Dave Says: Pay off credit cards, but don’t use all your savings to do so
Dear Dave,
How do you feel about taking money out of savings to pay off credit cards?
Peggy
Dear Peggy,
I’m okay with this under two conditions. One is that you cut up the credit cards, close the accounts, and never use those things again. The second is that you don’t wipe out your savings in the process. Leave something in there, so you’re covered in the event of an emergency. Then, rebuild your savings as fast as possible once the debt is out of your way.
You have to understand, too, that credit cards aren’t the problem. The credit card debt isn’t the problem, either. They are just symptoms of buying things you don’t need, with money you don’t have, in order to impress people.
Take a long look in the mirror, Peggy, because the person who’s looking back at you is the problem. Overspending, disorganization, not earning enough … whatever label you want to slap on this situation, you are the reason for the problem. Once you understand and accept that, and you start living on a budget and staying away from debt, you’ll have taken your first real steps toward financial peace!
Need life insurance with no dependents?
Dear Dave,
I’m 35, single, and I have no dependents. Do I need a life insurance policy?
Larry
Dear Larry,
In your situation, if you have enough cash saved up to pay your final expenses — and you don’t have any debt — there’s no reason for you to carry a life insurance policy. No one will be harmed financially by your death, and no one would be deprived of the income that would be lost if something unexpected happened to you. Even if you have a mortgage on a home, the house will normally sell for enough to pay off the mortgage.
However, if you have debt, or if you don’t have some money stashed away in savings, you might want to consider an inexpensive term life insurance policy. At your age, if you’re healthy, you can get $100,000 worth of coverage for just $10 to $15 a month.
Remember, you don’t buy insurance to leave an inheritance. You buy life insurance is to make sure there’s enough money to take care of your family and final expenses. You wouldn’t want your parents or someone else having to foot the bill!
—Dave
EE bond dilemma
Dear Dave,
I have about $36,000 in debt, not including my house. Of that amount, $30,000 is a truck that’s worth about what I owe on it, and the other $6,000 is student loan debt. I make $50,000 a year. I also have 24 EE bonds that were gifted to me that haven’t fully matured. Right now, they’re worth a combined $12,500. Should I cash those in, and use the money to pay off some of my debt, or let them fully mature before cashing them in? Also, are there any tax ramifications from cashing them in?
Patrick
Dear Patrick,
They might be taxed, but it won’t be much to worry about. EE bonds make less than one percent, so you haven’t really earned much. Never buy those things, man. They’re a horrible investment, with an even worse rate of return.
I’m glad you’re working out a plan and moving toward getting out of debt. A $30,000 truck doesn’t work with a $50,000 income. So, cash in the bonds immediately, sell the truck, and use some of the money from the EE bonds to pay off the school loans. Then, find yourself a cheap, little truck that will get you around for a few years.
You can do this, Patrick. I want you to have a nice truck one day, but I don’t want that truck to be a burden. This one’s got you by the throat, and you’re feeling it, aren’t you?
Drive like no one else for a little while now, so that later you can really drive like no one else!
—Dave
ID theft protection in the baby steps?
Dear Dave,
Where in the Baby Steps does identity theft protection fall? Should we cover the kids, too, or only the adults in our household?
Laura
Dear Laura,
Everyone needs identity theft protection. Unless you’re one of these folks who have gone completely off the grid, someone out there probably has a few of your numbers. Between sloppiness on the part of consumers, and the massive data breaches that have occurred in the last few years, almost everyone has experienced, or will experience, some sort of identity theft. Unfortunately, this is today’s world.
I don’t really consider identity theft protection part of the Baby Steps. It’s like life insurance or car insurance, in that it’s something almost everyone needs. Things like that should just be part of your budget every month.
—Dave
Planning and success
Dear Dave,
I’m stuck in a dead-end job, and I only have a high school diploma. I’ve never minded long hours and hard work, but I’ve begun to realize I need to have a better career, so I can spend more time with my kids. I feel like I’m missing out on their lives, because I work 65 to 70 hours every week. Do you have any advice on how to change my situation?
Tim
Dear Tim,
Asking questions and exploring your options like this is a much smarter move than simply walking away from an unsatisfying job situation — especially when you have a family to think about. I’m glad you’re wise enough to take a thoughtful look at the situation, instead of making a rash decision that could have a negative impact on you and your family.
There’s absolutely nothing wrong with wanting to improve yourself in terms of education or your career. But before you do any of that, you’ve got to have a definite direction in mind. You need an in-depth, detailed game plan for the next three or four years that’s designed to put you where you want to be. It may involve going back to school for some classes, additional training in your field, or even getting a full-blown degree. If you identify your long-term goals in detail, it will lead you to some of the short-term goals that will help you arrive at your final destination.
Have you tried talking to your boss about your goals and your situation? See if you can have a sincere conversation with him or her, and discuss your feelings about your career and what’s going on with your family, too. Your company may be very receptive to the idea of increasing your value in the workplace. A good leader will also understand the importance of family.
Also, there’s a great book by Dan Miller that addresses this topic. It’s called 48 Days to the Work You Love. In this book, he lays out the steps to discovering what you really love to do and how to get there.
Best of luck, Tim!
—Dave
Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.
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