Dear Dave,

Is debt consolidation a good way to get out of debt?

Erikah

Dear Erikah,

No, it’s not. Debt consolidation companies try to position themselves that way, but they don’t even come close to addressing or solving the real problem.

Here’s the big reason debt consolidation isn’t a good idea. It makes you feel like you truly did something to change your whole financial outlook when you didn’t. When you move things around, or suddenly have a lower payment each month, you end up thinking you’re making real progress. The thing is you didn’t do anything to address the actual problem—which is you.

I meet people and talk to folks on my radio show all the time who don’t quite grasp this. They’ll tell me they paid off all their debt by using a debt consolidation company or taking out a second mortgage on their homes. Well, the truth is they’re not debt-free. They didn’t do anything but shuffle the same old debt around.

Personal finance is 80% behavior, Erikah. When it comes to getting out of debt, staying out of debt and getting your finances into shape, you have to change your habits and behaviors with money. Interest rates aren’t the problem, and the number of payments you’re facing aren’t the problem. The problem is the person you see in the mirror every morning.

Until you change that person, and start living on a strict, written monthly budget and decide to kick debt out of your life once and for all, you’ll never make any real progress toward gaining control of your money!

— Dave

  * Dave Ramsey is an eight-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

Dear Dave,

My husband and I have a beginner emergency fund set aside, and we’re working on paying off $30,000 in credit card debt and two cars in Baby Step 2. He would also like us to start putting money aside for a couple of trips and a few other things we have always wanted. This makes me nervous, because we have made so much progress over the last year in getting control of our finances, paying off debt and living on a budget. I understand wanting something to look forward to, but I would hate to see us slow down when we are doing so well. How do you feel about this?

Marie

Dear Marie,

Okay, so you have two car payments hanging over your heads, plus a bunch of credit card debt, and your husband wants to throw saving for toys and vacations into the mix? I’m sure he’s a good guy, and he has obviously been on-board with your financial overhaul so far, but I wouldn’t recommend doing this.

The reason people are successful following my plan is because I teach common sense methods, wrapped up in unbridled, scorched-earth intensity. There’s a process here. There’s an idea combined with passion. And when you plug into it full force, you’re going to move in a positive direction so quickly it’ll make your head spin.

You know how I say personal finance is 80% behavior and only 20% head knowledge? It’s true. Behaviors have to change. The more dramatically they change, the better the results and the faster you progress. But if you don’t plug into it, you’ll fall back into the same old things.

It’s okay to save up for a trip or buy some fun stuff in the general philosophy of life. But getting out of debt, and having control of your finances should come first. Remember when you were a kid, and you had to finish your dinner or clean up your room before going out to play? That’s what I teach. Work first, play later.

Trust me. It’ll pay off in the long run!  

— Dave

* Dave Ramsey is an eight-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

Dear Dave,

My father-in-law passed away earlier this year. Since then, my wife and I have faced a dilemma because of the inheritance. Her dad had several life insurance policies, and he left one to her and one to each of her siblings. The one he left my wife was bigger than the ones he left to the others, and now her sister who received the smallest settlement is angry about the situation. She wants more, and it’s causing a real dilemma within the family. I told my wife I am okay with doing what she feels is best. What are your thoughts?  

Daniel

Dear Daniel,

So, your wife’s sister feels like she’s entitled to something their dad didn’t want her to have? The arrogance of your sister-in-law is appalling. If their dad had wanted her sister to have a different policy, he would’ve put her name on the other policy. I mean, it was his decision, not hers.

Giving someone money because you think it will enhance or save a relationship is a really bad idea. A relationship that’s purchased isn’t a real relationship—it’s prostitution. If giving this sister money is the only way she’ll act right or ever speak to you guys again, then she ain’t worth having. That’s no longer someone you should feel the need to impress, and it’s not on you guys if she decides to pitch a fit or sever the relationship.

This is a heart decision, a conscience decision. I would advise you and your wife to make it together and be in full agreement. I’m sorry you two are going through this, but the idea her sister deserves more just because she wants more? Sounds like their dad already made his feelings known on that subject.    

— Dave

  * Dave Ramsey is an eight-time #1 national bestselling author, personal finance expert, and host of The Ramsey Show, heard by more than 20 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

Dear Dave,

We have a 2008 Honda Accord that needs a new timing chain. Our mechanic says the repair will cost about $2,200. The car is worth about $4,500. Is it time to get another car, or should we have it repaired?

Susan

Dear Susan,

That sounds a little high for a timing chain fix to me. Maybe I’m wrong about that, but let’s look at the math of your situation.

You say the value of the car is $4,500 if fixed and running properly. Let’s say for the sake of argument the value of the car if you sell it as-is—basically salvage—is $1,500. If you take the value of the car as-is, plus the repair, and the number you come up with is more than the value of the car after it’s fixed, you don’t repair the car.

So, if this car is actually worth $1,500, the idea of fixing it is very questionable. If you can get $1,500 for this thing as-is, I’d sell it and put the $2,200 I would’ve thrown into fixing that old thing toward a better car.

You’re talking about a big repair on an old car, Susan. If the repair price you got is right, and it was from an honest mechanic—not some padded, overblown quote from a dealer—I think it’s time for that old beater to go!

— Dave

 * Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.