Debt is a fact of life for many people in America. With the easy access to credit cards, loans, and other forms of borrowing, it’s no wonder that so many individuals find themselves in debt. From student loans to car payments to credit card balances, the list of potential debts can seem endless.
And while some debt may be necessary to achieve important goals, such as buying a home or starting a business, it’s all too easy to fall into a debt trap that can be difficult to escape.
Recently, a 29-year-old woman called into financial advisor Dave Ramsey’s show, and after asking for advice on how to get out of $1,000,000, the followup questions only revealed more questions.
Caller: We have probably just under a million dollars in debt and we wanna know how to get debt-free without filing for bankruptcy.
Dave Ramsey: Okay. How much of that is your mortgage?
Caller: Uh, the mortgage is about $210,000.
DR: So you have $600,000 in what?
C: $335,000 is about in student loans. We both have advanced degrees, and then a lot, the rest is really credit cards and personal loans.
DR: So you have $300,000 of credit cards and personal loans?
C: We have about $335,000 in student loans and then about $136,000 in credit cards, $44,000 personal loans, and $35,000 car loans.
DR: Okay. Um, how old are you?
C: I’m 29.
DR: Okay. So what in the world?
C: So, yeah, so we, uh…
DR: I mean, are you both on this or is this just one of you that’s completely lost your mind?
C: Well, I have the majority of the student loans and he has the majority of the credit cards. My credit card debt is not great…
DR: Okay. So why has he, at 29 years old, run up a hundred grand in credit card debt?
C: Well, he’s 32, but I think it’s one of those things where just making really poor financial decisions, thinking you’ll be able to pay it down as you go and then it doesn’t happen.
DR: Yeah. Okay. So you both have advanced degrees. What are your degrees in?
C: We do. Both of ours are advanced degrees. No, he has an MBA and I have an advanced degree in Policy. I work in the government. We actually both do now at this point, actually.
DR: Okay. So your household income is?
C: Our household income is about $230,000.
DR: Okay. All right. Is there recognition on both of your parts how absurd this situation is?
C: Uh, yes. Yes, there is. So I think we’re both scared and wanna do anything we can to avoid bankruptcy.
DR: Okay, great. Then I’m on your team. I can skip that step. Okay, good. Well, you’re scared and you should be. You’re disgusted and you should be.
C: We are.
DR: You’re in the early stages of being sick and tired of being sick and tired, and you should be. Here’s the thing. You guys have been living at, across the board from your education choices to your car purchases, to your whatever, you’ve been living at about 10x where you’re gonna get to live for the next three years.
C: Okay. Yep, that’s true.
DR: So I’m getting ready to destroy your life as you know it because your lifestyle is considerably above your extremely good income and has been for a period of time. And so you’ve gotten used to spending like you’re in Congress, right? This is gonna be very emotional for y’all, and you’re gonna have to look at it through that lens and through a spiritual lens, or you’re not gonna make it. You’re gonna have to not care what anyone thinks, including each other, because you’re not gonna spend any money on anything ever, for the next three years.
In a much longer video, Dave Ramsey goes into length about what exactly this couple is going to need to go through to get out of debt.
DR: Let’s pretend you’re making $210,000, and I know you just got married, but let’s pretend you’ve been doing this as a couple as you went along. You’ve been making $210,000 and spending $310,000. I’m getting ready to put you on $30,00. You’re not gonna see the inside of a restaurant unless it’s your extra job or you’re waiting on some of the people you work with during the day. This is how humbling it’s gonna be. It’s gonna crush a lot of cr*p in your soul that caused you to do this. So the bad news is it’s gonna be really rough. The good news is it’s gonna be great for you guys relationally, spiritually, and financially.
DR: But you’re not gonna make the financial unless you make the relational and the spiritual move. Because I know that. I know you guys ’cause I was you guys. This is exactly what I did in my twenties. I bought and purchased a lifestyle that was 5x to 10x what I had. And it was all because of cr*p inside of me that caused me to do that. And all of that has to be destroyed to fix it.
DR: Is this making any sense or is this too brutal?
C: No, it’s making a lot of sense and it’s brutal.
DR: I’m warning you what’s coming, okay. This is not a math problem. The math problem is the symptom. The problem is what’s going on inside of you guys. So the great news is you’re very smart people. And if you apply that intellect to solving this problem as if it were a policy problem or a business problem, you can solve the problem. But the lens by which the problem will be solved is through spiritual contentment. Godliness with contentment is a great gain. Translation: You’re gonna pull up at a stoplight driving a piece of cr*p car next to people that have an income a fourth of yours and have a nicer car than yours. And you’re not gonna care. That’s gonna be the cool part. You’re gonna reach the point you don’t care what other people think. And that might be a far journey for you or him, I don’t know which one it is, but one of you guys has been purchasing a lot of stuff for a lot of reasons that are gonna change. They have to. They have to because you’re on a suicide mission right now.
DR: What’s the home worth?
C: Let’s see, according to Zillow, the home is worth about $300,000.
DR: Okay, so you have a little bit of equity there, but not enough to save you. I always say that the home is the last resort, unless it’s the problem and it’s not the problem. Ratio-wise, it’s nothing compared to this other stuff. I mean, you have $330,000 in student loan debt, $200,000 on your house. It’s not the problem, you know, when the credit cards are almost as much as the stinkin’ house. So I don’t think we gotta sell it. You probably may need to sell a car. The big thing is, is just this shock to the system of your lifestyle where you go from really living what we call in Tennessee ‘high on the hog’ to you’re gonna be living ‘beans and rice, rice and beans’. Your friends are gonna think you’ve lost your mind and your mother’s gonna think you need counseling.
C: We actually live with my parents now. After we got married we offered to stay with them to help us with transitioning to the new life which has definitely been helpful renting out the condo.
People in the comments were just as shocked as Dave Ramsey.