Sometimes, when you’re in dire financial straits, your parents are able to bail you out. That’s what happened to Rachel from Dallas, Texas who recently called into The Ramsey Show looking for advice.
Rachel’s home flooded in 2023, so her parents helped out by loaning her an RV to live in. Since then, Rachel — along with her husband, toddler and two dogs — have been living in the RV on her parents’ property. Doing so has allowed them to save some money and pay off debt.
However, Rachel’s parents need their aging RV back, so she’s looking to buy her own — even though she still has $40,000 of debt. Ramsey Show hosts Jade Warshaw and Ken Coleman had some firm advice in that regard.
Rachel has been doing better financially while living in her parents’ RV. She’s saved a little and put a fair amount of money toward her debt.
But Rachel’s parents are now retired and could use some extra money, so she wants to return their RV so they can sell it. And Rachel believes that buying her own RV will be more cost-effective than paying rent.
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Powered by Money.com – Yahoo may earn commission from the links above.But Warshaw and Coleman warned her that doing so would require taking on more debt. Since she already has $40,000 in debt, they strongly advised against it.
“You should not stop paying down your debt to buy an RV,” Coleman said on the call, point blank. “You have no idea what the RV is going to cost, you only have $2,500 in savings … and you’re presenting to us as though you can’t even afford to pay rent.”
Rachel’s take-home pay is $70,000 annually, and her husband earns $11 per hour in a job he has held for a short time. Based on their take-home pay, Warshaw ran the numbers and told Rachel she should spend a maximum of $1,250 per month on rent. She warned that if they go beyond that, it will be hard to make progress on their debt.
Coleman suggested two things: moving closer to Rachel’s place of work and having her husband pause his marine biology studies, which could open the door to the husband finding a better-paying job.
“I’m not in any way crapping on the dream,” said Coleman with regard to the husband’s degree. Rather, he wants the husband to put his degree on hold while the family tackles so much debt.
“You all need to get your income up and change your lifestyle,” Coleman said. And once the family is in a better place, returning to school could be more feasible for Rachel’s husband, as could buying an RV of their own.
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It’s clear that Rachel’s family is in a tough spot. However, many others are also carrying their fair share of debt.
According to Experian, as of the third quarter of 2024, Americans collectively owed $17.57 trillion in total debt. And while the majority of that was mortgage debt, auto loan and credit card debt also rose on an annual basis.
If you’re serious about paying off debt, try to boost your household’s income — something Coleman suggested to Rachel. That might mean switching companies, roles or starting a side hustle.
Recent data from the American Staffing Association found that 64% of workers plan to take on a second job or start a side hustle in the year ahead. If you have similar plans, you’ll be in good company.
Once you’re earning more money, you can total up your debts and create a strategy to pay them off. Two common methods include the debt avalanche and debt snowball.
With the debt avalanche strategy, you order your debts from highest to lowest in terms of interest rate and pay them off in that order. This means that if you owe $16,000 on a credit card with a 24% APR, $12,000 on a personal loan with a 9% APR and $14,000 in student loans with an 8% APR, that’s the order you would tackle your debts in. But you still need to make minimum payments on the other balances.
With the snowball method, you pay off your debts in order of smallest balance to largest. In this example, you’d pay off the personal loan first, followed by the student loans and then the credit cards. Minimum payments are also made on the other balances in this method too.
You’ll pay less interest with the avalanche method, but the snowball method has a psychological benefit and can be more motivating. That’s because by paying off smaller debts first, you can enjoy some quick wins on the road to being debt-free.
There’s really no right or wrong answer when it comes to choosing between these two options, so you should think about which is likely to work best for you.
Once you’ve decided on a payoff method, determine the total amount of your essential monthly expenses, then set up automatic payments toward the debt you’re trying to address first.
For example, if you have $400 available after your fixed expenses, including the minimum payments you’re making on your debts, send that amount to the debt you’re tackling first.
The sooner you eliminate debt, the more money you can save on interest, and the more peace of mind you can gain. So it’s worth making some sacrifices for a while to enjoy the freedom of being debt-free.
Finally, look for ways to reduce your spending. This will help you speed up your debt payoff timeline. That could mean getting a roommate or moving to a more affordable rental for a year, carpooling to work to save on gas or canceling any streaming subscriptions you don’t need.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
