Advice from Nashville's Financial Guru Dave Ramsey

Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
11/9/2004

Single mom must now repay student loans!

Dear Dave,

I’m a single mom with two children – seven and eight years old – and I just finished college. I’m looking at this looming $43,000 student loan that I have to start paying in the next couple of months. It’s the only debt I have. I’m trying to decide if I should go with the 30-year payment plan or the 10-year plan that would make my payments $487.00 per month. I currently make $30,000 per year, but I’m not yet working in my degree field. I live with my mother right now and I don’t own a car. I’m using hers.

I would like to buy a house, but I’ve heard on your radio show that you recommend people have a 20% down payment rather than doing FHA or other loans with little or no down payment. I also think I’m going to need to buy a car to get around. 

I’m really trying to be very smart about all of this and not go backward. How do people get to the point where they’re able to really start saving their money?

Sherrie in Toledo, OH



Dear Sherrie,

With your current income, I don’t think the 10 year payoff plan is even workable. I recommend putting this student loan on a 30 year payoff plan. In fact, if you’re able, see if you can get a hardship deferment. 

Then deal with getting a car. If I found your dream car, how much could you realistically afford to pay per month for the car? Let’s say you can afford $400. Then put away $400 per month for 10 months and pay $3,000 – $4,000 for a good used car. After that, when you get settled in and get a better paying job, you can attack that student loan more aggressively to get it paid off. Then you can work to save up money to buy a house.

You get to start saving money by not having a car payment, not taking on a house payment at this point and by getting rid of your existing student loan debt. Concentrate on those two initial steps – the car and paying off the student loan - as soon as you finish building up a $1,000 emergency fund to insure against unexpected expenses.
Dave

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