Dave Says

By Dave Ramsey
Author, The Total Money Makeover

CBN.com – Finanacial guru Dave Ramsey answers questions about wise financial decision-making.

What’s wrong with debt consolidation?

Dear Dave,

Why are you against debt consolidation?

-- Misti via email

Dear Misti,

The idea of debt CONsolidation is to get you a lower payment. This sounds good on the surface, but there are only two ways to get a lower payment – either lower the interest rate or lengthen the term of the debt. So, you stay in debt just as long or even longer.

I call it debt CONsolidation because it’s a con. These things rarely help much on the interest, it keeps you in debt longer and maybe the best reason is that you can’t borrow your way out of debt. Nearly 90 percent of people who fall for debt CONsolidation wind up with even more debt because they don’t change the habits that got them into debt in the first place.

The way to get out of debt is by getting mad and selling stuff. You do a debt snowball, list your debts smallest to largest, make minimum payments on everything but the little one and then you attack it with a vengeance. Then you work your way right down the rest of the list. You will get out of debt faster doing that, because focused intensity is more important than math when it comes to getting out of debt.

Go crazy and get some righteous anger going on about it. You’ve got to draw a line in the sand and determine that you’re never going to do the stupid things that got you into debt ever again. There is no magic pill. There’s no microwave approach to this, and that’s what debt CONsolidation pretends to be. You cannot borrow your way out of debt!

-- Dave

Help pay fiancé pay debt before marriage?

Dear Dave,

My sister is engaged and getting married in a few months. Her fiancé is bringing a considerable amount of debt into the marriage. He has six credit cards that are all maxed out, a $30,000 mortgage and lots of medical bills. She’s quit college to work full-time and help him pay all of it off. Is this a good idea?

-- Heather

Dear Heather,

Your sister is helping him pay his bills before they get married? Why? Those bills become their joint responsibility AFTER marriage and not one second sooner. This is not a wise thing. What if something unexpected happens and they break up?

Once you get married, there’s no “yours” and “mine” anymore, it’s all OURS and you should pay everything together. Even marrying someone who is in debt is fine, as long as the habits that caused the debt have been broken and you’re in agreement from that point forward on how you’re going to handle money.

Her biggest responsibilities right now are making sure she really loves this guy and that they’re in agreement on financial issues before the big “I DO.” Never pay your fiance’s bills before you get married. I’ve seen too many people come in to our offices for counseling who were broke because they paid someone’s bills who then left them before they reached the altar.

-- Dave

Young minister needs retirement advice

Dear Dave,

I’m a minister and have been preaching for about five years. I opted out of Social Security, and wanted some advice on retirement. My wife and I have a couple of Roth IRAs for about four years, and we’ve maxed them out. Is this going to be adequate for retirement, or do we need something else?

-- Rob in Louisville, KY

Dear Rob,

First, continue to max out your Roth IRAs in good, growth stock mutual funds. Also, check with your tax accountant to verify if you have any self-employed income. The Roth IRA, fully funded, will ensure that you retire with dignity if you have several years to invest.

For example, if you’re 30-years old and you annually fund $6,000 into a couple of Roths in a great mutual fund, you’d have more than $5 million at age 70 if the fund averages 12 percent. If you want to do more, look to the 401k or 403b for tax deferred investing.

-- Dave

Dave Ramsey is a nationally-syndicated radio talk show host and author of the New York Times bestselling books, Financial Peace Revisited and The Total Money Makeover. His life-changing advice in the area of personal finance helps people get out of debt, stay out of debt and build wealth that will last a lifetime and beyond.