Dear Dave,
If someone is following your plan, is it a good idea to get mortgage disability insurance during Baby Step 2?
Craig
Dear Craig,
No, it is not. Mortgage disability insurance is a gimmick, and I would never recommend it to anyone.
I think I know where you’re going with this. During Baby Step 1, I encourage people to save up and set aside a beginner emergency fund of $1,000. Baby Step 2 is where you start paying off all your debts, except for your home, using the debt snowball system. A thousand dollars may not seem like a lot in savings during that time, but in the beginning it’s an attainable amount to save. Plus, it’s more than a lot of people have when they make the decision to get out of debt and gain control of their finances. Then, after finishing Baby Step 2 you move directly in Baby Step 3 — fully-funding your emergency fund with three to six months of expenses.
What I would recommend is having long-term disability insurance in place. It’s fairly inexpensive, especially if you get it through your employer.
—Dave
(Fix it, or buy another?)
Word count: 214
Dear Dave,
I’m driving a 12-year-old car with 210,000 miles on it. The car needs close to $2,000 in repairs, and it’s worth $5,000. I have $40,000 in cash saved, $40,000 in investments, and I make $80,000 a year. I also have $15,000 in student loan debt, but the only other thing I owe on is my house. Should I pay to repair the car, or buy something else in the $15,000 price range?
Brett
Dear Brett,
Let’s see, if you wrote a $15,000 check for a newer car and wrote a $15,000 check for the student loans, it would leave you with $10,000. I wouldn’t buy a $15,000 car in your situation. I’d buy a $10,000 car. You could probably sell the old one for around $3,000 if it needs repairs, combine that with your money and get a $13,000 car. Then, you could write a check and pay off the student loan debt.
With no car payment, no student loan payment, and a good car, you can really lean into your budget and saving money. You’d have no debt except your home, and you could rebuild your savings in a hurry. You’d be in really good financial shape in about six months. Plus, you’d have $15,000 in the bank in the meantime!
—Dave
* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.
=============
Dear Dave,
I have a friend who is experiencing financial problems. She is between real jobs at the moment and only bringing in about $600 a month. But even when she’s working regularly, she doesn’t budget or manage her money wisely, and she’s always looking for more money. On top of all this, she’s holding out hope for her dream job out of state. She interviewed several months ago, and hasn’t heard anything from the company. What can I do to help her?
Gina
Dear Gina,
I don’t mean this as an insult so much as an observation, but your friend sounds kind of flighty and impulsive to me. I think she may also be a bit immature. So what we’re really talking about here is how to get your friend to grow up a little bit and stop chasing rainbows. Don’t get me wrong. There’s absolutely nothing wrong with having a dream job, but you have to be realistic and practical at the same time.
Right now, I want her chasing three or four smaller job rainbows at once so she’ll actually have a chance of catching something. When you chase just one, in most cases you end up with nothing. The first thing I’d tell her is that the most employable people are ones who aren’t broke. When you go into an interview and you’re broke, you come off as tense and desperate, and you don’t make a very good job candidate.
The answer to that, when you’re basically unemployed, is to work any job – and any three or four jobs. Wait tables, deliver pizzas or mow yards. I don’t care what, just generate some income. Work all the time and smile! You never know when you might be talking to your next employer. You could be walking someone’s dog one day and end up in their marketing department the next. But none of this will happen if you’re trying to feel better about yourself by sitting home watching Oprah reruns.
I assume that since you’re friends, she’s willing to listen to what you have to say. But if she won’t, all you can do is pray for her. Remember the old saying, “Those convinced against their will are of the same opinion still.”
—Dave
(Honeymoon on a budget)
Word count: 239
Dear Dave,
I just got married, and my husband and I want to book a combination honeymoon and New Year’s trip to celebrate. We don’t have all the money for it right now, but will have in a few weeks. We were thinking about booking the trip on a zero-interest credit card, and paying it off when we have all the money. I know you hate debt, but would this be okay since it would be a very short-term debt?
Laura
Dear Laura,
I know you guys are excited and happy about being married. And I wish you all the happiness in the world. But I don’t recommend credit cards of any kind, for any reason, whatsoever.
I don’t want to burst your bubble, but if you can’t pay for this trip up front you can’t afford it. Believe it or not, lots of people postpone wedding trips until they’ve had a chance to save up a little bit of money. Some folks have never even gone on a honeymoon trip, and they have great, loving marriages.
My advice to you and your new husband is to work, and save up a little bit more. Maybe one or both of you could pick up extra jobs for a little while, and make it happen sooner. Then, when you can pay cash for the trip, go have a blast on a honeymoon you can afford!
—Dave
*Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com
==============
Dear Dave,
I gave my wife $350 for Christmas shopping at Wal-Mart. While she was there with our six-year-old daughter, she cashed her bonus check to put with the Christmas money. When she tried to check out, the money was gone. My wife even asked our daughter if she took the money out of mommy’s purse, and she said no. Later, we found the money in our daughter’s coat, and she didn’t seem sorry at all for having taken it. How should we address this?
Jonathan
Dear Jonathan,
Most children that age really have no idea something like this is such a big deal. But this is more than just a money thing. It’s something of great value, and it’s someone else’s stuff. Not only that, but she took it, lied about it and then showed no remorse. I’ve got a really short fuse when it comes to lying, but the lack of repentance and sorrow associated with something like this are my biggest problems.
First of all, you and your wife have to present a united front when you talk about this with your child. This is an incredible example of a teachable moment, but you two have to be on the same side and treat it with appropriate seriousness. You have to make your daughter understand that what she did was wrong and why it was wrong. Perhaps you could also use an example of someone taking something from her — something that was very valuable to her — and ask how she would feel in that situation.
Lots of times this approach, especially with little kids, will touch their hearts and help them realize the magnitude of their actions. In a case like this, I think I’d hand out very little in the way of punishment. Regardless, you have to nip this kind of thing in the bud immediately. This is the kind of violation you cannot allow to happen unaddressed. And whatever the consequences of her actions end up being, you must make sure she clearly understands why she’s being punished and why what she did was wrong.
—Dave
(You need an umbrella!)
Word count: 304
Dear Dave,
My husband and I both lost our jobs over a month ago. I’ve been interviewing, and he started a two-week training program for a new job the other day, but right now we’re in survival mode. We just cashed in an annuity, and were wondering if we should pay down debt and reduce the money going out each month, or just live on it?
Veronica
Dear Veronica,
Right now, it’s raining and you need an umbrella. If it were me, I’d just sit on the money for the time being.
Don’t misunderstand me. You need to be honorable and pay your debts, but you may have to put that on hold for a while. Right now, it’s more important to have food in the house and keep the heat on. This kind of situation is scary and can be really stressful, so make sure you hug and hold on to each other a lot, too.
It’s been rough for you guys, especially right here during the holidays. But it sounds like things may be taking a turn for the better. Your husband is about to start making money again, and you may have some possibilities on the horizon.
Through this stretch, honest communication can make a huge difference. Make sure your creditors know what’s happening. Let them know that you want to make things right, and that you will make things right as soon as you can.
God bless you guys!
—Dave
*Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
=============
Dear Dave,
I’m a 26-year-old journalist making $26,000 annually, and the only debt I have is $31,000 in student loans. I’m following your plan, so I also have $1,000 in my starter emergency fund and am working side jobs to make extra money. Since my job field is volatile, I’ve lost and found a couple of jobs in the last few years and have an older car. Should I beef up my emergency fund in case I go through another job loss or I have problems with my vehicle?
Sarah
Dear Sarah,
In your case, I think you might want to increase your emergency fund to around $3,000. Usually, I’d rather people focus on knocking out debt once they have a beginner emergency fund in place, but it sounds like you’ve got extenuating circumstances in your life. Older cars, especially those with lots of miles, could need attention at any time. And you’re right about your job too. The newspaper world is pretty volatile and even downright insecure at times. This isn’t your fault, but I’m glad you’re looking ahead.
Just push the pause button on paying off debt for the moment, and build up your emergency fund a bit more. That will give you a little more wiggle room in case life decides to throw something unexpected at you. Then, go back to paying off debt before you increase your emergency fund to a full three to six months of expenses.
Having a little financial stability is a big thing for you right now, Sarah. It will help you feel a little more secure until the debt is gone. And once that happens, you’ll really be able to fly!
—Dave
(Income is the problem)
Word count: 337
Dear Dave,
We had our first child a few months ago, and some of the bills have gone to collections. We’ve paid what we could, but we each make only about $15,000 a year. Now, we’re getting calls and letters from collectors wanting our checking account information and electronic access. When we won’t give it to them, they accuse us of not following the terms and conditions of the agreements. They say we’ll be penalized if we don’t comply. What should we do?
Stephanie
Dear Stephanie,
You’re doing the right thing by not giving them your account information and electronic access. The stuff they’re saying is just collector talk, and they’re full of crap. The next time you talk to one of them, just let them know you have every intention of paying what’s owed. But the bill is going to be paid by you. There’s nothing in an agreement like that which gives them the right to your account numbers or electronic access. These people can stop lying and act right, or they can go jump in the lake.
The biggest issue here is your income. If I’m your husband, I’m going to find an extra job delivering pizzas a few nights a week for the time being. He could make an additional $1,000 a month for the next 10 months, and that problem would be solved. Instead of working 40 to 45 hours a week, try working 60 to 80 for just a little while.
Still, you both need to examine your career track for the future. Look into different types of training and education with the attitude of doubling or even tripling your income in the next five years. I want you both to develop long-term plans to increase your income, and a short-term plan to get out from under this debt in a hurry. That’s the kind of thinking that will get rid of collectors faster than anything else. They’re just a symptom of the bigger problem.
—Dave
* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
