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Chapter 1: What is the main topic discussed in this episode?
Live from the headquarters of Ramsey Solutions, broadcasting from the Pods Moving and Storage Studio, it's The Ramsey Show, where we help people build wealth, do work that they love, and create amazing relationships. I'm Ramsey Personality, George Campbell, joined by my fellow Ramsey Personality, the exuberant
Jade Warshaw joins me this hour, and we are more than enthused to take your calls at 888-825-5225. That's 888-825-5225. Andrew kicks us off in Dallas, Texas.
Chapter 2: Why should I pay off my mortgage instead of keeping money in my CD?
Andrew, welcome to the show.
Hey, guys. So my question is, the only debt I've got is $190K on a first mortgage. I've got about $200,000 in a CD. My mortgage rate is $3.75K. My CD is over 5%. So I'm wondering, what would you do? Would you still pay off the mortgage or hang on to the CD? Sometimes it's outpacing the mortgage rate.
Yeah, this is a common question in today's world where people locked in these super low mortgage interest rates and now savings interest rates are sky high and they're going... why would I even pay down this mortgage? I'm making money hand over fist in the savings account. And I understand it. Mathematically, I understand it.
There's one piece of the equation is risk, of course, of not having a mortgage means less risk. 100% of the homes that get foreclosed on have a mortgage unless they don't pay property taxes. That's pretty rare. So one side of this is going, if I didn't have a mortgage payment, what could I do? and start dreaming about that vision for your life.
And the other side of the coin is the actual math of going, well, what are you paying right now in interest every month on that mortgage? Have you actually looked at the amortization schedule?
Yeah, it's been a minute, so I don't exactly remember.
But we're probably talking north of $600 just on interest alone. And so when you start to look at the numbers on, you know, 5% on $200,000, that's $10K a year, you know, you can start to do the math and go, all right, divided by 12, I'm making $800 by keeping this $200,000. Now, most people don't have $200,000 sitting in a CD.
You are very weird in a good way to have saved up this amount of money. Was this a windfall? Did you work to save this up?
A little bit of both. You know, I got a pretty decent bonus about a year ago at the job, so...
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Chapter 3: Should I pay off my fiancée's debt with my savings?
I mean, not a lot. That more or less kind of takes me to... Your emergency fund? Yeah, I mean, I've definitely got, you know, I've probably got another $30,000 that is liquid.
And then what's your mortgage payment every month?
It's like 800 bucks.
Oh, nice.
I pay a lot more than just trying to pay it off quicker.
Yeah. Well, we'd tell you what we would do if we were in your shoes, and what we would do is pay off the house if we had the money sitting there.
I definitely would. I mean, I tend to look at statistics on this too. We know 67% of millionaires have paid for homes. That's what they do. They pay off their residents and they understand that that's a major part of their wealth building plan.
Yeah. And you'll still have, of course, property taxes and insurance. But if you take that chunk out of principal and interest that you're thrown towards the house and go, what could I do with that? The extra 500 bucks I'd have every month. Well, you're probably going to invest that because that's the kind of person you are. And so you're going to see 200 grand again.
But right now it feels like I have 200 grand liquid when really you owe 200 grand on the other side.
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Chapter 4: How can larger student loan payments benefit me in the long run?
Qualify on a house together. I will say she has $18,000 in debt where I actually have $0 in debt besides $10,000 in student loans.
Here's the thing. I love, plus the 10K, okay.
Well, hold on. You're not going to pay off your student loans, but you're going to go pay off her debt?
look he i i admire that you're he's got a good heart here he's got a good intention but very chivalrous yeah it's this is the wrong plan in your mind because you're not married yet right this is your fiance you've got good intentions you want to be debt free you're putting her first like i
I think I see how the wheels are turning in your brain, but it's a bad plan because you're not yet married yet. And so we don't want to combine money. We don't want to pay off debt. I'm not trying to put any bad juju on you to say that you're not getting married, but just be patient and let that run its course. And in the meantime, each of you work on paying off your own debt.
You've got 10K that you need to pay off. She's got 18K she needs to be working to pay off. When's the wedding?
Uh, weddings probably in about a year or so.
Oh yeah. You guys can knock that out. What are you earning right now?
Uh, myself, I'm earning about 70 to 85 K a year. She's a nursing student. She's not really making any income. Not yet. That has to be paid.
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Chapter 5: What steps should I take to secure my kids' financial future?
So that every day when you turn the key, it feels great walking into your house. There's no burden there. You can lay in the backyard in a hammock and just be at peace, right? We want to create that. Right now, you've both got debt. She's not working. There's a right way to do this.
And you're not going to go in to buy a house together until you've got that money saved, until you're both married, right? Yes. This is the way we're working this plan.
I would enjoy newlywed life first and just rent, not have to worry about home ownership. And then down the line when we're ready, we'll do that. And we want to give you a little premarital gift, and that is Financial Peace University. I want you and your fiance to go through it.
I think that'll light a fire under you both to get rid of your debt separately so that when we come together, it is sweet, holy matrimony, and financial peace on top of that. So hang on the line. Skylar's going to pick up. We will gift you one year of Financial Peace University. Welcome back to The Ramsey Show.
I'm George Camel, joined by Jade Warshaw this hour, and we're taking your calls at 888-825-5225. Well, Jade, this has been the talk of the town, all in the news.
Yes.
Guess who's back?
back again student loans that's right oh man so we can pretty much say that by the end of august we're gonna be back on it it's time to pay the piper right when student loans come back online and you know i think that this has got people feeling some type of way right because we've gone three years i mean people have like almost graduated college in the time that student loans have been paused they don't even know life of a student loan payment
They don't even know about it. And then there's the folks who, you know, they've had this reprieve and they've created a whole new life and they bought a house and they have a whole new budget.
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Chapter 6: How do I decide if selling my car is the right move to get out of debt?
Four percent. That's kind of what we're looking at. So we want to understand what percentage of our payment is going to interest. Right. So here's what you do. It's three easy steps. We're going to figure out how much we're paying each day in interest. So you take and you calculate your daily income or your daily interest rate. Here's what we do.
We take the four percent and we multiply it by three hundred sixty five days.
So 0.04 times 365.
Yep. And we're going to get a number. It's going to be like 0.00010959. So whatever your number is, fill in that blank, take your interest rate 0.04 or 0.08, whatever your interest is. And we're dividing it by 365 days because there's 365 days in the year. That's step one. Step two, you're going to take your full loan balance and you're going to multiply it by that previous number.
So we're going to take $35,000 because that's how much we owe. And now we're multiplying it by that daily rate. Right. And we see that we're paying $3.83 per day in interest. Doesn't sound like a lot, but it adds up. It adds up. Now we need to find how much we're paying per month. So we take that $3.83. There's 30 days in the month. So we multiply it by 30 days. And that gives us $115.
So in this case, that person is paying $115 per month in interest. Now you go, hey, that doesn't seem too bad. Here's the problem. On a standard 10-year payback plan, right? For this person, their payment's probably about $354. So we know, okay, out of $354... That 115. is interest and the rest of it, $239 goes to the principal. Here's where we get into trouble.
Everybody wants a lower payment, George. Everybody says, oh, I need the income-based payment or I want the lower payment. I don't want to pay so much on my student loans. So what happens if this person calls up their lender and says, hey, I need to lower this payment. Give me the lowest payment possible.
That person might get on a payment plan, maybe a 20-year plan where that payment goes down to $113. And you feel like, Woo, I'm winning. I'm paying less. But here's the problem. If your payment's $113, you're not even covering the interest. The interest didn't change. The interest does not change.
And so if that's how your balance is going up, so many people on payment plans, they extend the plan and they wonder, why isn't my student loan moving? As a matter of fact, it feels like it's getting bigger. So here's the rule of thumb. Larger payments are better. All right. I kind of came up with this thing.
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Chapter 7: What should I consider before using home sale profits to pay off student loans?
And it's the same thing. Do this math. Do this little bit of hard work. Let me tell you something right now. I'm confessing. I hate math. I love money. Don't love math. All right. But I make myself do it because I want to see it. And it's so important for you guys to do this because with these student loans, they're sneaky and they drain our energy. Right. Nobody wants to think about it.
We want to bury our head in the sand. Right. Peacock status. Is it peacocks?
Ostrich. Yeah, there we go. I was like, I don't know what peacocks do.
I got to Google that one. But look, when it comes to this stuff, I say it all the time. Ignorance is not bliss. It's broke.
Ooh, that'll preach.
It's broke. You got to look at this stuff. You can do it. The next step then is just getting on your budget, right, George?
And if you have had your head in the sand, who knows what has happened in three years? Many people had their loans sold to a different lender-
Yeah.
Your payments may have changed. You may have gotten married. You've changed an address. You've got to get this stuff dialed in. So contact your lender, get all of that figured out, figure out exactly what your payment is, who it's with, what the interest rate is, and then start to plan for that in your budget. And that might mean, oh, we got to stop eating out. We got to cut some subscriptions.
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Chapter 8: How can I effectively set up a financial plan for my family?
And I interviewed some folks who have the saddest stories. People who took out 15K and then owed 60. People who took out 80 and didn't realize they were gonna be paying 120. That's the kind of stuff that gets you angry enough to pay this off. And the interest is coming back. The payments are coming back. It's not gonna get forgiven by Uncle Joe forever. Listen, it's just not going to happen.
Even if the 10K happens, that's a drop in the bucket for most of your student loans.
Look, and at this rate, that 10K would be back in interest lickety split. Let's be honest about that. Yes. And I just, I have to say this. I have to say this. In our country, there is people's people got it twisted. They have confused truth with popular opinion. And that's a problem. And when it comes to the popular opinion that, oh, the government should pay for this. I got duped.
The government should step in and pay my student loans. Matter of fact, they should pay everybody student loans. Matter of fact, you know, that continues. But here's the truth. The truth is you signed up for it. You signed up for it. And when you signed your name and don't get me wrong, we're 18. We didn't have a clue.
And these student loan companies are predatory, but it's not all your fault, but it is your responsibility.
We're not saying it's your fault, but it is your responsibility.
Do what's right. Do what's right. Make the right next step, which is pay off these loans because the government doesn't have a great track record of solving all of your life's problems. It's the person in the mirror. And that hurts at first until you go, oh, I'm in control. The person in the mirror. I can control that guy. That's right.
And so we have full faith that you can do this because I've done it. Jade has done it. Many people on this debt-free stage have done it. And you're next. So what are you waiting for? Are you going to keep watching the headlines, waiting for your life to change? Or are you just going to get up off the couch and go change it?
You got next.
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