The Ramsey Show - App - Where in the Debt Snowball Do You Pay the IRS?

Episode Date: May 25, 2022

George Kamel discusses: How to prioritize your debt, Paying off debt vs. investing. Where to put IRS debt in your snowball, Convincing your spouse to sell the house, Planning for a new baby,  Cash flowing college. Want a plan for your money? Find out where to start: https://bit.ly/3nInETX

I'm out. From Ramsey Network, this is The Ramsey Show, where we help you get in control of your money, get ahead in your career, and get on the path to living well. I'm George Campbell, your host today, flying solo once again. The number to call, 888-825-5225. I would love to help you take the right next step with your life and your money. Maybe you're at a crossroads. You need some confirmation, some affirmation.

You think you know what to do. You just need a random guy to tell you it's the right thing. Or you might need me to talk you off a ledge if you're about to cash out your 401k because you're scared the sky is falling. Happy to do either today on The Ramsey Show. 888-825-5225 is the number to call. We're here for you, America. Ann is on the line, but so is Nicholas. So let's go to him first. He's in Harrisonburg, Virginia. Nicholas, welcome to the show. Hi, it's a pleasure to be here. Did that throw you off there? I was trying to just give you a little curveball.

No, no, no. You can't face Nicholas. How can I help today? So I just want to start off by saying I'm a huge fan of the show and I'm a huge fan of Dave's work. I'm a 23-year-old guy looking to start my future right, and I have just a couple little pickles I was hoping you could help me out of. I specialize in brine cucumbers. How can I help with that? What's going on? So the first problem is, unfortunately, two months ago, I was in a car accident and I totaled my car and, um, the, the insurance company, um, gave me

$3,200 and, um, you know, thankfully nobody was hurt. Um, however, um, however, um, kind of in dire straits at the moment. Um, luckily, um, my family has, uh, kind of a, a project car that I've been driving around, but it's got about 175,000 miles on it. It's throwing check engine lights like crazy. We've already put, you know, as a family, we've already put over $6,000 to $7,000 into it. And it's kind of, it's not a good thing to be driving around. It's from 2004. It's an old Jetta. So I not a good thing to be driving around. It's, um, it's from 2004. Um, it's an old Jetta. So, um, I need a new car. That's the first thing. The second thing is, um, uh, I'm moving out to Roanoke this summer and, um, my rent is going up from $504 a month, um, to $960 a month. And my yearly income is $42,000 with $5,000 in guaranteed

bonuses and then a $2,500 moving stipend. So it all evens out to about $49,500. Good. $49,500. And I just picked up a second job as well. I'm working at Home Depot during nights because I kind of want to set up another buffer for myself. So that'll bring my yearly income up to about maybe $52,000 to $55,000. Good. Okay, that's awesome. So how can I help today? Well, I've got $20,000 in student loan debt, and I really want to attack that as soon as possible because I don't like being in debt. And, you know, I have a grace period until August 31st, and I was just wondering if you could help me lay out my priorities because obviously I need a new car. Um, but the car market is really not awesome

right now. And, um, you know, I, there's different schools of thought, you know, some people saying I should finance. I don't want to finance because I don't want to take on more debt. Good man. I think I could probably get something reasonable for around six or seven grand. You're correct. But with my rent going up, you know, now that it's $960 a month, and that's utilities and everything included. Oh, good. Okay, I feel a lot better then. Yeah, so... So how much debt do you have total? You've got $20,000 in student loans. How much other debt?

That's it. Okay, good. And how much money do you have in the bank? I have about $10,500. This is fantastic news. Okay. And that includes that $3,200 check you got from the insurance company? That does, yeah. Okay. So if I'm you, I'm filtering this through a very simple process called the baby steps.

And so your step one is a $1,000 emergency fund, which good news is you have that already in the bank. And then on top of that, I'm going to go get a car ASAP that's, like you said, probably a $6,000, $7,000 car in this market, better than what you're driving now. Nothing fancy, but your goal is to find a decent deal in today's market, which is not impossible. Don't let people scare you off and say, well, the car market's impossible. Yes, it's not a great time to buy cars, but it's not a terrible time to buy a $6,000 car. It's going to be high mileage. I would go with a Honda or a Toyota. That would be my pick for you for reliability. And then beyond that, you probably will have, what, another $2,000 left over? Yes. Okay. And so then I would begin the debt snowball where you list your debts smallest to largest. So you have your student loans. Is it one student loan or multiple?

It's multiple. Okay. So list them out smallest to largest. Ignore the interest rate because this is all about behavior and progress right now. And start attacking that little one with a vengeance, with your side job, with all of your income. And I want you to be on an every dollar budget, a zero-based budget where your income minus your expenses equals zero. Have you done a budget before? Yes. Okay. And I live off one right now.

That's fantastic news. Well, I'm going to gift you every dollar premium as well as Financial Peace University. It's all inside Ramsey Plus. You'll get a one-year subscription. So hang on the line after we're done. Austin will gift you that because I want to help you walk through this and get rid of this debt and get to a place where you have a foundation financially. You can breathe. Is things a little scarier right now, a little tense?

A little bit, yeah. Yeah. Well, you're not scared of work, and that gives me a lot of hope for you because you're willing to do whatever it takes to get out of this debt. And that's the most important part. So as you start attacking this debt, you have a thousand dollar emergency fund as a buffer for all the ankle biters. You'll be in a better car. And then the rest of the money and all future income, every dime that's not going towards, you know, keeping the lights on and getting some basic needs met, your food, utility, shelter, transportation, I want going towards that debt. And making $55,000, maybe more if you ramp up these side hustles, I think you can pay this debt off within a little bit scared about the rent because I think really far into the future. I kind of was thinking of saving up so that I have the entire rent covered for the year so I don't have to worry about that.

Do you think that's a good line of thinking or something I should get rid of? I think that's a little bit of fear and paranoia. And I think once you start following these steps, you get rid of the debt, you have that starter emergency fund. And eventually, once you're out of debt, have a fully funded emergency fund of three to six months of expenses. You're going to feel a whole lot better. Now, if you want to, you can go and get a roommate. If you want to split the cost. Is this a one bedroom? Yeah, it's a one bedroom. Okay. You may want to look at your options. See if a two bedroom is 1200 bucks. Well, that brings my one-bedroom. Okay, you may want to look at your options and see, hey, if a two-bedroom is $1,200, well, that brings my cost down to $600. I don't think rent is going to be the biggest issue right now.

I think getting rid of this debt and getting on a firm financial foundation is what's going to give you that financial piece you're looking for. So hang on the line. Austin will pick up. We'll gift you one year of Ramsey Plus. Get plugged into EveryDollarPremium, connect it to your bank, track your transactions, start attacking this debt, and call us back when you're debt-free, Nicholas. We're rooting for you, man. This is The Ramsey Show. People all over the country are discovering a faith-based and budget-friendly way of meeting health care costs through Christian Health Care Ministries.

Christian Health Care Ministries, or CHM, is a nonprofit organization that helps members carry one another's burdens with health care expenses. And they have successfully shared each other's medical bills for nearly 40 years. See if CHM is right for you by visiting chministries.org. CHM is a proud sponsor of Dave Ramsey Live Events. Welcome back to The Ramsey Show. I'm Ramsey personality, George Camel, host of the Fine Print and Entree Leadership Podcast, all of which you can find on the Ramsey Network and wherever you listen to podcasts. Flying solo today, so keep me company, would you? The number to call is 888-825-5225.

And if you're wondering where everyone went, no, the rapture didn't happen, okay? Left behind, as great of a movie as it is, did not take place. There's no folded clothes here. They're just in Orlando. They're at the Entree Leadership Summit event. It's the final day. Some amazing speakers. John Deloney spoke there today.

Jocko speaking this afternoon. I'm a little bit sad to not be there, but the folks in the booth and the folks in the lobby, they're keeping me company. We're having a good time. 888-825-5225. Okay. They're keeping me company. We're having a good time. 888-825-5225. Okay, so if you've been watching the show for a little while, you know that we've added a fun new segment where we do some reactions to some videos floating out there on the internet. A lot of people think I'm just scouring TikTok, finding videos to hate on.

It's not true. Our team does that. My friend Zach in the booth, that's what he does. It's his full-time job is to just find things to get riled up about. Isn't that what social media is for these days? And so we found a video about mortgages and we get a lot of hate for our take on mortgages that you shouldn't have one. It's a hot take that you should pay your mortgage off because then you can really live and give like no one else and build wealth. So let's watch this video and I'll let you know my thoughts after. Paying off your mortgage early isn't always a great idea. Let me show you why.

Let's say that you have a $300,000 mortgage at a 4% interest rate for 30 years. Your payment is $1,400. You have an extra $1,000 that you can use to either pay off your mortgage faster or invest. Let's look at what happens in both cases. If you use your $1,000 that you can use to either pay off your mortgage faster or invest. Let's look at what happens in both cases. If you use your $1,000 to pay off your mortgage faster, you'll pay off your mortgage in 13 years and save $120K worth of interest. Now start investing all of that $2,400. 17 years later, you'll have $1,000,000, assuming an average 8% return. Now let's look at if you invest $1,000 instead of paying off your mortgage.

Over the same 30 years, you'll pay $128,000 more in interest, but you'll have $1.4 million in investments. Paying off your mortgage early would cost you $300,000 in total wealth. That's a lot of money. Sure, you've saved a bit on interest, but you lost money in the long run. That's why it's so important that you understand the way personal finance actually works. That way you can crunch the numbers and choose the path that makes the most financial sense for you. Oh, so that's how personal finance actually works. Oh my goodness. Well, if I had known that I would have gotten to way more debt because

apparently you can make millions by going into debt and staying in debt. Okay. A lot of numbers were thrown out there. You can, You can ignore the numbers for now. It's too much to keep in your brain. I tried to write some of it down. It's just too much. But here's the deal. As a guy who paid off his house, and some people have said, well, that was a dumb thing to do.

You should have invested the money. Listen, it's hard enough for me to sleep at night with everything going on in the world, but I sleep a whole lot better knowing my home is paid for, and I don't owe anyone anything. And here's the thing. People come at us and go, well, you still have taxes and insurance, so you'll always have payments. You must be real fun at parties if that's how you think and talk to people. So when it comes to the mortgage, you're right. On paper, you can do better. If life works out perfectly for you and you magically have an extra thousand dollars sitting around, which, news alert, most Americans don't because

they're broke, then yes, on paper, if it works out perfectly and you get your exact return every single year and you get that exact mortgage scenario, sure, you could end up with a few hundred grand more. But the truth is, 99.9% of Americans aren't doing that, will not do that, can't do that. They don't have extra money laying around. And if you think that if I did have extra money, it would all go towards investing because I'm such an astute investor. You're also wrong. Because we know lifestyle creep happens, life happens, a vacation pops up, a wedding pops up, a funeral, life just happens. HVAC goes out. And so what happens is the people that do that generally don't have an emergency fund, don't have extra money. And if they do, they're probably hanging out in Reddit

threads, you know, talking about how much Dave doesn't know about personal finance, which is totally fine. You are entitled to your opinion. It is a free country and you're entitled to be wrong. That's part of freedom. So to that point, here's what I'll say. That video is clearly geared towards younger people, which frustrates me because young people in their 20s are starting to fall for these traps and they're starting to believe that debt is a tool to be leveraged and you can create so much wealth by leveraging debt. And so to that I say, what if we didn't have payments and we invested the money? What would that turn into? How much life could we live in the meantime before retirement, before we have 1.4 million dollars? There's a lot of life in between, isn't there? We want to raise families. We want to send our kids to college debt-free. We want to go on amazing vacations. We want to give generously. And what I have found

is that payments in your life hold you back from doing all that in the meantime, over the next 30 years of your working life. And so that is why I advocate for paying off your mortgage early. And we've debunked many times the idea of the, oh, you guys should hang on to your mortgage for the tax deduction. No, we debunk this all the time idea of the, oh, you guys should hang on to your mortgage for the tax deduction. No, we debunk this all the time at our live events in Financial Peace University. You're trading a dollar for a quarter if you're keeping your mortgage around

for the tax deduction because you want to pay your lender $10,000 instead of sending the IRS 2,500. That's just bad math. So all that to say, please stop making videos that are hurting young people. I want them to win financially. I want them to live a debt-free life, not only because of the financial side, but the psychological side, the spiritual side.

We're seeing so much anxiety and depression with these younger generations, and a huge part of that is because of money fears, money problems, money issues. And so I think if we can get rid of that aspect, we can then focus on other things. We can be more selfless, focus on others more, find opportunities where we can help others because we're not so focused and dialed in on our own money problems. So that's my encouragement to you guys. Take it as you will. That's TikTok for you. Ann joins us up next in Tampa, Florida, and welcome to the guys. Take it as you will. That's TikTok for you. And joins us up next in Tampa, Florida, and welcome to the show. Hi, how are you? I'm doing great. How can I help today? So I had a question about IRS debt and where that should fall in the debt snowball. Okay. How much debt is this? Well, it's kind of hard to say because it's never shown up

in my account. I've, you know, I called them finally and it's, you know, they just haven't finalized it. Probably roughly about 15,000. Okay. Is this kind of back taxes or? Um, no, I, I get alimony and, you know, when I was awarded the alimony I guess I didn't realize you know that I counted the taxes out of yeah so okay that kind of got me in a mess for quite some time I'm trying to get I'm still at the point where every year you know I owe them anywhere from seven to ten thousand so I'm trying to get off the hamster wheel are you working with a tax professional right now or have you been doing it yourself? I finally did this.

This year I went to one of the Ramsey tax professionals, and he gave me some advice. I just can't. It's not really realistic right now. I basically need to make less income. Need to make less income? I don't like that. I need to invest. Well, because I make like $108,000, so I end up getting taxed.

I don't know. It's just a mess. It's a hot mess. Well, if you move into a tax bracket, it's not like you owe that entire amount. You would just owe the overage into that new tax bracket. Right, and I try to, you know, I usually do my paychecks. I have an extra $150,000 or $ 150 or 200 taken out in taxes on that. And then I do, you know, I do all sorts of stuff and I still end up this year with 7,200. Okay. Well, I'll let you work out with your tax bro. How much other debt do you have? Uh, about, I have about 20,000 in a car. What's the car worth?

Probably about $20,000. I probably am upside down in it because the car broke down kind of before I got in the program. Didn't have any emergency fund to fix it, so I had to. So I, you know, bought a new car. Okay. What other debt do you have? That one and some. Credit cards of about $17,000 and student loans about $5,500. Okay, and you said your income is like $108?

Yeah. Okay. Well, we put IRS debt at the very top of the debt snowball because you don't want that monkey on your back. And so we want to get rid of that one as soon as possible. So that's the one I would focus on first, and then I would attack the rest of them. And I would look at selling the car. If you're not underwater on it, if you can use that 20K, slap 15 there on the IRS deck, get rid of it, buy a $5,000 car. I like that plan a whole lot. That's my goal for you, is to get through this as fast as possible, get rid of the IRS so you can focus on the rest of the debt, become debt-free, and now you're making six figures with no payments. That

is the future I want for you. Thanks so much for the call, from the gas bump to the grocery store. And while you can't control what happens with the economy, you can control what happens with your money. And the only way to control your money in uncertain times is to get on a budget. Pay attention to where your money's going. And the best way to do that is with EveryDollar. With EveryDollar, you'll plan out your monthly budget and track all of your expenses throughout the month. Plus, the EveryDollar mobile app lets you check your budget from anywhere so you can always make the right money decisions. And when you get on a budget, you will be in total control

of your money and you'll give yourself a raise. So start budgeting for free today by going to ramseysolutions.com slash every dollar. Open phones this hour, 888-825-5225 is the number to call. Travis joins us up next in Chattanooga, Tennessee. Travis, welcome to the show. Hey, George. How's it going? Great. How are you? I'm doing well. I just wanted to see if you could answer my question. I'm navigating a little relationship advice here.

Ooh, okay. This is fun. What's going on? I've got the opportunity to sell the current home I'm in in this inflated market and us move back to a rental property and be completely debt-free. My wife currently runs a business out of our home due to the HOA that the property will be moving to. She would no longer be able to do that. But again, there will be no mortgage, so there would be no need to have to do this. Just trying to find a way to navigate it peacefully. So is this a side business for her? Does she do this full-time? She does it full-time, but I'm the primary breadwinner, and it's just something where she started doing in the last three years and really found fulfillment

in it. And I hate taking that joy away from her, but this thing, I mean, we'll both be 40 with no mortgage and no debt. Now, when you say no mortgage, you'll be renting at this new property? No, this was my, we owned this home. And when we moved to our current house, we've been renting this out and we had the opportunity to take advantage of the inflated market and pay off that rental property and live there debt-free. Okay, so how much debt do you guys have? The only thing we have is the two mortgages

and maybe about $14,000 in credit card debt. Okay, so $14,000 in credit card debt, and you've got two mortgages, one on the spot you're living in now and one on the rental property. Yes. But you're saying if you sold your current home, you could pay off both mortgages and the credit card debt. And walk away with probably a net of around $150,000. Nice. I mean, on paper, this looks real good, but you're saying this is a relationship issue because what she's not wanting is, well, if we move, I can't do this business anymore.

Right. And your argument is, well, if we move, I can't do this business anymore. Right. And your argument is, well, you won't need to. Right. You won't need the money. Right. She runs a pet sitting business. And I'm like, volunteer at shelters. Donate your time.

You know, there's no need to have to do it for monetary gain. And she's been doing the pet sitting business at the house. Yes. Why can't she go to people's houses and pet sit? That was my thing. A lot of the overnights, I think her clients that trust her and really value the professionalism that she offers would let her transition that into overnights in their home instead of having to bring them to ours. Does she want to turn this into like a brick-and-mortar pet boarding business one day,

or is this just kind of for fun? If it got busy enough, yes. And I've even entertained the idea that with no mortgage and no debt, this may be something that both her and I can pursue without having to even continue my day to day. I think that's the selling point for me. If I'm you sitting in your shoes, I'm going to her saying, hey, I want you to have the freedom to expand this thing and really grow it. And I know temporarily it feels like we're moving backwards. But, man, not having any payments, that frees us up to do some things. What's your household income? We pay off our vehicles.

We both pay cash for our vehicles when we bought those. They're about seven years old. And then just really pretty much that small credit card debt and the mortgages is all we have left. So what's the total debt between the mortgages and the credit card debt? Between the mortgages and the credit card debt, you're probably looking at around, let's see, quick estimate, probably around $235,000. Okay. And how much could you sell the house for? Around $4,000 net after fees and closing and everything, around $421,000. $421,000. that's what you would net that's everything on the house yes and that well then there's another then after all that

the 62 000 i'm paying the rental off okay and so you're saying we'll crush the 235 in our debt we'll have a fully funded emergency fund immediately are you guys investing right now um yes we both have been investing in our 401ks now for quite a few years so we're doing have a fully funded emergency fund immediately. Are you guys investing right now? Yes, we both have been investing in our 401ks now for quite a few years, so we're doing pretty well there. Okay. Well, our plan is you don't invest until you've got the consumer debt paid off, so you're doing things a little bit out of order, but what's your household income? Approximately $140,000. Okay. Now, if she stopped doing this pet sitting business, what would it go down to? Uh, about $110. Okay. Now, with $110 and no payments, how much margin would you guys have left at the end of the month?

Oh, ridiculous. Like a few thousand bucks? Oh, yeah. I mean, without even changing spending habits, we'll probably save $1,600 a month. That's not bad. So, that would be my selling point to her. I think you start with the math, but then you appeal to the emotional side of what this means for her dreams. And does she want to continue doing this? Or could she explore a different career path altogether that she's more passionate about?

And so I would look at it as what kind of options does this give us as a family? Okay. And if she says, heck no, if this is going to be a real rift in the relationship, then I don't know that it's worth going through this process. I mean, you guys aren't broke, right? No. You could still pay off your debt and do all of that while living where you live. We could, but, you know, with the way the economy is looking now, you know, we're one slip away from a pretty good financial collapse,

and I would like to be preemptive as possible. I think you pitch that to her, too, and say, hey, I don't feel like we're financially secure with these double mortgage payments we're making every month. And, man, what would it feel like to have not a payment in the world, and the world is our oyster now, and you can pursue what you want? Are you guys moving to a different town, or is this still in the same area? It's relatively close. Okay.

So it's not like you're uprooting your life. You're not moving to Des Moines going, hey, this will be great for us. You're still keeping your life. It's been great for the most part because we've had the same renter since we've moved out of the house. So it's been contingent on us not having to cover had the same renter since we've moved out of the house. So it's been contingent on us not having to cover two mortgages as long as we had renters in. And I've always told her if that was something that wasn't in place, then you're looking at us covering two mortgages. Now we would have nothing to worry about.

Now are you going to kick this tenant out that's living there right now? Yes, I've already spoke with them, and they're looking for other places to go. Okay, good. Well, this sounds like a pretty clean break for me. If I'm in your shoes, I'm doing it but to your point, this is a harder conversation with your wife and she's got to be on board. You can't do this against her will and so finding out, get to the root of what her fears are.

Maybe you guys go on a date and go, hey, what's really going on here? Because I want the best for you. I want you to do what you want to do with your career and if that's really going on here because i want the best for you i want you to do what you want to do with your career and if that's pet sitting we're going to find a way to do it and when we don't have debt we're going to have way more ways to do it even if temporarily we can't do it inside the home right yeah and people will always be willing to pay good money to have their pets taken care of even their horses yeah it surprised me how well the business took off as quickly as it has.

That's awesome. Well, I think you look on paper and go, hey, how could we grow this business? You start helping her dream about what this could turn into, and then it's less about selling the house as the point of contention, and it becomes more about how can we get to where you want to go. Okay. So I would set that vision with her and get on the same page, get on the same plan, and show her the numbers as part of it.

I don't know how much math is going to appeal to her because right now it sounds like there's a lot of emotion tied to this. Oh, you're right. When I start breaking down the math, she's like, I get the numbers. And then she starts going back emotionally on what happened to be given up. Yeah. Well, I think this is a temporary setback for her that eventually is going to turn into something great.

I can't wait for you to call back and go, man, she started her own pet boarding business. It's brick and mortar. She's crushing it. She's making more than me. I've joined her in the business, and life is great. Yep, sounds great. That's my hope for you, man.

Thank you so much for the call. That's a tough one. A lot of people call in, and the numbers make sense. The math works the call. That's a tough one. A lot of people call in and the numbers make sense. The math works out, but there's a relational piece that you have to grapple with. You got to go, how do we get on the same page? And this looks different for everyone. For some people, just doing the math, just showing them the interest we're throwing away on our payments, that can be enough to get you riled up. For me, it is because I'm a giant nerd. For a lot of people, you got to appeal to the emotions, get to the root of it, help them dream about the future instead of worrying about the present and all kinds of fears.

But you've got to get to the root of the problem, the real root, if you want to get somewhere together. And that's my hope for everyone because once you get on the same page, man, you are an unstoppable couple who's going to charge hell with a water pistol. This is The Ramsey Show. I'm George Campbell, Ramsey personality, and I am your host today, Riding Solo. It's a free call, 888-825-5225. Let's talk about your life and your money. Christina joins us up next in Chicago. Christina, welcome to the show. Thank you for having me. Absolutely. What's going on with you? So I'm just starting to get

started here and try and figure out a budget. And I was wondering, how do you plan or budget in expenses for a newborn? I have a four-month-old currently, so I'm just trying to figure out how you put that into your monthly budget. Fun. Congratulations. Thank you. So four months old, how's it been going? Pretty good. And how have you covered expenses so far? Have you kind of just been winging it and you're going, I don't know if I'm doing this right? Yeah, pretty much.

Okay. Well, you know, when you have that newborn, it's just going to add a line item to your budget. So it shouldn't add, you know, thousands of dollars every month. You're probably looking at a few hundred bucks so far. Does that sound right? Yeah, pretty much. It's not, it hasn't been too bad luckily. But yeah, I'm just starting to kind of figure out when we start doing daycare and everything like that, how to just kind of. Yeah. Do you guys have any debt?

Yes. How much? We have about $75,000 in student loans, $30,000 in a car, and about $5,000 in credit cards. Okay. And what's your income? About $120,000. Cool. And what does CARE look like right now for that four-month-old? Well, my husband's a teacher, so he'll be off for the summer. So we don't have out care until August,

but we got some estimates and that's looking at about like a thousand dollars a month. Is that the part that's kind of stressing you out? We're going, how do we even fit this in the budget? Yeah, pretty much. Because I'm guessing right now you don't have an extra thousand dollars laying around. No, we're pretty tight. I'm sorry to hear that. So I think if we got rid of this debt, life would feel a lot more peaceful, wouldn't it? Absolutely. Okay. So I want that to be your focus.

Now, baby's home, baby's healthy, right? Yes. And so outside of the basic budget line items, we don't need to go get all the fancy tech for the baby. It's going to be okay. But I would start making a list of all the things that are monthly expenses and then make a list of things that are maybe yearly expenses or kind of a sinking fund. Things like checkups, doctor visits, things like that where you know what's coming up. You know what your co-pays are going to be. You kind of know how often you're going to be visiting. You know what basic clothing is going to cost and all of that. So once that's in the budget, I would start going, okay, what is it going to take to create $1,000 worth of margin by August or by September?

Right. And once you do that, it kind of gets you to be creative, and you start making a plan going, all right, what areas could we shave? What are the expenses right now? And that might mean getting your husband taking on a side job outside of teaching. Can he work this summer? Yeah, he can. Okay. So what if he could pick up a job and he could save up 12 grand or start paying off some of this debt to free up some of these payments so that you could find this thousand dollars in your budget? Right. No, that's a good idea. And so I think when you start getting creative going, all right, if we know debt is off the table,

we're not going further into debt, we want to clean up this mess, what does it look like to find $1,000 a month? And I think then that's where you start to go, what are these expenses? What can we shave down? What can I go get at Goodwill? What can I borrow from a friend? What is any way to stop spending money?

And then what are some ways we can make more money? And once you add those together and you get rid of this debt, which I'm looking at, how much is this car worth? Probably about 36. Okay. This might hurt, but I think right now this baby takes precedence over driving a nice car. Would you agree? Yeah, we had gotten it because my car had 100,000 miles on it in 2014, so we bought the new car last year thinking that we were going to need it for the baby. Well, I'll tell you this. You sell that car for $36,000 and you owe $30,000. That gives you $6,000. Maybe scrape up some extra money and get an $8,000 car, and the baby's going to be just as safe in that extra money and get an eight grand car. And the baby's going to be just as safe in that car as a $36,000 car. Yeah, that's what I was thinking.

And so that to me already gives me a little bit of peace because you just knocked out a huge chunk of almost a third of your debt right there. Right. And now we're going, okay, we have the student loans. We can knock out these credit cards real quick, and then we just have the student loans. So now you've freed up a car payment and a credit card payment. What do those add up to? A credit card and a car payment? Yeah. That would be about $35.

What does that add up to? $35 for the year. Okay, for the year. So what does that add up to in your monthly budget? What are those payments that you're making every month? For the car, it's $500 and the credit card is probably about $250. Okay. So now I'm going, oh my gosh, we just found $750 in our budget. You just gave yourself a raise. And now with a side job, if we can just get an extra $250 a month, we can afford daycare, no problem. And now we just have

the student loans. Do you see, you feel the excitement when you start to knock out some of this debt and get those payments out of your life? Absolutely. Okay. So that would be my plan. I'm finding any way to make more, to spend less, to get rid of this debt as soon as possible. And if I'm you guys, I'm selling the car. And that might hurt for now, but I promise you the baby's just as safe in that car. Obviously, get something fairly reliable. I'm not asking you to drive a beater around, but an $8,000 old minivan, SUV, whatever it is, will get you around just fine. And remember, this is temporary because you're going to get an upgrade once you're out of debt. You have a fully funded emergency fund, daycare's taken care of.

Now we can go upgrade that car. Thank you so much for the call. Gavin joins us up next in Kansas Thank you so much for the call. Gavin joins us up next in Kansas. Gavin, welcome to the show. Hi, George. Hey, thanks for having me. Absolutely. What's going on? Well, I have a dilemma here and I wanted to run it by you. My question is whether I should take this next semester off of school or kind of toward college in a way that would make it feasible. And in my particular situation, I'm 21 years old. I've got one more year left. I just got done my junior year. Awesome. And I'm completely debt-free thanks to the baby steps. Borrowing money is not

on the table. Just wanted to make that clear. Fantastic. But I'm in sales right now. I sell vehicles, General Motors. And so I'm in a sales position now. However, with my classes being more nuanced for senior year to graduate, they're right in the middle of the day and with scheduling, it appears that I'm not going to be able to make the amount of sales that's going to allow me to continue cash-flowing school. Okay, what is it going to cost for this last year? The cost for school is $19,000 per year, or about $1,500 a month.

Okay, and you've got no money right now. Do you have any money saved up? I've got about $800. $800 to your name. No debt, though? No debt. Okay, so is there anything else you could do at night? Choose a different sales job to keep the income going?

I could. I could. I could do some side hustles like pizzas or something like that. My thought, though, when I am not in school, my income track record has been probably about $5,000 a month or so. When I'm not in school, that's me just focusing, grinding 60 hours a week at my job. And so I'm toying around with this idea of taking a semester off to save up some money. So that way I can continue cash flowing it. Yeah. Yeah, I think that's your last-ditch option. I don't know that it would be my first.

I'm going to try to cash flow this thing. Are you working this summer? Yeah. Or do you have school to cash flow this thing. Are you working this summer? Yeah. Or do you have school? Yes, I am. Okay. Could you work this summer and really grind and get $19,000 saved up or pay for a semester at a time?

I could. I could. I think – Because then you're looking at what, eight, nine grand, about nine grand a semester? Yes. Okay. So my thing is, can you get $9,000 for the summer to pay for the semester, then during the semester work more to save up another $9,000 to pay for the final one?

I probably could. It's probably going to be pretty tight. Well, I'm okay with tight if it means you're graduating, and once you've graduated completely debt-free, and you're graduating at least six months earlier. That's true. So I think that's my first option. And if you're going, this is impossible, I don't want it to burn you out. But, dude, you're young. You're 21. You've got more energy than I do at this point. So that would be my goal is to do whatever I could to find any side hustles. It doesn't have to be sales. Anything where you can make a lot of money quickly, I'd be focusing on that. And if you can get through school debt-free without taking a gap,

I'm good with that. If you have to take the gap, I'm still proud of you for graduating debt-free. So either option is great with me. Just don't go into debt and you'll thank us all later. That puts this hour of The Ramsey Show in the books. My thanks to Austin and Will and Kelly, Zach and Andrew in the booth keeping the show afloat, and you, America. Appreciate you guys listening. We'll be back with you before you know it. Do you love a good day, friends? Want to see the latest Ramsey Show videos going viral? Check out your favorite moments from the Ramsey Show on YouTube. Go watch and subscribe to the Ramsey Show channel on YouTube.

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