The Ramsey Show - App - When Financial Gifts from Family Have Strings Attached (Hour 1)

Episode Date: July 18, 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, America. We are glad you are here. Open phones at 888-825-5225. That's 888-825-5225. Sally is with us in New York City. Hi, Sally.

Welcome to The Dave Ramsey Show. Hi. Thank you for taking my call. So my husband and I just got through reading Financial Peace, and we have pretty much made every mistake that you warn against, and we are determined to get ourselves out of it. But I feel kind of defeated before we've even really begun, and I'm wondering if there's ever a situation, I think I know what you will say,

but I'm looking for an alternative to take money out from our situation, I think I know what you will say, but I'm looking for an alternative to take money out from our retirement, specifically a TDA, my tax deferred annuity, sort of to kind of move the needle, as you say, to give us that kind of psychological boost that we're getting somewhere. The only reason I would ever do that because of the taxes and penalties is to avoid a foreclosure on your home or to keep you from having to file bankruptcy. Are you behind on your house payments? No, we actually rent, but we rent from a family member. The house is paid in full. There's no mortgage on the house. Okay, and what about, how much debt do you have? Credit card, $38,000.

And what's your household income? My husband has $180,000. Actually, closer to $190,000 is the household income. And what other debt have you got? My husband has about $180,000 in student loans. Okay, and that's all? He is about five years away from the forgiveness, from being totally forgiven. Okay. But you make $180,000 a year.

We do, and the challenge is that we are, both of my, I have two children enrolled in private. And what does the private school cost? One of them is $8,000 and one of them is about eighteen thousand um and that's twenty six thousand out of a hundred and ninety i still hear a lot of room yeah that's what i'm having trouble you know crunching the numbers we also have um after school class which is about twelve twelve hundred a month and when we're looking we're using every dollar. What do you earn? I make $86. Okay. All right. Cool.

So you make the $90, he makes the $100, give or take, then. Yeah, about. Well, I think you guys are, you know, how old are you guys? 39 and 40. Okay. All right. Yeah. you guys 39 and 40 okay all right um yeah what is difficult what is difficult for you guys is you've made a lot of money for a long time and um what i'm asking you to do uh people that make 70 or 80 000 listening to this are screaming at their radio right now i but what i'm asking you what i'm asking you to do is um it is very emotionally tough and you are going to have to destroy your current way of living

your lifestyle is out of control right i understand that and we also do the thing you warn against which is we have a car lease for 445 a a month. And I didn't want to do that. It was not my idea, but it's a whole other story, but we have it. It might be that that needs to get sold. Well, we would do that, absolutely. But the only way to do that is to pay out the rest of the duration of the lease, which is for two more years. So that's not really – we don't really have the cash for that.

Well, you get the price of the car, and it applies to that, and that gets rid of the thing. It's another $10,000 is what two years of 400 and something bucks a month is. But we don't have the cash to do that. I don't know. Listen, here's the thing. I don't know exactly what it is, but some things that you're looking at and you are figuring out how you, quote, can't do, you probably are going to have to do anyway. You've got to break through your established way of doing things that suck.

Right. Yeah, I'm ready to go race in deans. I'm ready to do all that. You really are. I mean, and is he? I am. Is he? Yes, totally.

Okay, all right. Definitely. Have you guys gone through Financial Peace University yet? We have not, no. Okay, all right. Definitely. Have you guys gone through Financial Peace University yet? We have not, no. Okay, let me give you the class, and I'll pay for it, even though you make $200,000 a year, but you can pay for somebody else to go later after you get your act together. But you've got to have something that shocks the system of how your family views life. Right?

I mean, it's that you've got to shock the monkey, we call it around here. You know, it's like, I'm sure that makes some of you mad. But it's just, you know, you've got to do something that breaks through. Because in your whole situation, having made a lot of money for a long time, it's not as ridiculous as it sounds to someone making $70,000 that you can't find the money to get this all paid off. It's not as ridiculous as it sounds, but it is still ridiculous. And you still desperately need to crank your lifestyle down to well under 100

to where you clean up all of this in about two and a half or three years but and that's going to mean no restaurants no vacations that's going to mean selling stuff it's going to mean selling stuff you don't want to sell things that you quote unquote think you have a right to you don't you don't you're broke you make a 200 grand a year and you're broke so you've got to bust through that and but it's a psychological emotional spiritual thing that you're trying to push through and then the math will start to work that's what it comes down to kelly's going to pick up and get you guys signed up for financial peace university so hold on brandy is with us in c. Hi, Brandy, how are you?

Hey, Dave, I'm good. How are you? Better than I deserve. What's up? I'm excited to talk to you. So me and my husband have recently received about $450,000 as a gift from a family member, but it's in stock. Wow. Yes. So it's a good problem to have,

except we are getting a ton and ton of pressure to use it in a certain way. We have started the process of building a home on our land that is paid for, and we are getting a lot of pressure to get a mortgage, get a mortgage, because of the tax implications. You can save money there, blah, blah, blah. And I already know what lot of pressure to get a mortgage, get a mortgage because of the tax implications. You can save money there, blah, blah, blah.

And I already know what you're going to say. But literally they're making us feel crazy for using this money towards that and then using the money that we would be spending on a mortgage, putting it into a Roth, fully funding a Roth. The pressure is coming from the person who gave you the gift? Gave us the gift as well as other family members as well. You may need to return the gift if they can't behave. Yeah. Because this is not a gift.

This is a control freak. Yeah. I don't do control freaks at all. I have a low tolerance for them, even if they're standing there with a half a million dollars. And so either you can respect our boundaries or we need to return this gift. Yeah. I agree. You're not crazy.

They're wrong. I know. They're wrong. They're wrong. They're wrong. They're wrong. You don't need to borrow money in order to get a tax break that, you know, you pay the bank $10,000 and it saves you $2,500 on your taxes so you lose $7,500 on a transaction. That's what a tax deduction is. That's ridiculous. It's stupid mathematically. So, no, I wouldn't do it.

So either they can respect your boundaries and let you do what you want to do with your money, or give it back to them. Let me tell you a story about two families that are very much alike in a lot of ways. Both families have two working parents and a couple of young kids. Each has debt and has struggled to make ends meet, but they're starting to make headway with their budgets and smarter decisions with money. They have dreams and plans, and the only real difference is that one family has the right amount of term life insurance and the other doesn't. Big difference. If one of the parents die, and that does happen. Their well-being would be destroyed.

Paying for the mortgage, utilities, food, and other bills would be impossible, let alone saving for education or retirement. That's why every day I talk relentlessly about getting term life insurance. Just go to ZanderInsurance.com or call 800-356-4282 and see how inexpensive it really is. Be the family that takes those deliberate steps to be different and responsible. It really does make you the hero of your story, and it puts you on course for better things ahead. Our question of the day comes from Blinds.com. They have a 100% satisfaction guarantee.

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What is your recommendation on deductible amounts for home and car insurance? Do you up those amounts or do you change them based on where you are in the baby steps? Yes. In most cases, I would change them when you get to baby step three, when you have a fully funded emergency fund.

If you're carrying, for instance, a 250 deductible and you want to raise it to a $1,000 deductible and you have only $1,000 in Baby Step 1, that could put you in a pretty good pinch. And so I'd probably wait until you got to Baby Step 3 before I went ahead and raised them. And here's how you decide how big a deductible to carry. You look at the difference, and then you divide the savings into the difference.

So if I have a price at $250 deductible, and then I have another price at a $1,000 deductible, the extra risk you're taking is $750. If that saves you $300 a year, then after three years, you're making money. Three times 300 is 900, and you're only taking 750 more risk. You see how I did that? And so that's a reasonable risk on auto and homeowner's insurance. If it saves you $30 a year by taking an extra $750 risk, it's going to take you a decade to get your money back more.

And you would never do that. Let them take the risk to keep the 250. You're not going to find that to be the case. It's going to be more like my first example usually. Now, if you have expensive cars or a large home, a more expensive home, and you have some wealth, you start to look at stuff like $5,000 deductibles and $10,000 deductibles, which are what I carry. But even in that case, I still do the break-even analysis.

The difference in a $1,000 deductible or a $5,000 deductible, I'm taking $4,000 more risk myself. Now, how long have I got to go without a wreck on that car or cars to, you know, if I don't have a wreck for 10 years and I break even, that doesn't make sense because you're probably going to get some kind of ding in a 10-year period of time. Not wishing anything on you, but most people do. Your fault or their fault, right? But if you've got to go, if you can make your money back, so to speak, for the risk within two or three years, again, that's a break-even analysis, and that tells you whether or not to take the higher deductible. I want to cover the risk in two to three years, roughly. That means the insurance company wants me to take that risk. They figured out that that is a

good return, and they give you enough savings on your premiums to justify the risk. That's what we're looking at. And so higher deductibles, in other words, are not 100% of the time the best thing to do. And so, you know, I remember, gosh, 30, almost 40 years ago, there was a financial guy out there running around telling everybody, and I was reading and learning in those days. Nobody knew who I was, and I was a kid.

And he was running around telling everybody to drop the collision on their car. Never carry collision on a car. Never carry collision on a car, which is if the wreck is your fault, you take care of your car if you have the money. That's if you've got like $100,000 or something saved, right? So you can just buy a car, and you take the risk yourself. You self-insure through you tearing up your own car. And you know what? When you run the numbers on it, sometimes you don't want to do that.

We bought an old Jeep for down at our lake house, and, I mean, the old Jeep was like, I don't know, $1,200 or something or $1,500. And I'm like, well, I'll take the risk on the old jeep being torn up of course it's at the lake house this was back in the day and some of these teenagers were driving it on the weekends which was a real good chance at getting torn up so um okay but i'll take that risk it's only 1500 bucks i got the money it's not that big a thing And then I found out I could cover collision for $20. Well, dadgum, for $1,500 worth of coverage, I'll take that. So for $20, I added collision into the coverage. And I certainly had the wealth to self-insure through that.

So sometimes you look at these things and you go, what's the tradeoff for that amount of risk, transfer. I'll transfer $1,500 worth of risk for $20 in that situation where I think there's reasonable risk. That's what you're looking towards. Wendy is with us in Raleigh, North Carolina. Hi, Wendy. How are you? Hey, I'm fine. Thank you, Mr. Ramsey, for taking my call.

Sure. How can I help? Well, I think I know how you feel on this, but I'd appreciate, it's about multi-level marketing, and I'd appreciate if you could walk me through it and the advice you would give

on pursuing that. Okay. All right. Well, I mean, I'm ambivalent on it. There are good and bad parts of it. You're looking at going into multi-level marketing

as a part-time job or a full-time career? Yes, sir. More full-time career? Yes, sir. More full-time. Okay. All right. Have you been in sales? No, I'm actually a fitness trainer by trade.

Okay. And this company, it's the fitness industry. So it's creating, I guess you are more or less selling and recruiting coaches. So what, Beachbody? Yes, sir. Okay. They're booming. They're doing great.

And they're having a huge effect. Obviously a great company. Probably one of my favorite of the multi-levels right now out there. Okay. So your tie-in with the fitness side is very good. Of course, you're not the trainer. Their model is the video model, right? That's correct, but I also am a certified live instructor for Beachbody.

I know, but you're not running the class. The money is made on the classes and on the shake. Yes, sir. The shake is the model. That's the revenue model, okay, for them. They're doing like a billion dollars top line. It's huge. It's a booming thing.

And so I've been looking at it. It's very interesting. I'm a little bit envious in some ways, but not of the multilevel part, but of how well they're doing. And they're transforming people. That's the other thing. And we transform people. So but of how well they're doing. And they're transforming people. That's the other thing. And we transform people. So, you know, we're watching what they're doing. And anyway, so good company, good solid product line,

nothing where you're cheating somebody or something like that. They are actually getting results and so on. So all of that part of it is much like you being a personal trainer. You can do that as well. You can lead people through the nutrition habits. You can lead people through their nutrition habits. You can lead them through their exercise habits. You can help them have the accountability on your own, right, without this company. Yes, sir.

So what is added when you join the company? Access to the shake, access to the other DVD programs that you would plug people into in addition to your personal coaching, correct? That's correct. Okay. So that's what you could sell as your product line, and of course you can recruit people into it. Now, in the multi-level, you're not going to make much extra to your income on the shake

and the video sales. Where you're going to make your money in a multi-vel model is recruiting other people to do this into your hierarchy. And so if you said, I'm going to make $100,000 on this next year, $10,000 of it would be on product, $90,000 would be on recruiting, hiring, and training people to recruit, hire, and train people, to recruit, hire, and train people, to recruit, hire, and train people, to recruit, hire, and train people. Building a hierarchy out is where the money comes from in a multilevel.

I guess my fear, too, is are you essentially working yourself out of a job by recruiting all these people to go and recruit more people on their end? No, because most of them are not going to do the coaching at the level you do it. You're a fitness trainer. Okay. Most of them are not going to do the coaching at the level you do it. You're a fitness trainer. Okay. Most of them are somebody that they coach just by accountability. And may I share with you the two reasons I'm even considering this? Sure.

Okay, the one reason is age. As you get older, you can't continue to train and run group fitness classes because your body just can't take it as you age. So to be able to then pass on my knowledge and become a teacher in that regard instead of actually physically doing the demanding work was one. And the other thing is I live actually three hours from Raleigh. Yeah, well, it gives you some reasons to do this but your money is made in a multi-level always remember that hiring training and recruiting hiring training and recruiting

hiring training and recruiting not in product sales if you got that straight in your head then an mlm is fine but most people get disillusioned because they think they're doing something else. Okay, I need you to listen to this. Because one normal routine that everyone does can cause total chaos in your life. I'm talking about the simple act of using Wi-Fi. When you're on Wi-Fi anywhere in public or at home, you're at risk of hackers easily seeing every site you visit and every search you're doing online. It doesn't matter if you're on your cell or your laptop. They can see you visiting websites, streaming or downloading,

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You can be secure in seconds. Download Hotspot Shield by Anchor Free today. Fargo, North Dakota is up. It's Logan and Annika. Hi, Annika. How are you? I'm good, Dave. How are you? Hey, Dave.

Hey, Logan. Welcome, welcome. I see on my screen you're debt-free. Congratulations, you guys. Oh, man, it feels so good to, Dave. Hey, Logan. Welcome, welcome. I see on my screen you're debt-free. Congratulations, you guys. Oh, man, it feels so good to finally be done with all that. I love it. How much did you pay off? We paid off, it was a little over $96,700.

Wow. How long did that take? It was 28 months. Good for you. And your range of income during that time? So it started at just under right about $40,000 and then went up to about $62,000. Good for you guys. Well done.

What do you do for a living? I've been doing everything the past 28 months. I'm a paramedic mostly. So I work on the ambulance and I also teach CPR classes and lead the paramedic program for our part of the state. Okay, wow, good for you. Very cool. Annika, what do you do? I'm a stay-at-home mom, or as Logan likes to call me, a domestic engineer.

Dave, you've got to meet this gal. She is amazing at cutting costs. That's fabulous. Very cool. What kind of debt was this $97,000? We had a collaboration of everything. So a big bulk of it was student loans. We had about $60,000 in student loans. I guess $62,540 were student loans, none of which were mine, so that was a struggle for me. But we had home repairs.

We bought a home about two and a half years ago, some credit cards, medical bills, and furniture, and a few other random things. Wow. Cool. What happened 28 months ago that put you guys on this journey? Well, I graduated from, both of us went to a private liberal arts college, and I managed to cram four years of college into five. And as soon as I graduated, I got this nice letter from the government saying, hey, remember us? It's time to pay us back. And it was a shock because I hadn't been paying attention. And it was just me spending a couple of months trying to figure out

how I was going to take care of this and get my act together. And I tried a couple of different things, a couple of different books I read. And eventually my sister, Tara, turned me on to you. And we kind of picked up on it, and off we ran. Cool. How long have you two been married? We're coming up on three years. So we were married pretty much as soon as we got married. We were off and running.

Okay. Six, seven months later, here we go, right? Yep. Yeah. So what do you tell people the key to getting out of debt is? What did you do to pay off $97,000 in 28 months? I think the biggest part was just, like, literally living on next to nothing. We lived on, I mean, people are like, those numbers

don't match up. How does that work? And when we do the math, we lived on about 15% of my husband's income. So I just, I always encourage people who I know are going through the journey to seriously cut costs. Like we didn't have spending money. We didn't go out to eat. By the time we were finishing our debt-free journey, about six months out from our debt-free journey, I'd had two kids during this period of time. And I had one pair of jeans that was being held together by a ponytail holder because they were so worn out. And I mean, thankfully for gifts and other things, we just made it through. But we really, we didn't spend money on ourselves. We didn't spend money on our kids. We lived on next to nothing. Yeah, it was, and I was picking up every single shift available and

teaching every course I could. There were, there were 164 hours in a, in a week. And there were five times that I worked every single hour between being on call somewhere and teaching somewhere else and working security and playing bagpipes. And then I would come home from my time off, and Annika would throw me in the kitchen and have me canning and stuff from the garden and doing some pickling and working. And at our home store, we called it, Annika was selling everything I owned on Facebook, and we were going nuts. Wow. How much stuff did you sell?

What did you make from selling things? Well, there was a period where Logan lost a little enthusiasm, and he had been a really enthusiastic one to begin with. And during that time, he gets paid on a biweekly basis. So we evaluate things every two weeks. And I made it my goal one, two weeks to sell $1,000 worth of stuff in that two weeks. And I did, which was a lot of, a lot of posting on Facebook and people buying things. It was a lot of work.

But we sold my husband's entire medieval sword collection. That was tough, Dave. Yeah. I didn't have guns, but I had some pretty cool swords, and they had stories and history. And I'm a medieval junkie. And for me to be sitting at the garage sale negotiating the prices of these swords that had been my friends

was just brutal. But we did it and it was pretty rough. Wow. Was it worth it now that you're free? Of course. Absolutely. Of course. You know, it was tough for me.

There was that period there when Annika kind of picked up and was carrying me a little bit. And there was that one paycheck that her income was more than mine. And I was like, oh, I'm not. My man pride kind of took a little bit of a hit. But I said, you know what, I've got to pick this up. So it was tough to go to work and have my baby screaming at the door upset that I was leaving again and, you know, Skyping with them because I was at work again while they were getting tucked into bed. That was kind of hard.

But, you know, I don't have to do that anymore. Yeah. You miss a couple of those so that you never miss another one. You live like no one else, and later you get to live and give like no one else. That's right. Well, you guys have proven to each other that you can do anything when you set a big enough goal and believe in no one else. That's right. Well, you guys have proven to each other that you can do anything when you set a big enough goal and believe in it, right? That's right.

You know, we were thinking the entire time that this was just, you know, God was putting this trial before us. He was giving us the opportunity to strengthen our marriage, to show our kids that we could do this, to show God that we can manage the benefits that he gives us and that wealth that he trusts with us. And, you know, we could see the light at the end of the tunnel, and we came through the tunnel. And I tell you what, Dave, I looked up and I saw clouds.

And I saw some job changes coming. There was some scary stuff happening. And, you know, I normally would be really worried about it, but I've got a great wife. And we don't have any payments. We don't have to worry about that. It changes everything, yeah. That's right. Let it rain.

That's fine. I'll dance in the rain now. Now we're ready. Well, congratulations, you two. Very proud of you. So did you have cheerleaders around you or people that were saying you were crazy? You know, the crazy people ended up being cheerleaders by the end of it. Everybody thinks that we're just these mutant creatures that are doing this crazy thing. But my parents were huge, greatly supportive. And Annika had a whole

bunch of friends that were giving her blessings and helping out. Very cool. Good for you, too. Well, we've got a copy of Chris Hogan's book for you, Retire Inspired. We want that to be the next chapter in your story, that you become millionaires and outrageously generous along the way okay of course thank you dave logan and annika fargo north dakota 97 000 paid off in 28 months making 40 to 62 count it down let's hear a debt-free scream three two one Ready? Three, two, one. We're debt free! I love it. Oh, man, they paid a price. They went hard, didn't they?

They went after it. Well, if you're going to change your life, you generally have to do that. You know, people that are successful, it is never accidental. They don't wake up one morning and go, wow, look how those kids turned out. I have no idea how those kids turned out. Yeah, you do.

You're very intentional in your parenting. I have no idea why I have a great marriage. Yeah, you do. If you have a great marriage, it wasn't an accident. You just don't fall into success. No one gets to the Super Bowl and goes, what are we doing here? How did we get here?

This is cool. No, they know exactly how they got there. They fought, scratched, and clawed, and wouldn't let up, wouldn't quit, pushed through, did what it took. You do the basics over and over and over and over again, regardless of the idiots that are criticizing. You get after it. You get after it.

You're going to win. You have to get after it. Winning the Super Bowl is an intentional act. That's what those guys did. What an impressive couple. Amazing. This is the Dave Ramsey Show. Can you believe this real estate market? Home shopping has become so competitive.

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Equal housing lender. 761 Old Hickory Boulevard, Brentwood, Tennessee 37027. Thank you for joining us, America. Nick is with us in Canton, Ohio. Hi, Nick. How are you? I'm great, Dave. How are you? Better than I deserve. What's up? So I have a question for you that I probably know what you're going to say, but I guess wanted to get your logic on it anyway.

So in short, I've got a car loan, and I'm trying to figure out if I should pay it off or not. My logic for not wanting to pay it off, mainly it would just be for the sake of a credit score and playing that game. In the relatively near future, I'd be maybe looking to rent, potentially buy a house. I think I've heard you say before that you might need a credit score to rent. So I guess that's my logic. I wasn't sure. Okay. I don't know.

Let's look at it at two levels. One, let's look at it at the overarching idea, and then let's look at the details in your situation after that, okay? The overarching idea of building a credit score assumes that you're going to borrow money or not pay it off in the case of your car. Why? So that I have a score that says that i pay money back well uh which the credit score is 100 determined by interaction with debt um and so uh so i'm borrowing money so that i have a good credit score why so that i can borrow money why so that i can have a better credit score why because borrowing money gets me my dreams

ultimately is what we're saying and then when we drill down into that the truth is is that the fastest path to wealth which went from a money perspective gives you your dreams the fastest path to building wealth is to use your most powerful wealth building tool which is your income in other words what you pay out in a car payment what you pay out in a student loan payment what you pay out in payments would make you wealthy faster than buying crap that you don't have the money to pay for and so this whole idea of a dog chasing its tail on the credit score you see what i'm saying is that it's, you know, we're borrowing money. Why?

So that we can borrow money. Why? So that we can borrow money. Why? So that we can borrow money. That's the dog chasing its tail. Do you follow me? And so you can see a crazy dog running in circles.

And we got half the culture as a crazy dog running in circles. And worship at the altar of the FICO score as if the FICO score is your provider. When mathematically, when we dig down into it and we learn people that build wealth, what do they do? You know, they just don't owe other people, and that allows them to save, invest, and give, which is the shortest path to wealth. Now, that's the overarching part. Now, drill down into your situation and the technicalities.

You know, if you're listening to Dave Ramsey, no, you never heard me say that you have to have a credit score to rent. You have to have a credit score to rent some places, but you don't have to have a credit score to rent from me, as an example. I'm a landlord. I've got a bunch of rental property. There's lots of people like me out there that would look at a sharp young guy who's got a good job and doesn't have a credit score, which, oh, by the way, you could remind them means I don't have any payments, which what that means is I actually have the money to pay your rent. And so a landlord would stop and go, oh, yeah. Now, there are corporate landlords who are large property holders, and they have rules, and they won't rent to you if you don't have a credit score, which means that I'm worth tens of millions of dollars, and they wouldn't rent to me, which shows kind of how stupid they are, right?

I mean, it means I can go down here to the corner apartment complex, and they might not rent to me if they're a corporate owner because I don't have a credit score. I can write a check and buy the complex, but I can't rent there. That's how ridiculous this is okay so uh now so i don't give people a pass on for credit score purposes on borrowing money ever um for anything um because you can work around it and i have for 25 or 30 years now. And so because I want to build wealth, and because I want to build wealth, that means I don't give money to these people. Because an 800 credit score means you've paid out at least $100,000 in interest.

It's the only way you got that. It's impossible mathematically to get it otherwise. Now, so in your situation, I'd probably pay the car off. Now, the one thing that does come up is, okay, how do we buy a house? How do we buy a house without a credit score? You have to find a mortgage lender, and there's only about one in 20 that know how to do it. About 19 out of 20 don't know how to do it that can do manual underwriting, which is old-school underwriting for the loan,

which is what we used to do back in the day when I was in my 20s selling real estate before there was a credit score. We actually would look and make, we would get verification that they had a job, a VOE, verification of employment, a VOD, verification of deposit from the bank, that they had the money in the bank for the down payment. And we would go through and confirm with the landlord in writing that they currently were renting from that they were paying the rent on time. Therefore, we think they might pay the mortgage on time.

And that's called manual underwriting. And you can still get a mortgage with that. It's not a higher interest rate. It's not a problem. There's lots of mortgage companies don't know how to do that. But there's one in 20 or so that do. And Churchill Mortgage that we endorse is one of them. And so what I would tell you, based on all of that jabbering, is don't borrow money.

And getting debts that you have paid off, because that's the shortest path to wealth. And if you're going to borrow to buy a home, do it with manual underwriting and don't run around worshiping at the altar of the FICO score. The more you do that, the more money you give to banks, and you become a dog chasing its tail. I borrow money. Why? So that I have a good score.

Why? So that I can borrow money. Why? So that I have a good score. Why? So that I can borrow more money. And it's just a dog chasing its tail. And, again, the vast majority of the culture is that crazy butt dog chasing its tail.

And they do. You've seen them go in circles. They're nutty. And Rick is with us. Rick is in Columbia, South Carolina. Hi, Rick. How are you? Hey, Dave.

Doing great. Thanks. My question is, should I pause retirement savings to pay off a HELOC? I was debt-free, including my house, until about a year ago. Bought a new house, cash flowed, renovations. They went over, so I took a $30,000 HELOC. And I'm wondering if I should pause retirement savings to pay that off. What's your household income?

$130,000. Yes. Because a HELOC or a second mortgage – oh, wait a minute. HELOC is your only mortgage. Correct. Okay. Let me give you the two rules. Okay.

One is your first mortgage – this is not a second mortgage. It's a HELOC. So we could do either one with it. Typically, maybe step six, you'd be putting 15% of your income into retirement. Baby step four, you'd be doing kids' college, and you wouldn't be pausing. You'd just count it as your mortgage and pay it off as quickly as you can doing that. The other possibility is you treat it like a second mortgage, and if you treat it like that, treat it like a traditional HELOC,

like you had a regular first mortgage, in other words, under it, which you don't, then we say if it's less than half your annual income, it's a baby step two item, meaning we're going to pay it off like it's a credit card. And so either one's fine with me, but get it paid off as soon as possible. And the most important part of this conversation is, Rick, what are you doing? How do you let this budget go over 30 grand and put yourself back in debt never do that again okay yeah it's driving me nuts yeah well but you allowed it no doubt by the process and so at our house we would have had to just stop because we don't

borrow money and you were all the way out man and. And you stumbled back in. So you got to fix that for sure, dude. You got to fix that so that never comes up again. You don't want this bad. You look at that and go, no, I hate this so bad. And if anybody ever walks towards something like a HELOC again, I'm just going to start really not being nice about it. I mean, that wasn't, but I mean, you know, that's what you got to do. You got to really look into this.

And so either one is fine. That's the answer to your question, baby step six or two. You know, you probably paid off in one year if you put it a baby step two and stopped your retirement. You can look at that and weigh that out and say, is it worth pulling the plug on retirement for one year and knocking it out like it's a Baby Step 2 item? I'm going to be tempted to do that because you'll be 100% debt free, but it's technically, since it's your only mortgage, a Baby Step 6 item. It doesn't matter. Get yourself out of debt and don't go back.

That's the big thing. Thanks for calling in, dude. Appreciate you joining us. Our thanks to James Childs, our producer, Blake Thompson, our senior executive producer, Kelly Daniels, our associate producer, and phone screener. I am Dave Ramsey, your host, and we will be back. Hey, it's Blake, chief production officer for the show, and here's a little tip for 2018. Go download our revamped Dave Ramsey Show app from the App Store.

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