Advice from Nashville's Financial Guru Dave Ramsey

Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
7/19/2004

OK to purchase things while still in debt?

Dear Dave,
Do you always recommend that all debt, except the home, be paid off before other purchases are made with cash? My wife wants to get a leather sofa. It would take us about three months to save up for it, but we do still have a second mortgage. What do you think?
Scott in Manassas, VA


Dear Scott,
I generally recommend that you get out of debt. The exception would be for true necessities. I definitely recommend you be out of debt, except for your home, before you purchase something like a leather couch. 

This is an example of how we think in America today – “I need a leather couch!” I’m just like you. I like leather couches. In fact, I have one. They smell good, they feel good, and they’re comfortable. But you have to reach a point somewhere in this process where you ask what is important, what is real, what matters. If you rated this on a scale, being out of debt so your family can live, save, win and pay cash for things so all of the money isn’t going back out in payments for stuff every month would be way up on the list above a leather couch.

If you have a second mortgage larger than one half your annual income you may consider refinancing your second into a new first mortgage. The key here is to be absolutely positively over debt and I’m not sure you’re through with debt because you’re still asking questions about leather couches way early in the process. Leather couches should be a thing that happens with cash as a natural result of having built some wealth. That’s how the process ought to flow. Not as something where we have to figure out how we can get one because I want one and I’m going to stick my lip out and pout before I have built some wealth. 
-Dave

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