By Dave Ramsey
Q. My husband’s company recently told everyone that massive layoffs are coming and they should start looking for other jobs. Right now, all of his options are out-of-town. A real estate agent told us we’d have to remodel our kitchen in order to sell the house. We’ve got $3,500, but remodeling would take about $2,000. Should we get a second mortgage to get the work done?
A. You might want to get another opinion. Sure, a new kitchen would be nice, but is that the end-all, be-all? Either way, there’s no way I’d go into debt to make this happen. Your house isn’t even on the market yet. There’s no reason to fix up a house that’s not for sale, especially when you only have $3,500 to your name.
There is, for sure, a financial storm brewing on your horizon. Start right now living on rice and beans and saving up piles of cash to build a bigger umbrella.
Wait until he actually lands another job before you make any big decisions. What if something pops up where you are? If you end up moving, then you might take $2,000 from savings to fix up the kitchen and get the house sold. Don’t do it unless you’re going to pay cash, though. You don’t want a second mortgage hanging over your heads, making everything even more difficult.
Q. My husband has been transferred again in his job. Right now we have three houses and about $60,000 in other debts. He just found out that he can borrow against his 401(k) without hardship at the beginning of the year. Is this a good idea?
A. Three houses? Do you buy a new house every time you move? You guys need to stop doing that. The “other debt” isn’t the problem – it’s those houses that are killing you.
I would never recommend that someone borrow against their 401(k) just to pay bills. It might be a different story if you were facing foreclosure or about to file bankruptcy, but that doesn’t sound like the case here. I think you’ve just made some really bad decisions, and these decisions are following you around and messing up everything else.
Most of the time in situations like this I have to say, “sell the car.” In your case, it’s “sell the houses.” I know the market isn’t great in some areas, but these things are eating you guys alive. You’ve got to put some effort into getting rid of them. Then start living on a really tight budget and clean up the other debt.
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