Commentary

DAVE SAYS Retirement first or debt?

Dave Ramsey

Dear Dave,

Should I lower my 401( k) contributions in order to pay off my car and home?

Jack Dear Jack,

If you’re following my plan, the first thing you should do is set aside an emergency fund of $1,000. That’s Baby Step 1. Next comes Baby Step 2, which means paying off all of your debt except for your house. This would include your car. During this time you should temporarily stop any kind of investing and retirement contributions.

Once the only debt left is your mortgage, it’s time to move on to Baby Step 3. Now you concentrate on growing your emergency fund to the point where you have three to six months of expenses set aside. Once this is done, you can attack Baby Step 4, which is investing 15 percent of your pre-tax income for retirement. For you, it would mean re-starting the contributions to your 401(k).

The rest of the plan goes like this. Baby Step 5 is putting money into your kids’ college funds, while Baby Step 6 is putting everything you can scrape together towards paying off the house early. After that comes the real fun. Baby Step 7 is the point where you simply build wealth and give.

—Dave

My father co- signed for my niece’s student loans, and recently he passed away. My mom didn’t sign for the loans, but would she be held responsible now?

Denise Dear Denise,

I’m really sorry to hear about your dad. But no, your mom is not on the hook for the loans. Your dad’s estate could be held responsible though.

When you die, what you own stands good for what you owe. So anything he owned—perhaps his and your mother’s home— would have to stand good for it. This means that while your mom isn’t liable, the student loan would have to be cleared as if it were a normal debt in order for your mom to keep, free and clear, the stuff your dad owned.

There’s another possibility Federally insured student loans do not count against your estate when you die.

If you pass away or become permanently disabled, the loan is forgiven.

I believe that’s true for co- signers as well, but make sure you check into the situation carefully. —Dave


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2013-11-28 digital edition



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