Commit To Being Debt-Free Before Investing

Amy has $65,000 in debt, but her husband wants to put money into a mutual fund. Dave tells Amy they have to let go of the $5,000 they've saved and put it toward debt.

QUESTION: Amy in Texas has $65,000 in debt, but her husband is emotionally invested in Baby Step 3. He wants to put money into a mutual fund, while Amy wants to place their money toward the debt snowball. Dave tells Amy they have to let go of the $5,000 they've saved and put it toward debt if they want to commit to getting out of debt.

ANSWER: His plan is not working. It's not only slower, but it doesn't work. We can intellectualize this, but the point is not the $5,000. The point is when you become unbelievably committed to getting out of debt, you'll get out of debt. Until then, you won't. That's what this conversation represents more so than the discussion about whether to keep a portion of an emergency fund while doing the debt snowball. This is not an intellectual problem. You people are smart people. You've just been doing dumb things.

A major emergency other than your $5,000 is going to cause you to go bankrupt because of the way you've lived your lives for the last six and a half years. Five thousand dollars isn't going to save you from a major emergency any more than $1,000 is going to save you from that. Getting this mess cleaned up would save you.

Five thousand dollars is a lot of money. I get that. I get that what I'm asking you to do is very scary, and the security that's drawn from that $5,000 being in an account is great. I'm telling you that there's a thing that happens in your relationship, in your emotions, in your behaviors and in your habits when you commit to something. I'm burning the bridges behind you, so you've got to go kill this.