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Dave Says – The numbers don’t lie

Need some financial advice? Debt and Income Crisis? Pay off the house first? Check cashing? Taxes? Check out what folks are asking Dave Ramsey.


Dear Dave,

Why do you think all debt is bad? Aren’t some kinds of debt, like a mortgage or student loans, good?



Dear Nathan,

It sounds like you’re letting me know you think some kinds of debt are okay, instead of really asking for my opinion. When you ask a question that’s really a statement, it’s called a passive aggressive question. That’s okay. You and I will now argue as best we can in a newspaper column.

It’s not necessarily a question of what I think. I’m really just the aggregator of information we’ve gathered while walking with people through their financial issues. I’ve worked with tens of thousands of folks over nearly 30 years, everyone from billionaires and millionaires to broke people, and those in between. In the process, we’ve collected a lot of data through formal research projects — I’m talking about a huge stockpile of statistics, facts, and figures. And all that data shows debt is the biggest roadblock between people and wealth. I’m also a Christian. Having read the Bible, and what it says about money, I can tell you there’s not one place where it says debt is a good idea.

So, all that information leads me to one conclusion. Debt is not a positive thing. The only kind of debt I don’t beat people up over is mortgage debt, as long as it’s a 15-year, fixed rate loan. Houses are wildly expensive, and I understand that most people can’t save up to buy a home with cash in a reasonable amount of time. Still, that doesn’t make mortgage debt a good thing.

Any kind of debt is a burden, Nathan. It steals from your ability to save, build wealth, and be generous.



Don’t cash out retirement


Dear Dave,

I owe $18,000 on my only car, and the payments are killing me. I’m also upside down on the vehicle by about $4,000. I’m 31, and I’ve got exactly $18,000 in my 401(k). Should I cash it in to pay off the car?



Dear Monty,

If you use your 401(k) they’ll charge you a 10 percent penalty, plus your tax rate. That means you’ll probably lose anywhere from 25 to 50 percent to the government. I don’t know about you, but I think they already get too much of our money.

I love the fact that you want to get rid of your car payment, but I don’t want you to cash out your retirement plan to make it happen. If you can pay off the car in 18 months or less, I’d advise living on a strict, written budget, and throwing as much money as possible toward the car debt until it’s out of your life forever.

If it would take longer than 18 months to pay it off, I’d get rid of the car. To do this, you’d have to sell it for as much as you can get, then go to a local credit union for a small loan to cover the difference. If it’s your only car, you’d need to ask for an extra $2,000 to $3,000 to buy a little beater to drive until you can save up and get into something better.

I hate all kinds of debt, Monty. But being $5,000 to $6,000 in the hole is a lot better than having $18,000 in debt hanging over your head!



Allow them to earn it


Dear Dave,

Our daughter just turned 10 years old. Is now the right time to start giving her an allowance, and start teaching her about money?



Dear Danielle,

I’m glad you’re going to teach your daughter about money. But in my mind, there’s never a time for an allowance. I believe that kind of thinking, and using words like “allowance,” are some of the best ways to instill an attitude of entitlement in a child. I don’t think you want your daughter growing up with the idea she deserves money simply because she’s alive.

My advice is to develop a method by which she can earn commissions. Write down a daily or weekly list of jobs around the house that are age-appropriate she will be responsible for doing. Then, at the end of the week, she gets paid for jobs she completed — and she doesn’t get paid for the ones she didn’t do. The idea is to teach her that work creates money, and teach a healthy work ethic at the same time.

Of course, there are some things a child should be expected to do without financial reward. Everyone needs to pitch in, and do certain things to help when they’re part of a family. And once you’ve taught her about the importance and rewards of work, make sure to also teach her about the three uses for money — saving, spending, and giving!



Finding responsible renters


Dear Dave,

I’m a landlord, and I own a few houses and duplexes around town. Recently, I made the mistake of renting to some tenants who were not respectful of my property. Do you have any tips for selecting good renters?



Dear Joe,

In my experience, most landlords simply aren’t thorough enough with the screening process when it comes to potential tenants. It’s difficult to get to know someone — especially in this kind of situation — without spending some face-to-face time with them and digging into their backgrounds a little.

I have several rental properties, so here are a few tips that have served me well over the years. Always require a big deposit up front. In addition, pull a credit bureau report on prospective renters. I also drive by the place they’re currently living to see how they take care of things. To me, this is a great indication of how responsible they are, and how they might treat my property. Finally, get proof they’ve regularly made past rental payments on time.

It’s a leap of faith, to an extent, any time you sign an agreement with a new tenant. But there are things you can do to make a more informed decision as to whom you’re doing business with!



Don’t allow them to break the rules


Dear Dave,

A debt collector has been calling members of my family for the last two weeks to get information on me. He identified himself as collector, and I want to pay what I owe, but is it legal for him to do this?



Dear Kerry,

No, it isn’t legal. If he identified himself in any way as a debt collector, and spoke with anyone but you about your debt, he broke the law. This is a violation of the Federal Fair Debt Collection Practices Act. You need to file a complaint with the Federal Trade Commission (FTC) against this collector and his company.

Record the conversation the next time they call. Tell them at the beginning you’ll be taping any interaction you have with them from that point forward, and ask your relatives to do the same. That way, you’ll have proof to hand over to the FTC or the attorney general.

There’s nothing wrong with collecting a debt. If you’re a collector or creditor, it’s money that is legally owed to you. Still, you must do it within the confines of the law.



Separate emergency fund?


Dear Dave,

I’ve going to be debt-free with a full emergency fund in pace by the end of the year. I’m going to get a dog after that, but I wanted to make sure I did it the right way and was in good financial shape before making that move. Is a separate emergency fund for pets a good idea?



Dear Scott,

My wife and I love animals. We’ve had a least one dog the whole time we’ve been married. Still, I think a full emergency fund of three to six months of expenses will cover you and your pet.

You go through some expense as a pet owner, along with happy, wonderful times and heartbreaking things, too. We lost our golden retriever recently, and I can tell you that was really hard on everyone. You love them like they’re family, but you still have to use common sense sometimes, and remember that they’re animals and not human beings. Part of that includes spending reasonable amounts of money on them — and in some unfortunate cases — doing things with the animal’s best interest, not our own desires, in mind.

What is a reasonable amount? That depends on how stable you are financially. It’s really a ratio question of expense to means. But no, I wouldn’t recommend a second emergency fund just for pets.



Dave Says – You must pay a price to win