QUESTION: John in Ohio and his wife make $120,000 a year and have a large emergency fund. They have a mortgage and a car loan at 0% interest. John wants to pay off the car. His wife doesn’t want to since it’s at 0%. Dave explains why they need to get rid of that car debt.
ANSWER: If she could borrow $100 million at 0%, would she? That’s the question to ask. Here’s my point. When you ratchet up the numbers, it makes your risk meter go off. Zero percent is never 0% because there’s risk involved. When it’s $8,000 and you make $120,000, the risk is so small that you don’t feel it emotionally, but when I turn $8,000 into $8 million or $80 million, all of a sudden, her mathematics go out the window because she starts feeling the risk.
In my opinion, I would agree with you. I would write a check today and pay it off. Then I would get the house paid off right after that. If I woke up in your shoes, I would be debt-free in two years—house and everything. You can probably do it sooner than that.
The 0% is an illusion because it does not allow you to realize that you’re monkeying around with banks, and they mess stuff up and there’s hassle and you’re having to fool with this and there’s stamps or it’s online and then you’re moving around money. And your time’s worth something to pay the bill. All of my credit cards are 0% because I don’t have any! It’s a real simple clean life. I just hand people money; I buy stuff. I don’t hand the money; I don’t buy stuff. I don’t have anything to keep up with. It’s just ridiculously clear. Personal finance is more than simple mathematics. When you look at it through the lens of simple mathematics, it’s short lens that you’re using. You’re not seeing the whole picture. That’s not to put her down. She’s doing math. That’s a good thing, and you guys make a lot of money, so you’re not dumb people. Just realize there’s more to this picture than simple sixth-grade math. When you do, you start to see personal finance through a whole different lens.