10/9/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

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

"Sell house and move into an apartment?"

Dear Dave,

I make $78,000 a year, and my debt is $64,800 plus $60,000 left to pay on the house. Should I sell my house for $125,000, wipe out all the debt and move my family into an apartment and start over?

Bart in Houston, TX

Dear Bart,

I don’t think I’d sell the home. Selling your home to get out of debt is a last resort to avoid bankruptcy. If you had said you were unemployed, way behind on your bills and thinking about filing bankruptcy, then you might have to look at selling your house to pay those bills.

You guys have been living the classic American model. The problem with the classic American model is that it doesn’t work. That model goes like this: every year I spend a little bit more than I make. I put it on credit cards and when that gets up too high I get a debt CONsolidation loan. When I don’t like that loan anymore, I go get another one. 

What happens is that every few years you think you’ve borrowed your way out of debt, but what you’ve really done is borrowed yourself into debt right up to your eyeballs! The debt is not the problem here, Bart; it’s the symptom of living without a plan. You’ve been living on $88,000 while you were making $78,000.

Now, how are you going to reverse that? You’re going to have to start living on $50,000 and pay down the debt. If it were me, I’d look at the family and tell them we are about to become apartment dwellers if we don’t make a commitment to going crazy and getting out of debt. This means no vacations, working more, selling some of the stuff sitting around and even getting an extra job.

Be prepared, Bart. There’s going to be some culture shock if you make these radical changes. There’s going to be the shock of getting used to living on less than you make, because you haven’t been doing that. Then, there’s the additional shock of having to live on even less than that, because you’ve got to pay back the mistakes you made.

- Dave

To read the next question "Being harassed by an agency about a paid bill!" Click Here

To Find More Nashville About.com Information About Dave Ramsey Financial  Advice (including previous articles)
Click Here
To Visit Dave Ramsey.com
Click Here

*Disclaimer: Questioner's identities have not been verified by Dave Ramsey.com or Nashville About.com.