Dave Says – A teachable moment

Need some financial advice? Debt and income crisis? Pay off the house first? Check cashing? Taxes? Credit Cards? Check out what folks are asking Dave Ramsey.

 

A teachable moment

 

Dear Dave,

My mom is single, and she co-signed on my student loans for college. Would it affect her credit if I couldn’t or didn’t make the payments?

Terri

 

Dear Terri,

Yes, it would. The truth is, your mom shouldn’t have co-signed for you in the first place. There’s only one reason lenders want a co-signer, and that’s because they’re afraid the person taking out the loan won’t be able to pay back what’s owed.

You’ll be trashing your and your mom’s credit if you don’t pay the bills on time. If she co-signed for you, and you don’t do the right thing and pay back the loans, she’ll start getting phone calls looking for the money, too. I don’t think you want to subject your mom to the stress and hassle of collector calls or bad marks on her credit, do you?

Believe me, I understand what happened. Your mom loves you, and she wants the best for you. She’s willing to do whatever it takes to help her daughter succeed. What I want you both to understand going forward is that the idea you have to borrow money to attend college — or do anything else, really — is a myth. There are many ways to get a great education, and find excellent career opportunities, without borrowing a dime. Scholarships and grants are everywhere these days. There’s absolutely nothing wrong with working before and during college to help cash-flow an education, or you can begin your studies at a community college where the costs are much less.

In addition to four-year schools and community colleges, anyone looking to further their education shouldn’t ignore the possibility of trade or technical schools. At these institutions, you can get valuable training that’s highly marketable. Not to mention completing a trade or technical school program usually takes less time and is cheaper than a bachelor’s degree.

My goal here isn’t to fuss at you or beat you up, Terri. It’s just very important you understand what’s at stake — now and in the future. My hope is to give you and your mom some good information that will help each of you make smarter, more informed financial decisions down the road!

—Dave

 

0% interest?

 

Dear Dave,

I know you’re against financing purchases. However, is it okay to finance things like furniture at zero percent interest?

Detrick

 

Dear Detrick,

We just finished an extensive study of more than 10,000 millionaires. Not a single one of these folks said they became rich by borrowing money to buy things at zero percent interest. Since none of those millionaires gave credit for their wealth to zero percent interest financing, and since we know banks charge interest on loans, how is it you think these people are loaning money at “zero percent interest?”

Is it possible the pricing of the item has the interest rate built into it? I think the chances of that are pretty high. If not that, companies offering this kind of financing have very accurate and highly researched data that tells them the vast majority of people who take out zero-percent loans don’t pay off the loans in the specified period of time. Do you know what happens if you don’t live up to the terms of those contracts? It becomes a regular loan, and they back charge you for the interest.

So, on average you’re paying for it all. I don’t know why you’d want to play with snakes. Snakes bite, and some of them can kill you. Avoid debt like the plague.

—Dave

 

Explaining the envelopes

 

Dear Dave,

I’ve listened to you for a little while, but I was wondering about the envelope system you recommend. How does it work?

Danielle

 

Dear Danielle,

Don’t let the word “system” intimidate you. It’s just grandma’s old-fashioned, common sense way of budgeting money.

Back in the day, many people were paid in cash at their jobs. Then, they would take the money home and divide it up into different envelopes. The envelopes held cash for different categories in their budgets — food, clothes, rent, and other bills and such. When a particular envelope was empty they stopped buying that item, because the money budgeted for that category was gone. If you wanted a dress, but the clothing envelope was empty, you didn’t buy a dress that month.

It’s just a simple cash system that, combined with doing a written monthly budget, will help keep you from overspending!

—Dave

 

IRS: Refunds of $1.4 billion unclaimed by those who have not filed tax returns for 2015