Dear Dave,
My wife and I have $72,000 in debt from student loans and a car loan. We’re trying to pay off our debt using the debt snowball system, and we each make about $45,000 a year. She’s a teacher, and she’s planning on going back to school for her master’s degree, but she’s thinking about quitting her job to do this. She’ll be able to make more money with the additional education, and she would only be unemployed for two years. The degree program will cost us $2,000 out of pocket per semester for two years. Does this sound like a good idea?
Chris
Dear Chris,
There’s no reason for your wife to quit her job to make this happen. Lots of people – especially teachers – hold down their jobs and go back to school to further their education. I’m not sure trying to make it on one income when you’re that deep in debt is a good idea.
Whatever you do, don’t borrow more money to make this happen. Cash flow it, or don’t do it. We’re talking about $8,000 total, and you’ve got $72,000 in debt hanging over your heads already. My advice would be to wait until you’ve got the other debt knocked out, then save up and pay cash for school.
You could slow down your debt snowball, and use some of that to pay for school, but I’d hate to see you lose the momentum you have when it comes to getting out of debt.
The choice is yours, but don’t tack on anymore student loan debt. I know her income will go up with a master’s degree, so from that standpoint it’s a good thing to do. But if you do a good thing a dumb way, it ends up being dumb.
Dave
Pre-planning explained
Dear Dave,
My grandmother passed away a week ago. She was 98, and I know both she and my grandfather had pre-paid for their funerals in 2004. However, there were outstanding costs of $1,500 with the funeral services we had to pay out of pocket, because she had outlived the insurance policy attached to the pre-payment plan. I know you say it’s always better to pre-plan, not pre-pay, for a funeral. Can you refresh my understanding of this?
Rebecca
Dear Rebecca,
Let’s use a round figure, and say the cost of a funeral is $10,000. What would $10,000 grow to 25 years from now if it were invested in a good mutual fund? Now, juxtapose that number with the increase in the cost of a funeral over that time. The average inflation rate of consumer-purchased items is around four percent. So, the cost of funerals, on average, has risen about four percent a year. By comparison, you could’ve invested that money, and it would’ve grown at 10 or 12 percent in a good mutual fund.
Now understand, I’m not knocking folks who are in the funeral business. But lots of businesses that provide these services realize more margin in selling pre-paid policies than they do in caskets. In other words, they don’t make as much money selling the casket as they do selling a pre-paid policy on the casket.
Do you understand my reasoning? If we knew the exact date she pre-paid, and how much she pre-paid, that figure invested in a good mutual fund would be a whole lot more than the cost of a reasonable funeral.
It’s the same principle behind the reason I advise folks to not pre-pay college, or just about anything else, that’s likely far into the future. The money you could’ve made on the investment is a lot more than the value of pre-paying. Pre-planning, on the other hand, is a great idea for many things — including funerals.
I’m truly sorry for your loss, Rebecca. God bless you all.
Dave
• Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.