Dave Ramsey: The First Thing You Need To Do To Get Out of Debt
Written by
Cynthia Measom
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Elizabeth Constantineau
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If you know anything about financial guru Dave Ramsey, you know that he hates debt with a passion. As such, he has strong opinions about what people should do to free themselves from their debt-ridden circumstances, and he regularly gives his advice to those seeking help.
On a recent episode of The Ramsey Show, host Ramsey spoke with caller Laurie from Milwaukee, Wisconsin. Laurie said her husband, who is training to be a nurse anesthetist, is currently in graduate school and they have a large debt to pay once he graduates in August 2024. She said her husband has already accepted a job with a $30,000 sign-on bonus, and they will receive the bonus in the next week. However, she confessed that they’re not sure how they should use it.
Here’s Ramsey’s advice for the couple on how to tackle their debt.
First Thing: Stop Borrowing Money
Laurie explained to Ramsey that she and her husband had come up with some options for the $30,000 signing bonus they were about to receive. “The first is to pay for the next nine months of living and tuition and not take out any more loans,” Laurie said. “The second is to keep it and use it for moving help or a possible down payment for a house. Or three — is to just pay off some of our debt now to get the interest down and then take out loans to pay for the rest of our tuition.”
Ramsey did not deliberate. Instead, he immediately replied that the first thing Laurie and her husband need to do to get out of debt is to stop borrowing money, which means options two and three that Laurie proposed were off the table.
The Couple’s Debt and Budget
Ramsey then asked Laurie how much debt they have. Laurie told him they have $155,000 in debt and her husband’s starting salary would be $210,000.
Laurie also told Ramsey that she makes $1,600 per month as a nanny, but she doesn’t have a full-time job or other work because she also takes care of their small children.
Ramsey also asked Laurie how much they live on right now and when she said $1,800. He told her he wants them to live on no more than $3,000 once her husband is making $210,000 per year so they can pay off the $155,000 in debt as quickly as possible. He said they potentially could be debt-free in a year or so using that strategy.
Don’t Buy a House Right Now
Ramsey also said not to buy a house — or spend any significant amounts of money — for the time being.
“Renting would be the best option right out of graduating,” said Ramsey. “You do not need to buy a house; you’re broke, OK? You’re in debt up to your eyeballs. You don’t need to buy a car, and you don’t need to go on vacation.”
Ramsey also cautioned that just because Laurie’s husband will be making “good money” doesn’t mean that he should postpone paying off his student loan debt. He said this would be a big mistake, but that plenty of people do it anyway.
“Think about all the people graduating with him that are getting ready to do really stupid things while they still are sitting on student loan debt,” said Ramsey. “I promise you if you go with that herd, you’re going to go over the cliff with that herd.”
The Bottom Line: Pay Off Debt First To Get Ahead
“I’m telling you in 14 months, y’all could be free forever,” said Ramsey. “Think about it Laurie — I mean you got the rest of your life to make $250,000 a year, and you won’t have a payment in the world. I mean, think about it, you could save $100,000 a year for three years and pay cash for a $300,000 house. So when we talked about putting a little aside for a down payment — ignore that completely; just do student debt.
“My point is,” Ramsey said as he wrapped up the call, “when you have all this money and no payments in the world you can do anything you want to do. You’re gonna be in great shape. Please do this. Please, please, please.”
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