It Doesn't Have to be a Deal Breaker

Written by Dave Ramsey on . Posted in Finance

davernew2Dear Dave,

One of my relatives just graduated from college with $20,000 in student loan debt. Her boyfriend graduated, too, and he has over $100,000 in student loan debt. They want to get married, so she's looking for a job. He wants to go to graduate school, and take out more loans to remain a full-time student. The idea of even more debt hanging over their heads really bothers her. Do you have any advice?

Denise

Dear Denise,

You don't throw away a great, potentially lifelong, relationship just because of debt. Things like laziness, dishonesty, and irresponsible behavior are deal breakers, though. Those are flaws that usually don't go away.

I'm glad she's looking for a job, but her boyfriend needs to be working, too. There's no excuse for either of them being full-time students with more than $120,000 in combined student loan debt hanging over their heads. Lots of people hold down real jobs, save money, and further their educations on a part-time basis.

If she were my niece, I would encourage her to have an open and honest discussion with her boyfriend about their future, and how he plans on paying for graduate school. She also needs to be very real about her feelings in this situation. If, after that, he still wants to just borrow more money and not work outside of school, then she might have a difficult decision ahead.

However, if he realizes how damaging additional debt could be to their relationship, and he's willing to work while continuing his education, I think their future together looks much brighter.

Dave

You skipped one!

Dear Dave,

My husband and I heard about your plan, but we're not sure what to do next. We have between $400,000 and $500,000 in a 401(k) for retirement, but we don't have any other savings. We're both in our forties, and the only debt we have is our house, so what should we do about Baby Steps 4 and 6?

Mary

Dear Mary,

Overall, you two have done a great job with your money. Let's go over the Baby Steps you mentioned. Baby Step 4 is putting 15 percent of your income into Roth IRAs and pre-tax retirement plans. Baby Step 6 is paying off your home early.

The thing that worries me is you've completely skipped Baby Step 3, which is having three to six months of expenses in an emergency fund. This is money set aside strictly for emergencies. The problem right now is if you have a real emergency, you may have to cash out your 401(k). If you do that, you'll be penalized 10 percent, plus your tax rate. That's a real kick in the teeth just because you didn't do things in the right order.

My advice is to temporarily stop your 401(k) contributions until you get a fully funded emergency fund in place. By temporarily, I mean six to eight months at most. That way, you'll be covered when life happens without having make a big dent in your retirement savings!

Dave
Author Information
Dave Ramsey
About:
David L. "Dave" Ramsey III (born September 3, 1960) is an American financial author, radio host, television personality, and motivational speaker. His show and writings strongly focus on encouraging people to get out of debt.

Add comment


Security code
Refresh

Related Articles

No Related Articles Found


calendar
Events
home app07 envelope
Contact
YouTube-icon
Channel
     
rokpad-thumb-2
Submit News
 RSS
RSS Feed
home app09 playVideos
Sign up for our eNewsletter

No Worries - we will NOT use your email for anything other than receiving West Michigan Christian in your inbox.

captcha 
faith-buttonPlease consider helping us by contributing to our publication. 

Donate directly or advertize your business on this site or in our newsletter.  It reaches thousands across West Michigan.