Highlights from the Dave Ramsey Show

QUESTION: Eric in Charlotte has a $2,400 transmission repair he needs to make. He can't get approved for a loan and doesn't have the money to pay for it. He's single and making $26,000 a year. Dave offers a couple of ideas.

ANSWER: As you know, we teach people not to borrow money. I'm glad you weren't approved for that because it would have been a ripoff loan to start with.

Rather than fix this $700 truck, if I was going to spend $2,400, I would just buy a different car with that money. You could sell the $700 truck as it sits, scrape together a little bit of money and use those combined to buy a beater car. Then get yourself a nicer beater in two months and another beater in two more months, working your way up while you get out of debt. Keep working your way up through the cars; it's what I had to do when I was in that fix.

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QUESTION: Kelly in North Carolina and his wife are working on their debt snowball. They earn $140,000 a year and are almost out of debt, but have two car payments. She wants to get rid of their credit card debt, but is fine with having a car payment. That doesn't make sense to Dave, who digs a little deeper to find the issue here.

ANSWER: This car payment and credit card debt are the same things–both debt payments and both with interest. The only difference is that one of them is attached to a car and one is not. Why don't you just say that you like Visa but not MasterCard? That's about as logical.

If she has a hang-up about car depreciation and throwing money away there, that's what you are doing. You are buying something that goes down in value, but that's not because you borrowed money on it or didn't borrow money on it. A $20,000 car still becomes worth $5,000 in just a matter of years whether you have debt on it or not. A car payment doesn't keep the car from depreciating.

You are attempting to say that she's presenting something that's logical and there is not anything logical in this entire discussion. This is about her not giving a rip about getting out of debt. You've gotten all fired up about this and attacked this debt, and you've left her behind. She's not on the program. The problem is not the car.

You can't be passionate about getting rid of your credit card debt and not care about your car payment debt. It's not logical. There is such a disconnect there that it would have to require no intellect.

What I think in this situation is that she hears that you want to sell her car. That's what makes her enter into these convoluted car payment arguments. All it comes down to is that she doesn't want you to sell her car.

You make $140,000 a year, so a $25,000 is not out of line if everything's paid off. I would go back to her and say that if instead of keeping the $600 car payment, you invest it in a decent growth-stock mutual fund from age 40 to age 70, you would have $2,096,978 in your mutual fund account. That's what car payments are costing your family. Translation: That's stupid.

Once we put that information out there, the next thing you say is that you don't think selling the car is necessary. The car isn't the problem; the payments are the problem. You are unwilling to stay in car-payment land for the rest of your lives. It's costing you $2 million. You have figured that out. Whether she has figured it out doesn't matter because you guys are paying off this car. You guys are going to get in gear and get this done.

If she doesn't grasp that this is costing you $2 million, then you will have to just override her vote, and you'll have to go forward with smart thinking. But I think she'll get it because you will underscore really hard that you are not selling her car, but you'll go about the business of rolling up the sleeves and sacrificing to pay it off because it doesn't make sense to keep a car payment.

You won't have this discussion again in three or four years because you are never borrowing money again. It costs you $2 million and that is the definition of stupid. You are not doing this again, and the next time you guys are ready to buy a car, you will save up and pay for it.

You are arguing about the wrong thing. You are arguing about whether car payments are a good idea. You can't argue with something stupid like that. Instead you have to present the evidence and assure her that you're not getting rid of her car. Underlying all of this fight is that she doesn't want her Beamer to be sold. She also wants what she wants when she wants it, but we'll deal with that later.

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QUESTION: Jonathan in Alaska bought a $48,000 car and rolled his previous car loan into that payment. He now owes more than $60,000. He can make the payments, but he says his head is spinning over the stupidity. This answer is pretty easy for Dave.

ANSWER: I think you know that you need to sell it as soon as you can. It's going to be painful because when you do stupid stuff, it costs you money. It's going to hurt. I'm sorry you're going through this.

The good news is that if you learn from it, it can be the last time you'll go through it. Every time I do something stupid that costs me money, I look at it and say that it's the last time I'll make that mistake. You'll think about this a little differently from now on.

You impulse-purchased here, and the chances of you doing that again instead of slowing down, talking to your wife, praying and thinking about the long-term implications of the decision, taking a few days and looking at it are low. If you had done that, you'd have walked away from this deal.

One time, I was talking with a guy I considered to be very wise. He said the way he got to be very wise was that he used to be a fool.

You talked about selling your house and having that bring $20,000 or $30,000 in equity. If that's the case, great. List your debts from smallest to largest, which includes the amount that you're in the hole for on the car, and then apply your equity to those debts. Then sit in an inexpensive rental property while you keep your costs low and clean this debt up as soon as you can so you can buy again.

Let's start the process over. Sell the car, sell the house, throw all the money in a pile and let's get out of debt while you rent. Then once you build your emergency fund back up and are debt-free, you can build up your down payment and buy.

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