised young man. You know what else he has on his resume? Lots of hard work. You know what? I want to see what I'm hiring somebody here in our company straight out of college. Work.

I'm concerned that they know how to work. Not everybody knows how to work. Because some of these people out here were raised by wolves, not parents. They were just allowed to run wild. And they have no boundary. They have no self-discipline. They have no ability to leave the cave, kill something, and drag it home. So work ethic is one of the greatest gifts you can give your children.

You see what his mom and dad gave him? They didn't give him a free ride to college. They gave him work ethic. It's the greatest gift. Do you think that young stud right there is going to be killing it in 20 years? When he's 42, is he going to be a millionaire? You tell me. I think he's going to be a millionaire.

That's where I think Tim's going. I mean, look at the track record of the guy, and he's only 22. He's got his head on, man. That's a guy think Tim's going. I mean, look at the track record of the guy, and he's only 22. He's got his head on, man. That's a guy we would hire here, you know? That's the kind of guy, that's the kind of person that we look for. Exactly. Whether they're 22 or 42 or 32 or 52, I don't care. But he's always going to have a job.

But I didn't hear any kind of a victim thing. I didn't hear anybody saying they owed him anything. There was no entitlement. You know what he did? He went and solved his problems. And he went and did it. God, that is so refreshing. And that's the answer to your college loan problem. You know why colleges charge what they charge?

Everybody whines about what colleges charge. You know why they do? Because people pay them that. You quit paying them, they'll quit doing it. You know why they pay them that? Because they borrow the money from the government, and you and I are so stupid we insured the loans. We're called taxpayers. And so they're not even using real money. They're using monopoly money to pay for their education,

so they don't look at the price. And so the college goes, oh, we don't care. They're not going to real money. They're using monopoly money to pay for their education, so they don't look at the price. And so the college goes, oh, we don't care. They're not going to look at the price. We're going to look at the price. We're going to charge you about $52,000 a year. When the college is down the street, it's $5,000 a year. Mm-hmm. Something to think about, isn't it?

The student loan problem, student loan being federally insured by the government with no limitations on it to amount to anything, is what's caused the price of college to go through the roof. It's called supply-demand. If you'd had a ninth-grade class in economics, you'd understand the basic concept. But we have hope because we have Timmy's out there. There's real ones.

There's another generation of bright people coming on amongst the other ones, but there's the good ones in there too, people. I'm seeing them all the time. 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 original health

cost-sharing ministry, a Better Business Bureau-accredited organization CHM members share to pay each other's medical bills. It's not insurance. It's Christians financially and spiritually supporting each other. It's what Christian Healthcare Ministries has done for over 35 years, and our members have shared over $2.5 billion in medical bills. To learn more, visit chministries.org. That's chministries.org. Christian Healthcare Ministries is a proud sponsor of Dave Ramsey Live Events. chministries.org In the lobby of Ramsey Solutions, Luke and Camille are with us. Welcome, guys.

How are you? Doing well. So excited to be here. Well, we're honored to have you. You're sporting the right kind of colors. Go Vols. That's right. Go Vols.

See the orange going in there. Where are you guys from? We're from Merville. Merville. I already pronounced it correctly. That's right. My hometown where I was born. Very cool.

Well, welcome, guys. Good to have you guys. And all the way over from east tennessee to do your debt-free scream for you yankees that are uninitiated merrill is actually spelled maryville but uh those that know how to speak speak it correctly it's merrill okay anyway we would get in trouble if we didn't pronounce it correct that's right that's right we have to know we have to do this correctly on the air so uh anyway but sometimes i have to give a little lesson to other parts of the country on how things are properly conducted so um anyway so you're debt

free how much have you paid off we have paid off thirteen thousand and six months good for you excellent and your range of income during that time uh 116 okay cool what do you guys do for a living we're both teachers at the tennessee school for the deaf oh wow excellent very nice good for you that's some important work isn't it yes very much so very rewarding i enjoy it yeah absolutely very cool what kind of debt was the 13 000 a beautiful white van an older one that is prettier now correct yes very much, very much so. Shinier now. I love it. Originally, we had about $60,000 in debt when we first started facilitating the FPU classes. And so we were getting gazelle intents, got that paid off, and started on baby step three.

And what exactly you said, everything starts breaking. So our air conditioning unit went out. Oh, my gosh. Our car was done for. And so we had a choice of what are we going to pay cash for. So we were able to pay cash for the air conditioning unit and sadly had to finance the car. So there comes the six months. We were gazelle intense.

Get rid of this debt. No good. And so now we're in baby step three and that will not happen again. Okay. So you think you broke the cycle this time we are done i don't know i mean if you i don't want you back over here doing another debt-free stream there is no way no more that's why we're here today okay this is the line in the sand exactly forever and ever i mean because i mean you're like coordinators and everything right absolutely there's no way right yeah i have to put lashes on right we got video proof to say way. Right. I have to put lashes on.

Right. We got video proof to say we're done. Yeah. You have to prove it to yourself if it comes up. Well, they build the emergency fund up, and you just caught you before you got there is what it amounts to. Exactly. Exactly. Cool.

Well, congratulations, you guys. So how long did it take you to pay off the $60,000 portion? About four years. It was school loans. You know, everybody has school loans. And then we had a truck that was financed. We paid all that off, got it done. But most of it was the school loans.

Okay. All right. And then Mama's car went bye-bye. Yeah. It was a CRV. We had actually bought it in Alaska, and it had about 280,000 miles on it. Wow. So we were trying to kill it. And it worked.

It was limping. Yeah, it was. It was. But it was a great car. We love it and missed it. But that was why we started facilitating and coordinating the classes is to motivate us. And we were very excited this past class. That's really why we wanted to come is to talk about the class.

This past class was just unbelievable. We had eight couples and two singles, and they paid off $111,000 in nine weeks. Very cool. It was unbelievable. 25 credit cards were cut up. All right. Where are you teaching it? Where's the class?

Faith Promise Church. We're actually at the Blount Campus in Blount County. Okay. Faith Promise Church. And where is it in Blount County? It's right next to the mall. They built a new Kroger. I know this is probably not... So it's a satellite

church? It matters to me because I know where it is. It's a satellite church. Okay. Cool. All right. Based in Knoxville and then we're at the satellite in Blount County. The main campus is in Hardin Valley off of Nero Creech. Daniel worked with Young Life at the Hardin Valley High School when I was there. My son did.

The new high school over there. Cool. All right. Well done, you guys. Congratulations. And thanks for your church for teaching that. And you guys, how many classes have you led now? That was our sixth. You have led six? Yes. The first one was actually at First Baptist Knoxville with the Deaf Church.

Yeah. And so we're grateful that you have the ASL on the video. Yeah, absolutely we do. So that all the deaf people can have access. There's a huge population of deaf people who are wanting to pursue debt-free. That's perfect, yeah. Yeah, we, years ago, gosh, I guess when we did that reshoot back in seven or whenever it was, we put that on there because we had so many requests from the deaf community.

Yes. We certainly appreciate that. Thank you for doing that. That that's very cool and i've taught the high school curriculum and my classes there wow you're doing the whole thing man we are and you guys are like superstars okay yeah you go back in debt all these people are gonna hunt you down yeah that's right that's exactly right because you're accountable to all of america at this point that's me too me too so and that goes back to what we wanted to say about the classes too is the accountability that that's what really helps us that's why we keep doing it is it holds us accountable and we tell everybody in the first

class before we start anything the video even the discussion we tell them with knowledge comes responsibility so now is your turn or time if you you want to leave, go ahead and leave. But if you don't, once it's in your head. Man, you're tough. You're going to be accountable from us. You're going to be accountable from your spouse, your family, your friends. And most importantly, the Holy Spirit is really going to hold you accountable. You know, I was teaching the class live years ago when I used to teach it with an overhead

projector and a bad suit, you know. And I was teaching at my church back then. Before there was a Financial Peace University, I was just teaching the material. And this lady came in from our church, and she came in the wrong class. And she's looking around. She goes, she started running out. I said, where are you going? She said, if I'm in here, God will hold me accountable for knowing this stuff.

She ran out. She didn't want to know. That's exactly right. Yeah, yeah. That's great. I think that we always tell them that it's exactly right yeah yeah so that's great i think that we always tell them that it's not a financial class it's a it's a faith class it's a family class it's a life class it's a marriage class you get people come in there that don't go to your church

i guess some do yeah but mostly our uh church members okay you know and you're it took us from a good marriage to a great marriage because it got us on the same page. And that's what I keep telling people. Even if you know a little bit about finances, just getting on the same page is amazing. That's such a difference. So what do you tell people the key to getting out of debt is? You got out of $60,000 and then $13,000. You're looking at it. What's that?

They got you out of debt? Yeah. You put them to work? They are a reason. But that's what we tell people is it's changing the family tree okay we are going to be the last mensons in my line i've heard you say that and so we're going to be the last mensons in this line to take out debt and so that's really what we want to share with others is just you know changing your family tree amen we're not doing it anymore that's big time legacy stuff

right there so what is the tactical practical things you did to get out of that that you tell people are the important things here's what you got to do you got to do this this and this go for it so you have to get on a written budget you have to use cash you have to have the accountability um and you had a caller chris from georgia who said he said he was tired of paying for the past instead of planning for the future that's a great one that's it and so through these classes it's amazing to see the princesses realize they're not princesses and amazing to see these grown men who are boys become men and just to see the leadership and the families step in and to change all these i mean every class we get to witness that and we get goosebumps and

the holy spirit is at work and just changing lives through you and your ministry we're grateful i didn't do it you did it man it's awesome i'm so proud of y'all yeah usually week nine the room's full of tears everybody's crying so we always always pack some Kleenex that last week. Yeah. Well, everybody gets close. Right. Because you're doing life in there, man. It's real.

Exactly. It's messy. Congratulations, you guys. And your kids' names and ages? This is Wyatt. He is 11. And Grace is 8. All right.

Wyatt and Grace, Camille and Luke, $13,000 paid off in six months. Six Financial Peace University classes led, making $116,000. Proud of you guys. We got a copy of Chris Hogan's book for you, Retire Inspired. That's the next chapter where you're millionaires and you're outrageously generous as you go along. So count it down. Let's hear a debt-free scream. All right, guys, you ready?

Three, two, one. We're dead free! That is how it's done right there, man. And the crowd goes wild. Boom. Just like that. See, that's what it takes. When you look down your kids' eyes and you go, you're the last ones.

You're the last ones. You are the last ones that are going to be in debt. Change your family tree, man. You really do. Somebody's got to be old man Vanderbilt. Somebody's got to be old man Rockefeller, old lady Rockefeller. Why not you? Change it, baby.

Change it. This is the Daveave ramsey show for years i refused to endorse any company that claimed to get people out of timeshares. I told my listeners it's a horrible product and that unfortunately they didn't have a lot of options. Then a few years ago, I sat down with Brandon Reed, the owner of Timeshare Exit Team. Brandon walked me through the timeshare industry and I learned that you can't sell them and you can't even give them away. And then we talked about Timeshare exit teams process. Every ownership situation is different, which is why they have more solutions than any other company. And that's when they earned my respect. Don't call any of the imposters out there. And there's a lot. The only timeshare exit company I stand behind is timeshare exit team. They have exited thousands

from their timeshare burden this year alone. Yes, you will write them a check, but they stand behind their guarantee. They will get you out or they'll give you a full refund. Call 844-999-EXIT. Online at timeshareexitteam.com. Thank you for joining us, America. This is the Dave Ramsey Show. Case, Chase, rather, on Twitter says, Is it worth putting off investing until I pay off my debt?

I could get a match for my company. Yeah, we've always recommended that you temporarily, temporarily, temporarily, not permanently, just temporarily, stop investing and 100% focus on your debt you know the problem with money is this you guys when you try to do about 17 things at once nothing happens you put a little extra on this debt a little extra on that debt you kind of cut back here you kind of budget you keep doing about you know i'm gonna keep putting three percent in my 401k because i get a three percent match i'm gonna do a little of this i'm gonna put a little extra on the mortgage i'm gonna put a little in the kids college fund have you noticed that when you do a

little bit of a lot of things nothing happens it's just dead in the water i mean nothing is happening it's a bad deal so then what we figured figured out is there is a power to focus. When you focus exclusively on something, you say, this is my thing. I'm doing this thing. And you lean in on that, and your whole life for a short period of time becomes laser intense on one thing. When you do that, you can move the needle on that thing. You decide you're going to get in shape, and you don't think about anything but getting in shape.

I'm going to watch my eating. I'm going to watch my exercise. I'm going to watch my water intake. I'm going to do everything I need to do to get into shape. I mean, as if your life depended on it, because it does. You know what? You can get in shape. If you didn't do anything, if you weren't worried about work,

you weren't worried about marriage, you weren't worried about money, you're just worried about getting in shape, you'll get in shape. Same thing about getting out of debt. But if you try to do 63 things at once, nothing happens. We become mediocre at everything. Now, are you going to do that for the rest of your life, completely focus on getting out of debt? No, because you're going to get out of debt, and then you don't have to focus on rest of your life, completely focus on getting out of debt? No, because you're going to get out of debt, and you don't have to focus on it anymore.

I don't focus on getting out of debt. I haven't in 25 years because I've been out of debt for 25 years. I don't have any payments. I don't have to focus on that anymore. Now, what do I focus on? Other financial goals in the financial arena. I focus on other things in other parts of my life, but what you focus on is what works. And so that's the power of what we do, Chase. We figured out that personal finance is 80% behavior. It's only 20% head knowledge. So the problem is controlling the behaviors. It's not the math.

So temporarily stopping everything, the emotional power of that focus is greater for you to build wealth and clear the debt because your most powerful wealth building tool is your income. And when you don't give it to someone else in the form of car payments, you don't give it to someone else in the form of student loan payments. You don't give it to someone else in the form of credit card payments. Instead, it is going into your 401k. What little ground you lost in the next 18 months or 24 months while you're getting out of debt, not getting the match, what little ground you lost is going to be made up exponentially over time

because of the power of focus. So, yes, temporarily it is worth putting off investing. It's not worth putting it off for five years, but most people are out of debt in 18 to 24 months, everything but their home, when they get completely crazy, intense, focused. Chris is with us in Springfield, Missouri. Hey, Chris, how are you?

Oh, I'm not terrible, Dave. It's an honor to speak with you, sir. You too, sir. How can I help? Well, I'm looking at buying a house around a couple of years, and I'm wondering if I should actively work on my credit score since I have child support reporting. Well, I wouldn't actively work on it in the sense I'm going to go borrow money

and pay it back to run my credit score up. No. Child support reporting, why are they reporting? Are you current? I am. Are you paying it through the state instead of directly? Yes. Why?

It's court-ordered. Huh. Okay. And that's just the way Ohio does it, I guess. They've been reporting on it since 2008. Is that your only debt in the world? Just about. I'll be finished paying everything off next week. Awesome. Okay. Well, if you only have one debt, or even with the debts you have, you've been current on them,

your credit score will erode some when you close accounts that are active accounts. Like, what's the one you're paying off next week? Credit card. Yeah. So when you close that account, it will erode the account or erode the score somewhat. But if you only for the next two years have one payment in the world, and you're current on that one payment. I don't think you're going to have a horrible credit score. But, no, I would not.

I don't go out there. I would never tell somebody to go borrow money in order to create a credit score or open credit card accounts in order to create a credit score. I'm going to find some other way to do this transaction. But it's, man, no chance. Now, I don't know what that credit score will actually do because no one knows. The great mysteries of the credit score algorithms are out there. We know a few things about it that Fair Isaac discloses, but not a lot

because they don't want people gaming the system, which I understand. That's reasonable. Even though I don't agree with their system, I still wouldn't want people to be able to game it. And so I get that. But no, I'm not going to play the credit score game, to answer your question, ever. All right, David is with us in Los Angeles. Hi, David, how are you?

Hi, David, it's a pleasure to talk to you. You too. What's up? So the reason I'm calling is currently I'm on my debt snowball. I'm about 50% through my debt snowball, but I have a traditional IRA that I've been holding onto for some reason. I'm just wondering, do you think it's a good idea just to cash it out so you can torque my debt snowball?

Not unless it's to avoid a bankruptcy or a foreclosure. Okay. Because you're going to be charged a 10% penalty plus your tax rate. What is your household income? So I'm single, so I'm around right now about $34,000 for the year. Okay. So let's say you're in a 15% bracket. I'm not positive what that is, but that's probably pretty close.

And so you're going to be charged 15% plus a 10% penalty, which would, of course, be 25% of your money would go to the government for cashing this out. It's kind of like saying, hey, Dave, I want to borrow money at 25% interest to pay off my debt. No, we wouldn't do that. Gotcha. Okay. And so, no, I don't cash them out unless it's an emergency, meaning something that's more important than the 25%, like saving your home or like avoiding a bankruptcy because stuff's bearing down on you, and you can clean it up with that. So that's how I'd look at it.

Good question. Thank you for joining us. Kelly is with us in Toledo. Hi, Kelly. How are you? Hey, Dave. How are you doing? Better than I deserve.

What's up? Well, I've got some questions. Toledo. Hi, Kelly. How are you? Hey, Dave. How are you doing? Better than I deserve. What's up? Well, I've got some questions. After listening to you, a good friend of mine, Bernie, suggested I talk to you to help me get out of these debts. Okay. I have two homes. One, I owe $61,000. One, I owe $60,000. And then I owe $18,000 on my car. My plan was to, instead of taking 10% out of my check, take 20% out and invest it into my 401. And then in 12 years, when I can pull that money out, to just pay the two homes off. But after listening to you, I'm wondering if it would be wiser to either pay off one at a time or maybe just focus on putting the extra money onto all three of these payments? What do you suggest?

First thing we need to do before we do anything, I'd stop all investing until you get the car paid off. What's your household income? Meaning the 401? No, the car paid off. You said you had an $18,000 car debt. Yeah. Oh, yeah, I'd stop investing in 401.

I'd stop investing in anything payment pay minimum payments on everything um and let's get this car paid off as fast as possible do you have any money in savings that's not retirement no you don't have an emergency just a couple hundred dollars okay what we because see if you had a big emergency you'd be up a creek right now yeah yeah okay so first thing we want you to do save a thousand dollars that's baby step one and i want you to stop all investing until that's done baby step two is to become debt free except for your home and that would include your rental property here so debt free except real estate then baby step three is go back to the $1,000 account, raise it up. I want you to have three to six months of expenses set aside as your emergency fund, your grandma's rainy day fund.

Now we're debt-free with whatever, $10,000, $15,000 sitting around. Then in baby step four, we put 15% of our income into retirement. Anything above that, start growing at those houses, and you'll still get the houses paid off once you start paying attention to all this. Good question. Thanks for joining us. Hey guys, this is James Childs, producer of The Dave Ramsey Show. I'm excited to announce that we're now carried on 600 radio stations across the country. To find one near you, head to DaveRamney.com slash show.

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