Chapter 1: What is discussed at the start of this section?
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From the Ramsey Network and the Fairwinds Credit Union Studio, this is the Ramsey Show. I'm Dave Ramsey. Rachel Cruz, number one bestselling author, co-host of the Smart Money Happy Hour, Ramsey personality, and my daughter is my co-host today. Open phones here at 888-825-5225. Lynn is in Los Angeles. Hi, Lynn. How are you? I'm fine, thank you. How are you guys? Better than we deserve. What's up?
Perfect. I'm 77, retired, and about 10 years ago I took out a reverse mortgage on my home. That was paid for, but of course now I owe that, and it's about $98,000 and rocking up.
interest of course every month of astronomical and i don't use it and i haven't used it probably in in in right after i first got it and i use it you haven't been i'm not sure by using it you mean you haven't been receiving the payments i haven't been taking funds out no at all one time i think i did well for a while to get it off to 90 yeah okay
So what is the interest rate on this ridiculous mess? Oh, I think it's about 6-something, 6%. And I know the interest. When I look at the statement, it's about $507 a month, it seems like now. That'd be about right. So that's like... That's kind of killing me. But I don't know what to do. I have a traditional IRA with about $230,000 in it.
And I also have a high-yield savings account with about $80,000 in it. I'm very reluctant to use my high-yield savings account to at least pay a portion of it off because I just like having that security of knowing that money is there. And I was wondering if I used my traditional IRA, would the taxes kill me? You'll have taxes on it, but you won't have any penalty.
What other nest egg do you have? Is that it? No, I have about another $15,000 in just my regular savings account. What are you living on? I have retirement, Social Security, and a teacher's retirement. Okay, cool. So how much a month do you have coming in? About $4,500. And you live on that? Yes. And you're in Los Angeles?
Yes. I have no debt. I have no debt other than that. And a little reverse mortgage, yeah. What margin do you have per month? Out of the $4,500, how much is left after you have all your living expenses?
Oh, gosh, probably. Well, my son and daughter-in-law live with me, and they chip in and everything, so I probably have about $28,000, $3,000 left at the end of the month when we share expenses. Okay. What's the home worth? Probably about $850,000. Okay. Okay. So basically the $6,000 a year in interest is just being added to it. That's right.
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Chapter 2: How does the reverse mortgage impact financial stability?
So it's just chipping away. So if we did that for 10 years, you'd be 87. If we did it for 20 years, you'd be 97. Right. Right. Okay, and that would still only be $120,000. It would be more than that because the interest is going to be on the interest, but it would be $150,000 more. And so at that point, you're going to have $350,000 owed on whatever that property is worth 20 years from today.
Right. It doesn't bother me. I'm going to let it sit there. You would. Now, the other thing is, what if something happens health-wise and I have to, say, move in with my daughter? Technically, with a reverse mortgage, I have to live in that house. So then I'd have to sell it. Exactly. That would be the only other option. Exactly. And you probably would do that anyway.
If you had a paid $4 million house and you moved in with your daughter, you probably wouldn't keep the paid $4 million house. Okay. Okay. So your suggestion would be just... I'm going to let it ride. If you told me you had another $300,000 or $400,000 laying around somewhere, I would use $100,000 of it and pay it off for peace of mind only.
But I don't want to take you down by $100,000 from $310,000 worth of money. What do you think, Richard?
Okay.
I guess. I'm a little shocked just to say to keep it. But as you go out the math, especially since you're not working, Lynn, and my thing is, too, even with the margin, though, per month, it's going to take a while to get to. You know what?
The other thing is you could do this. You could do what you're talking about. I see where you're going already. You could take like $50,000 of your $80,000. throw it at it, and then run over to the credit union and get a loan and pay off that loan out of your margin in a couple of years, and you'd be back to debt-free in two or three or four years. I could do that.
I thought about doing the $50,000 out of my high yield and then also maybe $50,000 out of my... You could, but that's going to cost you 20% or 15% or something more than the interest at the credit union. And I probably would nibble at it and say $1,000 a month for 50 months and be done that way or 40 months or something like that. I got you. You could do $1,000 a month.
And also, if I paid it down even by $50,000, the interest wouldn't be obviously that much.
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Chapter 3: What are the implications of using an IRA to pay off debt?
Yeah, you got some extra there.
Yes. So even if you left 30 and threw 50 out of like what you were saying, I think that gives you plenty of room. To be there.
All we're doing there is not solving a financial crisis because you don't have one. We're solving an aggravation. You do have that. And we're solving, as Dr. John Deloney says, we're solving for peace. And so I love the idea of you being 80 and zero debt on this house because it's aggravating you so much that you called us.
Well, in your home, it's a – there's a safety net there. There's something to be said when you own it outright.
Especially in your 80s.
Yes, yes. But if you don't get – if you get in trouble or something – and the good thing is too, Lynn, regardless of which way you slice it or you do it, is the value of the home now – So outweighs everything. So even if you did have a crisis and you did have to sell for something, you know, you still have a good amount of equity. Hundreds and hundreds of thousands. Yeah.
Yeah, you're in good shape. Yeah, this is a— It's a bad product, though.
You see it on cable news. Yeah. Reverse mortgages, walk-in bathtubs. Stay away, people. Stay away.
If you're buying your financial products where they sell Snuggies and walk-in bathtubs, you have a problem, yeah.
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Chapter 4: How can I balance financial support for family and my own stability?
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If your revenue is at least seven figures, go to netsuite.com slash Ramsey for a free product tour. That's netsuite.com slash Ramsey. Eddie's in Denver. Hey, Eddie, what's up in your world? Thank you for taking my call. Sure. Certainly. So I'm third generation in a family business. We farm and ranch.
In 2018, my dad got real sick and stepped up to the plate and bought everybody out and just me and my wife run the place now. Wow. How did you do that? I have... With no sleep, frankly. A big mortgage? A lot of hard work. Yeah, yeah. How much do you owe on the ranch? Well, I owe nothing as of last November. Wow, you got it all paid off. Yeah. Might be the luckiest person you've talked to, Dave.
How much was it for?
A little over $5.25 million. Wow, good for you. Way to go, Eddie. Yes. a few things kind of fell in my lap, and we took advantage, and like I said, just a lot of luck, and I've got a really good partner on my side. My wife is fantastic. Yeah. Sounds like you worked a lot. It's not like you worked to create luck. I like it.
No, I think it's just luck on my end, but anyways, I got everything paid off, and now we're Stepping into a different season here, and I have a neighbor place that connects straight to us, and it's a good place. We've farmed and ranched next to each other for three generations, and they don't have anybody in line. And they came to me here last month and asked if I was interested, and I am.
I am interested, and the reason I am is I've got two little boys. They're pretty young. They're 7 and 4, and I've got a nephew, 21, male. All three someday I hope will work for me. I don't want to play anybody's life, but that's the goal. And to do that, I would need to grow the place a little bit. And this would be a heck of an opportunity for me. Yeah, sounds good.
Even if you were just building a business to sell it, which you've got so much family emotion in this one, you're probably not doing that. But, you know, it sounds like an opportunity to grow the business, period. So what's the place going to cost? Up front, it's going to cost $4.65. What's up front mean?
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Chapter 5: What should I consider when deciding to quit my family business?
Because you ain't afraid of work. And you're out there doing it, man. You know how to do it. This is, I got a feeling you're going to, this business, when we talk to you in three years, is going to be, you know, six trucks running.
If you're not careful, because also. I would say him. I would say you. Certain personalities, you do get excited, and then you get up for your skis, and you're like, and that's where, well, I could borrow on this truck. I could do that. You know what I mean? No borrowing. Right, but it can start to expand so quickly, and so there's a level of stability that's good.
Let's pretend he was making $5,000 before he quit his job. Now he's making $10,000, and he's got $65,000 in debt. He's debt-free in a year.
Chapter 6: How can I effectively manage my side business income?
Mm-hmm.
Easy.
Yep.
Easy. And so, you know, just figure out your math that way. And then what we have done at Ramsey, I've organically grown this from a card table in my living room where we're sitting now. And organically mean I took profit from the company and I bought tools. I hired people. I didn't take the money home. I put it back in here. But in every case, those things have to give me a return on investment.
Otherwise, we're going backward. And backward ain't the plan.
George Camel here. Let me give you three signs it's time to stop hoping your debt problem goes away and actually take action to fix it.
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Chapter 7: What are the implications of doing a short sale on a house?
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Mary is in Charleston.
Chapter 8: How can I protect my financial future while managing debt?
Hi, Mary. How are you? Good, Dave. How are you? Better than I deserve. What's up? Yeah, mine's probably pretty simple there. I have a question as far as our mortgage and paying it off. So we owe $110,000 on our house. It's worth about $400,000. And we pay... $5,800 a month right now. Our mortgage is only almost $1,500, but we've been paying extra.
And in doing that, our payoff, if we pay it off in... We have 23 months and we'll have it paid off. But if we chose to pay it off in 12 months at $5,800, then we would have to take some money out of our high-yield savings to finish paying it off. And we have... about $70,000 in high-yield savings right now.
And I've proposed that we take out after 12 months, continue paying the $5,800 for 12 months, and then take out $55,000 out of our savings is what we would have. I believe that we would have to pull out and leave about $15,000 in there at that time and pay the house off. So I just want to... So the difference is 12 months with your plan or the original plan is 23 months. Right, right.
So the argument is 11 months difference. And how old are you guys? I'm 56 and my husband's 60. And how long have you been married? For 11 years. Okay. And how much do you guys have in your nest egg, your retirement nest egg? In retirement, we almost have almost close to $200,000 in 403B.
We've quit putting so much into it while we've decided to pay this $5,800 a month rather than the $1,500, the almost $1,500. We cut back and only... Yeah. And your household income is what? $160,000. Okay. All right. So let's just back up and say both plans are in the SMART column. Okay. There's no you're so stupid I can't breathe checkmark on this one. Okay. I mean, both of these are very wise.
This is an argument between, you know, minutiae. Okay. And so neither one of you said he wants to do it the other way. You want to pay it off early. But he's worried about having not as much emergency fund. Am I reading between the lines? Yeah, and I told him, I watched your show once, and I said, I think he said, get uncomfortable for a while.
And that's when I came up with the plan of, I even suggested we leave $1,000 in there. And he's like, no, I'm not that uncomfortable. No, no, no, that's not our plan. Our plan is baby steps four through six, four through seven, you leave your fully funded emergency fund in place. And I think $15,000 is a little tight. I'll kind of come down on his side there.
So maybe between the two of you is the answer, because I also think 70 is a little high.
Okay. Yeah. How much are your expenses every month, Mary?
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