Share this story...
Latest News

Dave Ramsey: Personal finance is about self-control

Dear Dave,

My wife and I are on Baby Step 3 of your plan. We’re also saving up to buy a car with cash. We’re about $3,000 away from our goal, but now my wife wants to go ahead and finance the rest. She has started wondering what the difference is in borrowing to buy a car and borrowing to buy a house.

— Lex

Dear Lex,

This is a good question. It sounds like you guys have made good progress, but now one of you is running out of steam. That’s OK. Getting out of debt and staying out of debt can be a tough road.

For one thing, cars go down in value. The second thing is I don’t like debt of any kind. I don’t really like borrowing for a house even, but I tolerate it as long as you use a 15-year, fixed-rate mortgage with payments that are no more than a fourth of your take-home pay. I mean, it’s a much larger purchase. You can get a great car for $15,000 to $20,000 dollars. Depending on where you live, a good home can cost you 10 times that or more.

Still, the best way to build wealth and have a high-quality financial life is to not be in debt. You’re never going to win with money in the long term if you can’t learn to delay pleasure. That’s the bottom line. Personal finance is about controlling the person you see when you look in the mirror.

Every one of us has that little 4-year-old kid inside, a little kid whose name is Immaturity and who wants what he or she wants right now. What your wife is asking is a normal request, but it’s also a sign that we all have to address that little kid that’s inside us once in a while — and tell that kid no.

— Dave

Dear Dave,

My wife and I have just started getting on track with our money. We have $2,000 in savings, and the only debt we have is our house and two cars. I work in the oil and gas industry and make about $180,000 a year, but things are pretty volatile right now. We’re upside down on both vehicles, and we owe $39,000 on one and about $48,000 on the other. Under the circumstances, should we go ahead and build a fully funded emergency fund or work on paying off the cars?

— Kendall

Dear Kendall,

Are you kidding me? Sell the cars.

You need to go to Kelley Blue Book’s website right now and find out what your cars are really worth. Then, put them on the market as a private sale. You’ll get thousands more selling them that way than you will at a dealership. You’ll have to talk to a local credit union or bank for a small loan to cover the difference, plus a little bit more so you guys can get a couple of little beaters to drive for a while.

You’ve got close to $100,000 in car debt hanging over your heads. That’s a disaster. I want you to take a moment and think about how things would be without these stinking car payments. Your lives would change completely.

Hopefully, you’ll be able to keep your job. But this car debt is the scariest thing I’ve heard in a long time, even with your great income. Get rid of those things now.

— Dave

Follow Dave on Twitter at DaveRamsey and on the Web at daveramsey.com.