By Dave Ramsey
Q. We’re on Baby Step 1 of your plan and we have $1,000 saved. We have a baby, my husband brings home about $2,000 a month and we have $50,000 in debt, the majority of which is student loans. My mother-in-law has offered to let us move in with her for a while in order to pay off our debts more quickly and save up to buy a house. Does this sound like a good idea?
A. If your husband can get his income up, I’d prefer that you guys maintain your own residence. Moving in with a parent would be my last choice, if for no other reason than keeping your independence and maintaining some dignity. Plus, it’ll just be better for your marriage. But you don’t need to even think about buying a house until you first clean up the mess you’ve made.
Still, if things get so tight you feel like you have to take your mother-in-law up on her offer, make it for a very limited amount of time. Write it down as an agreement, too. I’d say a minimum of six months, but definitely no more than a year. During this time you guys need to get on a killer budget, knock out a bunch of debt and pile up as much cash in savings as you can. Then find yourselves an inexpensive place to rent for a while. Hopefully, by that time your husband’s income will have increased.
But the big thing is to get stuff straight in your mind about this situation. Make sure everyone involved knows the arrangement is temporary and that you and your husband are serious about doing the hard work it’ll take to put your financial house in order. You guys shouldn’t still be living with a parent two or three years down the road.
Q. Recently, I got married and I have $10,000 in student loan debt. I have $50,000 that came from my grandmother, but the money is in a trust controlled by my father, who is an attorney. He says I should use it all to buy a small house outright. I think it makes more sense to pay down my student loan debt. Who’s right?
A. Why not completely pay off the student loan and put $40,000 toward a big down payment on a house? I’m sorry, but your dad is just plain wrong on this one. You should be debt-free before you buy property, because if you aren’t, Murphy will move into your spare bedroom. Plus, he’ll bring his three cousins – Broke, Desperate and Stupid – with him.
Now part of the reason I’m saying your dad is wrong is based on the assumption that you guys are going to be responsible and live on a plan that’s logical and mature. If he knows better and has seen evidence that you’re irresponsible, he may have decided he’s not releasing the money in a way that would allow you to potentially blow it all.
So really, a lot of it depends on where you and your husband are in the growth process as a young married couple. Are you going to budget and live on less than you make? Are you going to have a plan and clearly defined goals for your future and your money, perhaps use the remaining $40,000 as a methodology to build up an even bigger down payment? Or are you going to use the fact that the student loan is gone to consume even more?
In other words, how grown-up are you going to be?
Dave Ramsey has authored four New York Times best-selling books, and “The Dave Ramsey Show” is heard by more than 5 million listeners each week on more than 500 radio stations. Follow him on Twitter at @DaveRamsey and on the web at daveramsey.com.