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.
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I’ve heard you tell people to avoid debt consolidation companies. Why do you think debt consolidation is such a bad thing?
The main reason is that debt consolidation makes you feel like you did something to really change your financial world when you didn’t. That’s part of the catch. Believe it or not, I hear people all the time say things like, “I took out a loan, and paid off all my debt!” No, you didn’t. All you did was move your debt around. It’s still there!
In cases like this, the biggest issue remains because you didn’t do anything to address the real problems—you and your behavior. When you have debt, the number of payments you have left isn’t the problem. The problem isn’t interest rates, either. The problem is the person you look at in the mirror every day.
Until you get mad enough about your financial situation and the real reasons for it—until you fix you and your behavior—you’ll never make any progress toward winning with money!
When can we buy a new car?
My husband and I are following your plan, and we’re in the middle of saving up our emergency fund. When do you recommend buying a new car in the process? Do we have to wait until we’ve finished all the Baby Steps?
I never advise buying a brand new car, unless you have a net worth of at least $1 million. At that point, you’ve got enough assets that you won’t get rocked by the ridiculous depreciation that comes with buying a new vehicle.
Now, you don’t have to drive a beater until you pay off your house or anything like that. I advise people to drive the minimum they can in terms of a car until they complete my first three steps. Baby Step 1 is a beginner emergency fund of $1,000. Baby Step 2 is paying off all debt except for your home. Baby Step 3 is fully funding your emergency fund with three to six months of expenses.
After you’ve accomplished these first three steps, then you can move up to a nicer car. Notice that I didn’t say move up to a new car. I want you to save up cash, and get a really nice used car. That’s what the typical millionaire does, and I want you to model your financial behavior after people who are in the position you want to be in some day!
I’m an admissions counselor for a university, and I make $37,000 a year. I spend a lot of time on the road, and I’m trying to get out of debt, but I have one credit card I’m still using for travel expenses. The university refunds me for these expenses, which always run $300 to $400 per trip, but usually it takes about three weeks for this to happen. Do you have any advice for someone in my situation?
Let’s set up an account, and prime the pump once. By this, I mean in the next few months I want you save up $500, then open a separate checking account for reimbursable travel expenses only. Make sure a debit card is attached to the account, too.
If you put $500 into this account one time, you’ll never have to save for it again. You’ll use some of that money for your travel expenses—on your debit card—and when they reimburse you, you’ll put the reimbursement check directly into your travel account. After you get the initial $500 in there, your travel account will run off your reimbursement checks.
Lots of people carry credit cards on the road for expenses, but often they’ll end up buying things that aren’t reimbursable. It happens to everyone who travels. Then, over time, you accidentally run up credit card debt. But when you use a debit card with an account that’s completely separate, and you’re not using it for anything except reimbursable travel expenses, it’ll help you become a lot more disciplined with your purchases on the road.
Everyone who travels a lot does some stress eating and stress spending. Why? Because being on the road often, or for long periods of time, is no fun. The only people who think travel for work is glamorous are those who don’t do it for living!