A DEBT-FREE man has been advised not to pay off his mortgage early, even though he could afford it.
Financial guru Dave Ramsey told him it would be better to remain patient and not deplete his savings too quickly.
Carl from St Louis, Missouri called The Ramsey Show to get the money expert’s advice on his mortgage situation.
The caller and his wife had gotten completely out of consumer debt and now had just $45,000 left on their mortgage.
They had $35,000 in savings and were considering using a large portion of that to pay off their home quicker.
However, Dave warned Carl about letting his savings dip too low.
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“I don’t want your savings below three months of household expenses,” he said.
Carl calculated that three months of household expenses for him would be about $10,000.
Dave warned: “If you have a $15,000 event, we got a problem, dude.’
Although Dave understood Carl’s excitement about paying his home off quickly, he urged him not to rush
“This is more intentional than it is intensity at your stage,” he said.
“So I just want to be wise and careful, even though I’m as excited as you are to get you out of debt.”
Dave also suggested that Carl could throw $10,000 toward the house payment instead of a larger amount, and therefore maintain a sizable savings nest egg.
He also insisted that the caller kept throwing money toward retirement.
Maintaining an emergency fund of at least three months living expenses is part of Dave’s Baby Steps Method.
Dave Ramsey’s 7 Baby Steps
Dave Ramsey advises his followers to follow a seven-step plan to save for emergencies, pay off debt, and build wealth.
Step 1: Save $1,000 for your starter emergency fund.
Step 2: Pay off all debt (except the house) using the debt snowball.
Step 3: Save three to six months of expenses in a fully funded emergency fund.
Step 4: Invest 15% of your household income in retirement.
Step 5: Save for your children’s college fund.
Step 6: Pay off your home early.
Step 7: Build wealth and give.
Dave’s co-host Ken Coleman had another suggestion for Carl.
“How could you make $5,000 to $10,000 extra? That’s what I’m looking at.”
Ken said he would feel “nervous” going below $10,000 savings if he were Carl.
ANTI-DEBT DAVE
Dave is very opposed to all forms of consumer debt and encourages his followers to only spend on debit cards and to buy cars only in cash.
“Americans live in such bondage that they don’t know what its like to be free,” he said.
Dave himself previously went bankrupt at 26 as a young real estate investor who relied heavily on loans.
See how one of Dave’s other callers paid off $234,000 of debt in just 31 months.
And see what he recommended for a 46-year-old man drowning in debt and with no retirement fund.
