Dave Says - March 11, 2013

What's the difference?

Dear Dave,
My wife and I make $140,000 a year, and we’re working on our debt snowball. We’re almost out of debt, but we still have two small car payments and some credit card debt. She wants to get rid of the credit card debt but doesn’t mind us having car payments. Can you help me understand this?
Kelly

Dear Kelly,
I’m not sure I understand her thinking either. The car payments and the credit card debt are the same thing. They’re both debt payments, and you’re being charged interest on both of them. The only difference is that one is attached to a car and one’s not. It makes about as much sense as saying you like Visa better than MasterCard.

Even if she has some strange hang-up about car depreciation, that argument doesn’t hold water either. Cars go down in value whether you borrowed money to buy them or not. A $20,000 vehicle will be worth $10,000 in just a few years no matter what you do. A car payment won’t keep it from depreciating or slow the rate of depreciation.

Sometimes people get burned out or tired of paying the price to become debt-free. It can happen when you’ve been working on something for a while, and it seems like you’re never going to get there. Sit down and have a gentle, loving talk with your wife. Find out why she feels that way about the car payments and where the root of the problem really lies.

She may just need some support and encouragement from the man in her life. Remind her how far you’ve come together on this journey, how close you are to winning, and how much you love her. You’re too close to making your financial dreams come true to stop now!
—Dave

There's a better option

Dear Dave,
I’m 23 years old, and I was in the military for five years. While serving I received what is now $2,700 in Series EE bonds. Should I keep them?
Tammy

Dear Tammy,
If it were me, I’d cash them in and do my own investing with the money. Series EE bonds have a very low rate of return. They don’t pay much, and they’re not good long-term investments. They’re almost like keeping your money in a certificate of deposit over the long haul.

Investing is never a bad idea, and I know that may seem like a lot of money to you at the moment. But my advice is to cash out the bonds, find a financial advisor with the heart of a teacher, and invest the money in growth stock mutual funds with a good five- to 10-year track record. After that, get set up for auto-draft on your checking account and put at least $50 a month into your new mutual fund. That’s a much better plan!
—Dave

Can I motivate my parents?

Dear Dave,
My parents are close to retirement and very heavily leveraged. Do you have any advice on how I can help motivate them to succeed financially?
Jack

Dear Jack,
I appreciate your concern for your mom and dad, but I’m not sure you can motivate anyone to do something. Sometimes people don’t have motivation because they’ve lost hope. In turn, it’s that sense of hopelessness that keeps them from moving forward. I think in these situations the best you can do is to show them hope. And one of the best ways to do that is to share your own story. You can also examine the numbers with them to show that the light at the end of the tunnel isn’t always an oncoming train.

I do this a lot with callers on my radio show. After we look at the pieces of the puzzle together, I might show them how they can pay off $50,000 of debt in a year’s time. Most of these people aren’t bankrupt; they’re just plain scared. So there’s a lot of power in that little word “hope.”

Sit down with your parents and let them know how much you love them and want them to enjoy their retirement. See if you can find out how much income they have versus the amount of debt they’ve piled up, then begin to formulate a step-by-step plan. Show them how they can begin to get traction and free up their money by living on a budget and getting out of debt. You can even offer to be their counselor or accountability partner.

You want them to be safe and secure in their retirement, and they deserve some dignity after working hard all their lives. So, in my mind, hope is the best thing you can offer. Motivation is a different story. That has to come from within. You can’t really motivate the unmotivated.
—Dave

No on rent-to-own!

Dear Dave,
What do you think about rent-to-own housing? I’m not sure we’re financially ready to buy yet, but we don’t like giving money to landlords. Is rent-to-own a wise compromise?
Mike

Dear Mike,
I wouldn’t recommend getting mixed up in a rent-to-own situation. I don’t think it’s a wise compromise, and it’s also the kind of deal that works out well for the landlord, not the buyer.

If you’re not financially ready to purchase a house, then you need to get your life in order before you take on a major commitment like becoming a homeowner. Get your debts paid off, get an emergency fund of three to six months of expenses in place, and save up for a down payment of 20 percent. I know it’ll take some time and it might be difficult, but that’s what I’d recommend.

Buying a home when you’re broke, or trying to trick the system with a rent-to-own deal, usually doesn’t work. I spent a lot of time in the real estate business, and I still own several properties. I don’t do these deals because statistically the majority of people who rent to own never end up owning the property.

Take my advice and go slow, Mike. When you buy a home, you want it to be a blessing, not a burden!
—Dave

How do you carry Dave Says?

To carry the column in your publication, contact us for more information. Contact Us

recommended

Special Offers


Get all of Dave's Teachings in the Starter Special



Dave's New York Times Bestseller
The Total Money Makeover



100 of the most asked questions from The Dave Ramsey Show
The Money Answer Book

helpful tools