You Can't Stay On This Path Of Financial Destruction

I'm Ramsey personality George Campbell, joined by the one and only Rachel Cruz.

And we are here for you, America, taking your calls at 888-825-5225.

It is Smart Money Happy Hour, Ramsey Show edition, so we're going to try to have fun if the booth folk will let us. We'll see how it goes.

This is my first full year in consulting, and it looks like I'm going to bring in, after taxes, about $100,000, so I'm pretty excited about that.

Awesome.

But I do not have good feelings about taking on his debt, and I was hoping that we could talk about that a little bit.

We've talked about gazelle intensity, which was kind of a sticking point for him a little bit, and then it also kind of seemed like, well, you're bringing in so much money, we don't have to do that. His income right now is about $55,000.

So we know going into this type of relationship that we're not going to be perfect, right? So we're not looking for perfection here, but we are looking for a similar mindset, similar value system in which we make decisions. And you can put that on any category of life, but this is, you know, we talk about money the most on this show, so this is through the lens of money.

So I would want to make sure that the value system at which we make decisions as a family going forward is similar. If it's not, it's just going to cause a lot of tension and a lot of conflict. So it is an easier path when you say, hey, we see this together. So for him, if he's like, yeah, I don't want to live with debt, either. I do want to live below my means. I want to be wise with my money. But I did take out $36,000 in debt. To me, I'm like, okay, I can reconcile those two things, because going forward, I know that we're going to be on similar paths.

But I am accepting this imperfect person into my life, including his imperfect money situation, and including you, Renee, right? Your imperfections as well going in. So I don't know if that makes sense, but for me, it's more about moving forward and saying, hey, are we on the same page moving forward? And if we are, I accept all of you. And that includes maybe the mistakes that you made when it came to getting out of debt.

But I'm choosing to stand before God and our family and our friends and choose to commit my life to you. And that means every part of you. And that includes, even for me, the $36,000 that we'll work towards paying off. So that's my perspective.

And so that's the mentality to have because long term, having a partner and having that spouse is the second greatest wealth building tool that exists outside of your income we talk about. It is an exponential wealth builder. When two people come together with two incomes like you guys have, you're going to build wealth so fast, and you're going to knock out this debt so fast. Making $155,000, let's say he doesn't get a raise by the time you're married, you can knock out $36,000 making $155,000 really quickly.

Way less than a year. And so I'm not concerned about that. I'm more concerned about what does the next 30 years look like for your marriage.

And another step that you guys should take for premarital counseling is going through Financial Peace University. So I'm going to gift you both of those things, my book as well as FPU, if you tell me he's going to go through it.

Because I think sometimes it just takes a little bit of knowledge and kind of dipping your foot in the water to go, oh, I get what she's talking about now. And Dave will turn from a cuss word in the house to an exciting plan that you guys can go on together.

More of your calls coming up. 888-825-5225. This is The Ramsey Show.

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We get a lot of questions about taxes, and we get it. Taxes can be very confusing.

To help you get a better handle on it, let's unpack a question from one of our listeners.

This is a common one. What is the difference between a tax deduction and a tax credit?

Rachel, I recently asked people on the streets of Nashville about this on Broadway if they knew the difference, and it was hilarious.

Credit is like, that's money you owe, like that's a debt.

And I was like, no, okay, buddy. Let's break it down. Here's the spark notes for you guys.

A tax credit cuts your tax bill dollar for dollar.

So if you owe $1,000 in taxes, a $500 credit will slash your bill down to $500.

A tax deduction, on the other hand, lowers your tax bill by lowering your taxable income.

So you would subtract the deduction from your income, and that less taxable income means less taxes owed.

So deductions reduce how much of your income is taxed. Credits reduce the actual tax bill on the back end.

So that's how I like to think about it. Deductions on the front end, and the IRS says, you didn't actually make that much thanks to this deduction.

And the credit is an actual discount off the total bill. So, hope that helps.

And if you're confident about filing on your own, go check out Ramsey Smart Tax at ramseysolutions.com slash tax.

That's no-nonsense tax software, low upfront pricing, no hidden fees.

And it might be time to switch from Furbo wax, as I like to call it, Rachel.

We'll throw them under the bus.

And a lot of people have been messaging me saying, I've used it for the first time, or this is my third year, and it was a breeze to use Ramsey Smart Tax.

Just go to ramseysolutions.com slash tax.

Dante is up next in Detroit. Dante, welcome to The Ramsey Show.

I have $17,000 left on my card, and then about $10,000 in credit card debt.

Do you want to be a police officer, or what?

And then I kind of had to drop those, and I still have a few more to finish.

I'm considering police. I have applied to police departments, but I'm also almost a licensed real estate agent.

Yep.

Are you living on your own?

And right now, you just need more income. You've got a big hole of that $90,000 in debt.

And so one angle we're looking at is sell the car, free up that payment. You would obviously need a much cheaper car to be driving around for now.

The other side is we need to get your income up ASAP. And so as soon as you're done with school, you might need to get a different job, a second job, a better job in order to start to really make headway on this debt.

You have all this debt. You're stressed about it. You're worried about your income and also, again, your career path.

I'm like, there's just a lot of things happening. So for you, what I would do is I think that the money stress really is playing a part in this kind of like fog mentality, right, of having to make a decision.

And so I think there's just something to be said about, I mean, you are just full on. You're working five nights a week. You're working weekends.

I mean, like you go crazy just to allow some momentum to catch up with you to be able to start knocking this stuff out.

Because out of this, even these credit cards, I mean, $10,000 in credit card debt, how many credit cards is that? Four or five?

It's almost just like you're kind of going along and you're trying to manage, you know, everything that's going on.

And I get it. There's a lot of, you know, a lot of avenues here and a lot of things happening in your life.

And it's almost this like we call it shock the monkey.

There's like almost this like burst of energy that you need that's going to radically shift some things.

And you have to feel this level of complete change.

And by complete change, call your mom, have that conversation, cut up the credit cards, you know, tell Sam's Club, hey, I'm working every night this week.

Contact Uber or Lyft and say, I'm going to drive.

I'm going to drive every Saturday and maybe I'll sleep on Sundays or maybe I'll pick up more shifts there.

I mean, like it's this idea that it's a complete different mindset, complete different habits than what you've been living in.

Because, you know, it is true when you continue to do the same thing over and over again, you're going to get the same result.

And so what you have to do is completely shift the way you've been thinking.

And Dante, honestly, I think part of that is getting rid of this car.

I mean, you have $17,000 loan making $32,000.

I mean, that's more than half of your annual income.

It's too much car.

So, I mean, my very first goal would be to save a couple thousand dollars, buy a car, get rid of this one.

If you have to take out a small loan, do it.

But I would rather you free up that $400 car payment and have $1,000, $2,000 debt for the difference than $17,000 in a car.

You know what I mean?

But it's these radical changes that you haven't done yet.

And it's going to take this level of change to get a completely different result.

And you can do it.

Because, Dante, your situation, it's not hopeless.

We talk to people every single day with the same situation.

And the number one quality that we find with people that go from where you are to actually becoming debt free and winning with money and investing in the future and doing all of this is they believe they can.

And so you have to have this belief that I'm going to wake up tomorrow morning and I'm going to be a different Dante in how I handle money.

So stay on the line and Christian's going to pick up and I'm going to give you George's book, Breaking Free from Broke.

I'm giving away your books, George.

So kind.

And Total Money Makeover, which is just kind of the playbook of the baby steps.

But I really want you to start learning this stuff and doing it.

You have to actually do this, Dante.

And we believe you can.

You can easily wander into debt, Dante, but you can't wander out.

You got to get some mojo here and do something about it.

But we believe in you, man.

Hang on the line.

This is The Ramsey Show.

Welcome back to The Ramsey Show.

I'm George Campbell, joined by bestselling author Rachel Cruz, and we're taking your calls at 888-825-5225.

You call in and we'll help you take the right next step with your money and your life.

Mike is in D.C. up next.

Mike, how are you doing today?

How are you?

How can we help?

So around August last year, I finally decided to accept the fact that I found myself about, well, I'll tell you, $11,660 in credit card debt.

So I decided to put myself on a budget and start paying it off.

Good.

I've made about $5,486 in payments toward that debt.

Was that exact?

Good.

And then it leaves me with exactly $6,173 in remaining debt to pay.

But, you know, I'll be honest, I'm really a little worried about pulling money away from a recurring retirement and savings contributions to do it.

I just wonder sort of what's your perspective on should I stop, you know, paying my 401K to get that debt paid down as aggressively as possible or should I just continue on?

Okay.

So I guess, I don't know, back of the napkin math, I'd say that's probably like 6%.

Well, I'll tell you this much, that's not going to give you a great retirement anyways.

And so our plan is to pause contributions to retirement so that when you get back to investing, you're investing 15% consistently without fail for the next decade or two until you get your house paid off and then you can invest even more.

And so that's the purpose of us telling people to pause the 401K is twofold.

Number one, it actually frees up the $600 a month that can now go toward the credit card, right?

Right.

And number two, it lights a fire under your butt to get out of debt faster because you desperately want to get back to investing, don't you?

Yes.

And the problem right now is you're a little bit comfortable.

Like, yeah, you want to get out of debt, but you also want to invest and, you know, nothing's on fire.

And I like the fire that is created when you pause investing.

It tells your own body, this is serious.

We need to get out of this debt ASAP because I want to build wealth and stop paying for the past.

What is the debt of the interest rate on these credit cards?

So I had some high interest debt that I've already paid off.

And the debt that remains is one single amount on a 0% card.

And that 0% goes until March next year.

So how quickly can you pay off if you pause investing, you've got the extra $600 back, you have $6,000 left on the credit card, you're making $81,000.

How quickly can you pay this off if you do all of that?

Do you have any money in savings?

I've got about, I've got $3,000 in a brokerage, $70,000 in retirement, and $1,500 in my emergency fund.

If you wanted to keep a $1,000 emergency fund and then throw the brokerage account and $500 that's in your emergency fund at this debt, then you're down to, you know, $600.

This thing's done in like two or three months, dude.

Yeah.

You'll have almost tripled your investing.

Do you see the excitement that we have as to why this plan works?

These Ramsey people are crazy, but here's the truth.

If a larger emergency fund or a larger emergency comes up, usually you don't have to pay for that like today.

Usually you can say, okay, I have two to three weeks.

I got to come up with some cash with my emergency fund and figure out how to pay this.

You know, you'll pause the debt snowball and figure it out, but the problem is that people try to do kind of what you're doing, Mike, six different things at once.

Or they try to go and build up this big emergency fund before they get out of debt, and they never even get to getting out of debt because they spend so much time with just the savings portion to feel comfortable.

And there's really never a number that you're like, okay, now I feel good that I can go pay off debt.

It's kind of this idea immediately when you become debt-free, what we say your largest wealth-building tool, it's your income.

It all comes back to you, and it's an amazing thing when you say, okay, all these credit cards are gone.

There's no bank in my life left, and now I get to decide what to do with my income.

And you're able that much faster than to build up an emergency fund to three to six months of expenses, which is what we want you to do.

We don't want you to stay at $1,000 forever.

But for you, Mike, you're only going to stay there for like two months, month and a half, right?

I'm like, it'll be so fast that you're going to be fine.

So I think I know what I need to do.

Another one bites the dust, Rachel.

We did it.

Mike's on the path.

All right.

Let's see if we can help Jordan out in Boise up next.

Jordan, what's happening?

So my wife and I, we've been married about six months, and we're just now starting baby step one.

We're working towards getting $1,000 in the savings account.

And we just feel really overwhelmed.

So we had to move to Boise for my job.

And the housing market is awful here.

And we only have about $6,000 in student loans left.

And then probably at about another $4,000 because of a medical emergency that happened with the ER.

So I separated those because we're not getting interest on the hospital.

It's just a payment plan.

And so, yeah, just this idea of once we get to that point, by the time we get to 20% down on a minimum of a $400,000 house,

which is not like that's the lowest I've ever seen it in Boise, it just seems impossible to buy a house.

You guys are broke.

You don't even have $1,000 in savings.

Exactly.

It's going to be a few years.

Yeah. So it's not a 20% down payment.

That's a suggested amount.

You can go down to five for a first-time home buyer.

So 5%.

And by the time you guys do all of this, how much do you guys make a year?

it's going to be, I mean, 18, 24, three years, you know, until that happens.

And honestly, Jordan, it's going to be a whole new world.

We got an election year.

Who knows what interest rates are going to do?

Like, we don't know what's going to be going on.

But we would still stick with that at least 5% down idea.

And I just don't believe that the lowest house you can find is a $400,000 house in Boise.

I don't believe that.

Well, you know why?

Because I live in Nashville, and it's the hottest market right now.

And my husband, I mean, he just went and, you know, we were doing the investment real estate right now.

And he got like a great $200,000 house.

It's a two-bedroom, one-bath.

They're flipping it in a place outside of Nashville.

So I just don't believe the $400,000.

I get that housing is expensive.

I'm literally on Realtor.com right now.

What do you got?

There's at least 30 houses that are beautiful, three-bedroom, single-family homes under $400,000.

It's never going to happen.

You've been married six months.

You guys just be patient.

And in three years, it's a whole new world.

And hopefully, there'll still be these wonderful houses in Boise that I'm looking at right now on Georgia's computer.

So I hope that frees you, Jordan.

Thanks for the call.

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I'm George Campbell, joined by Rachel Cruz.

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Aaron is up next on the line in Green Bay, Wisconsin.

Aaron, welcome to the show.

I'll be on baby step two when I marry some student loan debt.

So my question is car-related.

So I have three cars, two of which are with me currently, and one's at my parents' house.

And the one at my parents' house is a classic car that my dad and I restored about a decade ago, and it took us four years to do.

That would probably put me ahead financially about one and a half to two years.

But emotionally, that would be somewhat difficult.

How much debt does she have?

How much will you make total together once you're married?

Okay. And how much does she make out of the $130,000?

She'll be graduating this year.

I'm guessing she's going to make around $50,000 to $60,000.

Right.

Okay. Well, she'll have four months as you guys are planning a wedding to be working towards this.

You know, I mean...

So as soon as you get married, you could knock a lot of this out.

You said I have two cars at home. One is the classic car with your dad.

What's the other one that you have?

Sell the $10,000 once you guys get married.

And then with her working some of this, maybe you guys get it down to $25,000.

And then I would keep the classic car and then just pay off the $25,000.

Because you guys make great money.

I mean, you're to the point that you guys could do this quickly.

it kind of tugged at my heartstrings, George.

I know, it's a father-son four years.

Yeah, it's a big deal.

We're not giving you a pass just because you're tugging at the heartstrings.

We tell people, if you can't get out of the debt within two years,

it's probably wise to make a more drastic sacrifice to sell the car.

So if you said, hey, it's going to take us six years,

and this could speed it up by a few years.

And I'd go, dude, sell the car.

But in your situation, you guys are going to knock this out

within the first year of your marriage.

Between the money you have in the bank,

between her income coming into the picture,

you will knock this out faster than you think.

And then worst case, like Rachel said,

if you're really done sacrificing, just sell the sports car.

You can get another $10,000 sports car later on.

It doesn't sound that special.

You love cars, obviously.

I would sell the sports car before the $50,000.

And you guys, how old are you guys?

that you're going to be ahead a year-and-a-half financially

is true.

But if it's to depart with something

that you love so much, and the fact

that you guys are going to be OK, you're fine financially.

You guys are going to do this.

You're going to pay it off.

You have the time.

You have the runway.

So there's not an urgent rush.

I mean, if you were having to retire,

and you had to put some money in retirement,

and you still had a mortgage, and you had debt,

I mean, there are situations I would say sell this car.

It's just not one for me, personally.

Every time you look at her, you're the reason.

Those student loans are the reason I lost a class of cars.

This woman came in with all that student loan debt.

You got this, man.

How's it going, Ryan?

Ryan, are you with us?

How can we help?

So I have a 401k loan.

I know it's shaking your heads already.

But I'm working on it.

You're okay.

All right.

But I'm cranking through stuff.

And so my question was, obviously,

my 401k loan is through my employer,

so it comes out of my paycheck automatically.

With the debt snowball method,

how am I supposed to make extra payment to that?

Would it be a good idea to move that to a personal loan,

one, to get the money back on 401k earning,

and then, two, be able to make more frequent payments on a personal loan

as I get more occasional extra income?

Or should I just leave it be?

But it was more the administrative having to go through multiple steps

every time to make a payment.

So do I need to just save up a chunk

and then go through the paperwork to add an additional payment?

So I get paid twice a month,