Financial radio host Dave Ramsey has spoken with many couples who want to get out of debt. He often starts by figuring out how they got into debt, and this recent conversation on “The Ramsey Show” was no different.
A couple with more than $200,000 in debt asked Ramsey if they should sell their house to pay off the debt. However, as the call unfolded, it became clear that selling the house wasn’t the solution.
“The problem is not the credit card debt,” Ramsey stated.
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The couple has $50,000 in credit card debt, $115,000 in student loan debt, and a $48,000 home equity loan. It would be better if the credit card debt was zero, but the couple’s habits were a bigger red flag for Ramsey than their current financial situation.
Lifestyle Creep Can Destroy Anyone’s Finances
Ramsey asked for the couple’s age, and the wife mentioned that she is 48 years old. This discovery prompted Ramsey to inquire about why they owed $115,000 on student loans. It turns out the couple made minimum payments on their debt and lived above their means.
Doing that for one year is bad enough, but if you do it for more than 20 years, you can end up in serious debt. The couple currently finds themselves in this situation. Their annual household income jumped to $8,000 per month a few years ago, but that didn’t translate into lower debt. The couple just spent more money.
This chain of bad money habits adds more validation to Ramsey’s assertion that credit card debt isn’t the problem. In fact, the couple later revealed that the home equity line of credit was used as a debt consolidation loan to reduce their credit card debt. Selling the house can solve the couple’s current debt, but it would keep their bad money habits intact.
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Make Short-Term Sacrifices For Long-Term Gains
Ramsey was pretty clear about what it would take for the couple to correct their course. He suggested that they live like broke people. That includes no dining or vacations for at least three years. He said the couple shouldn’t be in a restaurant unless one of them is working in it.
He also suggested that the couple look for ways to earn additional money. While $8,000 per month is an above-average household income, the couple is far behind on their debt. If all goes well, the couple will be in their early 50s by the time they pay off their debt. Then, they have to save for retirement.
Ramsey suggested tackling the debt aggressively. He advocated that the couple pay off $2,000 per month toward debt repayment and quickly boost that number to $5,000 per month as the couple increases their earnings with raises, side hustles, and other methods.
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Turn Cost Savings Into A Game
Ramsey also told the couple to cut up their credit cards and make a game out of how much debt they can pay and how little they can buy. TikTok has some of these challenges, such as “No Spend January” and “No Buy February.”
Participating in these types of challenges each month can help the couple curtail their out-of-control discretionary spending. Then, they can pay off debt quicker, have more motivation to build on the initial momentum, and keep their house.
It requires a long-term financial commitment to get out of debt and change bad money habits that have been keeping you down. Ramsey offered the roadmap, and it’s up to the couple to follow it.
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This article Dave Ramsey Presents A Roadmap For A High-Spending Couple That’s More Than $200,000 In Debt: ‘The Problem Is Not The Credit Card Debt’ originally appeared on Benzinga.com
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