7/04/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Parent's student loan debt and children's future?"

Dear Dave,

My husband went to Harvard Law School and graduated with about $100,000 in debt. I also had about $30,000 in debt from getting my Philosophy degree at NYU.

Now, seven years later, we’ve paid it down to a total of about $45,000 in student loan debt. However, we’ve fallen into the “lawyer’s lifestyle” and been living above our means and getting back into debt. We’ve just started implementing the financial advice you give. We sold some furniture to pay off a credit card debt. The other people at my husband’s law firm are joking that when they come over now; there will be no place to sit. 

We’ve got two kids – ages 1 and 3 – and Harvard offers a program for children of alumni where they have a better chance of acceptance to the school. We want to give them the chance to be able to attend there, if they want to. So we’re trying to get all of our debts paid off, but we haven’t done any college planning for the kids yet. 

I’m a stay-at-home mom and my husband earns about $100,000 a year, but he may make partner soon and the average partner salary at his firm is $300,000. 

Nancy in Louisville, KY



Dear Nancy,

It’s a good sign when your husbands broke lawyer friends are making fun of you. You don’t want to be in that lifestyle any more.

If your husband makes partner and gets the salary increase to $300,000, you can clear this debt up in about a year, if you’ll keep your lifestyle at the level of a $100,000 annual salary. Then the next year you can fund your children’s college education in one year.

In either case, with a raise or not, you’ve got a great income and your income potential is huge. If you’ll just live on less than you make, you can be debt-free in a couple of years. Then, if you’ll invest $30,000 for each child over the next year or two after getting out of debt, you’ll have enough money when they go to college to pay for all of their schooling, including law school if they choose to go.

Nancy, I think you’re headed in the right direction. You’ve been paying off debt and you realized it when you started living above your means. Get on a written budget, spend less than you make and you’ll be alright. I’m not anxious for you. If you made $300,000 a year and spent $400,000 – I know plenty of people who do that – then I’d be anxious, but you’re doing alright.

-Dave

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