By Dave Ramsey
Q: I’m 31, single and have two college degrees. I have no money to speak of, having just come through a rough patch of unemployment, but I recently landed a job that will pay me $20,000 to start. There’s the added possibility of an increase to $40,000 in the first year. I’m thinking about buying a house, but I’ve also got $50,000 in student loan debt. The good news is that I have no other debt. What are your thoughts on buying a home in this situation?
A: Man, you’re broke! There’s no other way to describe being $50,000 in debt with a job making $20,000. You don’t need to get wrapped up in buying a place right now. At this point, a house would end up being a curse instead of a blessing.
You’ve been through the valley and now I want you to come up into the sunlight. I want you to start building a future on something solid, and that solid ground means being debt-free. If I woke up in your shoes, I’d get unbelievably aggressive about paying off this debt. I’m talking about rice and beans and living in a cheap little apartment for the next two or three years while you kill it off.
Whatever you do, please don’t get complacent about this debt. Lots of times people will play around with student loans. They don’t take them seriously, because they have low payments or really low interest rates. The next thing you know, it’s still sitting there 10 years later staring at you like some kind of big, dumb pet.
Having a bunch of mortgage payments hanging over your head would completely destroy the foundation of your new financial life. Save up $1,000 for a small emergency fund. Go crazy about paying off the loan. Then get your emergency fund of three to six months of expenses in the bank. If you get used to living on $20,000 a year and your income rises like you mentioned, you’ll be able to get rid of your student loan fast. After that’s done, you can save enough for a 20 percent down payment on a house in no time.
Q: We want to go into the mission field, and we’re following your plan trying to get out of debt before we do this. We’ve got about $16,000 in credit card debt. My mother doesn’t want this to stand in our way and she’s offered to pay off our debt and let us pay her back over time at half of the interest rate we’re paying now. My husband likes the idea, but what would you say?
A: I’d say no, thank you. There’s no way I’d be in debt to my mother.
She’s obviously a kind, sweet person, but it’s a bad plan. I’m sure your husband is a great guy, too. But he’s overlooking the spiritual and relationship implications of all this. Proverbs 22:7 says the borrower is slave to the lender. If you do this, you’re going to change the way Thanksgiving dinner tastes, because you’ll be eating with your master instead of your mom.
Money has a way of changing the family dynamic and it’s almost never for the good. All of a sudden you’re getting raised eyebrows if you buy something for yourself, because even the nicest, gentlest person has opinions. You’d be giving her a say in your lives in a different way and at a completely different level than ever before. You just don’t need that in your life.
Now, if she wants to make paying off your debt a gift – one that will facilitate you guys hitting the mission field earlier – I’m OK with that. I’d be honored and I’d accept the gift. But I would never tell you to go into debt – especially to a parent. I’m sure she’s coming from the perspective that she’d make a better “creditor” than the credit card company. If it were me, I’d tell her that I love her, but I just don’t want to take a chance on doing anything that might come between us later.
For more financial help, visit daveramsey.com.