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Dave Says - Dave Ramsey

Retire debt, then retire for good

Dear Dave,

I’m 58 years old and have nothing set aside for retirement. My wife and I are on Baby Step 2 of your plan and paying off debt. We have $37,000 in debt not counting our home, and five kids still at home. We have a household income of $73,000 a year, and were wondering if we should go ahead and start Baby Step 4, investing for retirement, instead of paying off the debt.

– Dan

Dear Dan,

Your most powerful wealth-building tool, both mathematically and factually, is your income. The most powerful way to build wealth – whether it’s playing catch-up at 58 or starting at 28 and becoming wealthy over the long haul – is to have your income available.

That means it’s not flying out the door every month to make debt payments.

Fifty-eight is not old, but you do have to get busy if you want to retire with dignity. I’d really lean into this debt and make it disappear in the next 18 months. I’m talking about sticking to a tight budget, living on rice and beans, and selling so much stuff around the house those kids think they’re next!

After that, you’ll have to throw every dime you can into building an emergency fund of 3 to
6 months of expenses.

And after that, you’ll have to spend 10 years going crazy saving for retirement by pouring about $12,000 a year into good mutual funds.

Can you do that and win, and by “win” I mean retire with some dignity? Yes, you can – but it’s not doable if you’ve got $37,000 in debt hanging around your neck.

– Dave

Long-term debt no cure for house fever

Dear Dave,

My husband and I have been saving, and we’re ready to buy our first home. We found a place we both love and can afford if we do a 30-year mortgage instead of a 15-year mortgage. Should we wait and save more for a down payment so we can afford a 15-year mortgage, or go ahead and do the 30-year deal?

– Faith

Dear Faith,

Good financial decisions can be defined as things that help you win with money over the long-term. Thirty-year mortgages are a trap. They don’t help you build wealth, and they keep you in debt. On the other hand, 15-year mortgages get you out of debt a lot faster, and being out of debt frees up your largest wealth-building tool – your income.

I would never take out a home loan where the payments are more than a fourth of your monthly take-home pay on a 15-year, fixed-rate mortgage. My advice is to either wait and save more money, or maybe look for a less expensive home in a different area.

I know you want a home, Faith. There’s nothing wrong with wanting your own house. But I don’t want your home to have you. When you get house fever, it’s easy to lock yourself into a bad deal that will follow you around and drain your wallet for decades.

– Dave

Follow Dave on Twitter (@DaveRamsey), or go to daveramsey.com. 

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