Don't Be A Slave To The Lender

The Ramsey Show

Patrick, a 59-year-old father and former bankruptcy filer, shares his financial struggles after buying a home with no money down, accumulati

Key takeaways

• Financial freedom begins with letting go of past regrets and focusing on present actions.
• Debt reduction is possible even at advanced ages by reallocating income and cutting non-essential expenses.

Main topics

• Debt management and elimination
• Retirement planning for middle-aged individuals

Notable quotes

"We're not going to beat past Patrick up. We're on the same team, okay?"

"Write a letter to 65-year-old you about who you decided to become at age 59 so that he could have a different life."

Conclusion

Patrick is encouraged to embrace change, let go of past guilt, and take actionable steps

Transcript preview

Speaker 8 (0:01) Just sticking with your existing Medicare plan could be an expensive decision. Let Chapter review your options for free. Learn more at AskChapter.org slash Ramsey. Brought to you by the EveryDollar app. Start budgeting for free today. Speaker 2 (0:25) Normal is broke and common sense is weird. So we're here to help you transform your life. From the Ramsey Network and the Fairwinds Credit Union Studio, this is The Ramsey Show. I'm George Camel, joined by Dr. John Deloney. We're taking your calls at 888-825-5225. Patrick is in Detroit. What's going on, Patrick? Speaker 4 (0:46) Hey, guys. Thanks for taking my call. Sure. So in 2012, I bought my family's home for $80,000 at about 3 % interest and worked on it, put in sweat equity. And about 10 years ago, I filed bankruptcy because I was buried in student loans. And I kind of got that in order. Of course, I couldn't. Speaker 4 (1:18) got rid of other debt and structured things. Well, after COVID, I saw that I could sell the home I was living in, which I loved and I'm sick about right now, to pay off those loans. So I did, and I did pay off those loans, and I was debt-free. And I subsequently rented for four years. Rentals are pretty high in my area. I rented for about $2,400 a month. for three to four years and wanted to get back into owning a house. So I bought a house last January for $230,000 with no money down. I'm raising my son alone. He's going into his senior year. And I have more debt now than I've had before. I have a car loan. I have $230,000 in mortgage. I'm paying 6.25 on that mortgage. I make $100,000 a year. I'm 59 years old, and I'm looking at retirement. You know, I'm breathing down the barrel of retirement, and I have only about $130,000 in a 401k, and I'll tell you guys, I'm not sleeping well. Speaker 1 (2:46) Thanks for calling, man. Speaker 1 (2:50) Thanks for calling. Thanks. That was a hard call to make, and I'm proud of you for doing that, man. Cool? Yeah. And we'll give you a path. How Speaker 4 (3:01) do I get out of this mess? Speaker 1 (3:02) We're going to give you a path here, but we're not going to beat you up. We're on the same team, okay? Speaker 2 (3:07) But if we're going to do it, we've got to agree on one thing. We're not going to beat past Patrick up for his mistakes. That's right. you've got a crick in your neck from looking backwards of all the things you wish you could have done, things you should have done, regrets, shouldn't have sold that, shouldn't have taken on that debt. So can we agree that this is a new chapter for Patrick? 59 is going to look different. Speaker 1 (3:29) One of your homework assignments this weekend is going to be to write 2014 Patrick a letter and let that guy go. Set him free. Okay? Speaker 1 (3:42) And then we're going to write 65-year-old Patrick a letter about who you decided to become at age 59 so that he could have a different life. Okay? Yeah. All right. We'll get into the math here. So you're a 59-year-old making $100,000. Speaker 4 (3:57) Yeah. Before we get into the math, I left something out. I do have $30,000 that is in my... Great. Speaker 2 (4:06) Great. You are doing better than most of America, if it gives you any consolation. It's a low bar, but you're doing better. So what is left on the car loan? Speaker 2 (4:17) Man, sounds like you could be debt-free today. Speaker 1 (4:19) Except for your mortgage. Speaker 2 (4:21) Well, Speaker 4 (4:21) and there's a $7,000 loan that I had to take out to get some repairs done on the house that had to be done. Okay. But that's all the debt. So you knock out Speaker 2 (4:33) the $7,000. Is that one loan, the $7,000 repairs? Yeah. Okay. So if you knock that out, you're down to $23,000. You still owe the $26,000 on the car. You can knock most of the car out and keep that $1,000 starter emergency fund. What's the car payment, and what's the payment on that other loan? Speaker 4 (4:52) The other loan is about $175 a month. It's got like a 10 point, it's a $7,000 loan with 10.5 % interest. Speaker 2 (5:01) It's about to be $0 a month at 0 % interest. Yeah. Congratulations. Congrats. So you freed up $175 today. What about the car loan? What's the payment? Speaker 4 (5:10) It's about $550, $575 or something like that. Okay. Speaker 2 (5:15) So $575, we're talking $750 freed up. Speaker 1 (5:20) In the next couple of months, if you do this. So you just got about a $9,000 a year raise. Of take-home pay. Speaker 4 (5:28) Got it? me that I get it and I would love to do it, but I am scared to death that I'll lose my job or something like that will happen and I'll have nothing and I have my son with me. Speaker 1 (5:42) Gotcha. We gotcha. But here's what I know. If you lost your job, which every single one of us, that can happen to us, right? You have your son with you. You're under the squat rack of fatherhood, of life, of responsibility, and you know that would be a big kick in the gut. And you would owe nobody anything except for your mortgage. And then the very next day you'd be at Home Depot, at Lowe's, at wherever else, applying for jobs. And you'd make enough money to pay your bills. And you would show your son, you'd give him a ringside seat as to what a grown man with responsibilities does when he gets kicked in the guts. Right? You're projecting all the negative into future Patrick's life, but you're not projecting the reality into future Patrick's life, which is you're a good man and you work your butt off and you love your son and you love yourself. Right? Speaker 4 (6:35) Yeah. Speaker 1 (6:36) And so you're going to have $750 on top of whatever else you have in margin and you're going to rebuild that emergency fund right away. Speaker 2 (6:47) Are you taking home about $6,000 a month right now? $7,000 a month? I Speaker 4 (6:53) think so. about right. I'm in the other room, so he can't hear me away from my budget. But yeah, it sounds about right. I'm taking home, yeah, I think so. Speaker 2 (7:04) Okay. And then what are your monthly expenses? What does it take to just cover the bills? We're not living luxuriously, but we're just four walls, food, utility, shelter, transportation, insurance, debt payments. Speaker 4 (7:14) I think like Speaker 2 (7:14) five. Okay. So Napkin Math says you should have, if you do it right, one to two grand left over every month, and that's without freeing up the $750,000. Speaker 4 (7:25) Yeah, you might want to up that a little bit, maybe more than $500. Well, let's get it down to $500. I Speaker 2 (7:31) think the $750 Speaker 4 (7:31) would be my, I think the $750, I'd probably have about a margin of about $800, $900. But if we sat Speaker 2 (7:38) down together, we did your budget, do you think I could find that much room? If we went, hey, you could probably cut that. We could do better here. There's two of you guys. We could clean that up. Speaker 1 (7:49) Yeah, of course you could. Speaker 2 (7:50) If your future depended on it, your retirement depended on it, could you do it? Well. Speaker 1 (7:56) Yes, it does. Because it depends on us. This is part of the letter you're writing to 65-year-old you. We stopped spending on X, Y, and Z so that my son wouldn't have to take care of me when I was 70. Right. Right? Yeah. You are way better off than you think you are. And George nailed it. You spend so much energy beating up past Patrick that you're not giving him any chance to be successful in the present and forward, moving on. Speaker 1 (8:28) And by the way, sit down with your son. There is, I just looked it up. There's the community college guarantee, the promise there in Michigan. You might sit down and say, because of my situation, because of choices I've made, I can't afford for you to go to college. But luckily we live in a state where community college is free and I'm going to keep saving, work on myself, get myself completely out of debt. And I might be able to help you if you transfer to a second year, to a four-year college, moving on, if that's what he wants to do. There's so many options for you. But it starts with you believing, I can make this work. Speaker 8 (9:12) Let me tell you what I get asked all the time. When should I get term life insurance? How much do I need? Is it affordable? Those are the right questions to be asking. So let's take a quick review. The fact is, term life isn't a baby step. So if anyone is dependent on your income, you need to have 10 to 12... times your income in life insurance now. And most people are surprised by how affordable term life really is, even if you're not in perfect health. Look, I understand the hesitation, since most insurance companies make it more of a hassle than it needs to be. Not at Zander Insurance. They're not an insurance company. They're a broker. that works for you. That means they'll shop and compare the top term life companies to find the most competitive options on the coverage for your family. For almost 30 years, I've recommended Zander for straight answers, competitive rates, and coverage that actually protects your family. Call 800-356-4282 or go to zander.com for a quick and easy quote. That's zander.com. Speaker 2 (10:35) Justin is up next in Dayton, Ohio. What's going on, Justin? Speaker 4 (10:39) Hey, how you guys doing? Doing well. Thanks for taking my call. Speaker 2 (10:42) Absolutely. What's going on? Speaker 4 (10:44) So me and my wife, we've been married for about three years, been pretty diligent about saving. We've got a fully funded emergency fund and close to about $40,000 saved for a down payment. Speaker 4 (10:59) But she's wanting to quit soon, so I'm trying to change jobs to make enough that she can quit to stay at home with our baby. And just wondering if it's ever advisable to just get a 30-year mortgage in order to get into the market sooner and start building equity instead of just renting. Speaker 2 (11:20) Man, I feel your pain on this one. For real. Because houses do be expensive. And you're like, the 15-year is going to be $600 more for the payment, and that's going to take this much more in a down payment to get there. So what is the house you're looking to buy? How much is it? Speaker 4 (11:35) I really don't know what we're in the market for. I mean, I would love to be under about like a $200,000 house. Speaker 2 (11:42) Do those exist in your area? Speaker 4 (11:45) They exist, but, you know, I think I'm willing to sacrifice on kind of the quality of the house or what the house has more than my wife is. Speaker 2 (11:55) Oh, so she wants to Speaker 4 (11:57) stay home, live on one income. I would not make Speaker 1 (11:59) that sacrifice, brother. Speaker 2 (12:00) And have the dream home. Speaker 4 (12:02) Yeah, I mean, I think she's willing to compromise on... Speaker 4 (12:08) Some things just you know the things that make a house more expensive she really wants Usually here's Speaker 1 (12:14) what you're here's the trade you're looking to make okay, and this is just putting all the cards on the table Mm-hmm you have three different pressures on you right now one your wife wants to stay at home with baby That's a great thing okay number two y'all want to buy a house you had a picture of what your life would be your wife especially did of We're gonna be a small family. We're gonna own a home. That's a great thing Speaker 1 (12:37) Number three, houses are incredibly expensive and the interest rates on houses are really high right now, especially on a 30-year note. They're really high. And so you have three pressure points here. And where I see people get themselves into crazy trouble is when they don't recognize that we have to prioritize these things and prioritizing each one of those things. is going to come with some sort of, man, I hate to use this word because it sounds so dramatic, but it's going to come with consequences. Like, I really want to stay on with baby, and that means we're going to have to rent for two more years while we save up. we're going to, I'm going to stay in the workforce for one more year longer than I have to. I'm going to make one of those construction paper chains and hang it in my bedroom. I'm Speaker 2 (13:26) going Speaker 1 (13:26) to tear off one every day. But that's going to accelerate us being able to get into a house so fast so that we have the rest of our lot, right? You get what I'm saying? Like it's when people try to do everything all at the same time and then they start moving values around. They start moving their principles around. They find themselves just... Buying a brand new car because it seems easier. Just buying a kind of a lesser house than either of us want just to say we have a house. By the way, that feeling will last less than one week and you'll go, oh no, we need to fix the kitchen, do this in the bath. Oh, there's a leak in the roof. And now you're stuck in a pretty ugly situation. So it's just recognizing we have three amazing choices, three great things that we all want in front of us, but we can't do all of them right now. And so we have to make some choices on what we want more. Speaker 2 (14:17) Yeah. What are you making every year? Speaker 4 (14:22) Between the two of us right now, we're about 75. She's the bigger half of that. And I've been working for the same guy since high school, and it's just not grown into what I was expecting. So I'm moving jobs in the winter just to finish out the year. It's a landscape business. Okay. Speaker 2 (14:40) Because here's the thing. It's not the housing market's fault right now. It's an income problem. There's just a math equation here. If we go down to $35,000, $40,000 in income, we're not going to be able to eat. This is not like a rent versus mortgage thing. So either way, we've got to get the income up if this dream is going to come true. And I hope it does. I mean, you guys are young. How old are you two? Speaker 4 (15:01) I'm 22. My wife's 23. Okay. Speaker 2 (15:04) Average homeowner is now about 40 years old getting to their first home. Speaker 1 (15:08) So even if it takes y'all four years, you're still so far ahead, man. And by the way, like for real, dude, like this is just two dads talking to another brand new dad. Do not buy a house until you've got secure employment. Speaker 1 (15:26) Okay, like the last thing on earth you need is to be making 40 grand or 30 grand at a job that may or may not this or that or could be dude, don't do that to yourself. But don't do that to your wife. Don't do that to your kid. Don't do that to the temperature in your home, man. And that means like, cool, I'm going to look for a job. that I need to make 75 grand. I might have to go get some new training. I might have to like, so it's just putting the cart before the horse and a lot of stuff, man. But do we, like, I can't tell you George and I, how big of a fan George and I are of all the things y'all are trying to do. Right. Thank you. It's just slowing down and not letting your dream become a nightmare right underneath you because you want to do it all right this second. Speaker 4 (16:07) Yeah. And I will say I'm making like 35 right now, and I have an interview next week for a job doing HVAC in which I'll start at about 40. And I've got friends at that business that are making north of 90 doing that. Fantastic. I'm going to go and make it work so that, I mean, I want my wife to stay at home. That's like priority one. Speaker 4 (16:30) I think I just needed to hear something more concrete and that it is going to be worth it to save up and get, you know, have our feet on solid ground first. Speaker 1 (16:40) And the math isn't Speaker 4 (16:41) in Speaker 1 (16:41) your favor. The rates are significantly higher on a 30-year to 15-year. The amount of money you would pay over that 30 years, you wouldn't stay in this house for 30 years anyway. But yeah, it's just this, it's just, dude, I get it, man. I get it, that desperation. I got to get my family a house. I got to get in the house. I got to, this kid's got to have, I get it, man. I get it. It's just not there for you yet. And by the way, it's important that you and your wife have the conversation about she wants to stay home. She wants to own a home. And that means you're going to be working seven days a week. There's sacrifice on either side here. Speaker 2 (17:16) And Speaker 1 (17:16) so she may come back and say, I actually want my husband too. What does this look like? What does the season of our life look like where one or both of us is grinding like this? So it's just asking yourselves, what kind of life do we want? And then what's the path to get there? But I love your hustle, man. You're a good man, dude. Yeah, when I was 23, I started Speaker 2 (17:32) this company, Justin. I was 40 grand in debt. So the fact that you guys have an emergency fund, you have 40 grand saved for the down payment at this age is so incredible. Yeah, you're so far ahead, man. You are not behind at all. And if you buy a house at 25, you will still be an incredible human being who is crushing it financially. There's no law that says if you don't have a house by 25, you're a terrible dad and husband. Speaker 1 (17:54) I'd rather you be 27, have rented for several years, save up a big chunk of a down payment, and y'all go buy the house you actually want, not the one that you have to suffer through because you were so desperate to be a homeowner. Both George and I rented for a long time as married men. I had roommates all the way up until I was married. Both of my kids have lived in rented houses and they've worked out just fine. Yeah. So what Speaker 2 (18:22) is your rent right now? Speaker 4 (18:24) It's $1,200 a month. Speaker 2 (18:26) Okay. Now, if we go down to one income, Speaker 4 (18:29) that's Speaker 2 (18:30) still going to be difficult. Speaker 4 (18:31) It's not important. It's not a bad situation, but we're actually renting from her parents. So that's another thing that I'm—it's not a bad situation at all, but I'm definitely excited to not have that anymore. Speaker 2 (18:42) Sure. Do you have your in-laws be your landlord? Yeah. That's a fair wish. Speaker 1 (18:47) But if your in-laws are great and they're giving you a good deal, then come up with a plan for in one year we want to be out or in 18 months we want to be out or in six months we want to be out. And it is the – dude, George, the biggest pain is moving from rental to rental before you buy a house. You feel like it's a waste of time, energy, and money. Oh, Speaker 2 (19:07) gosh, Speaker 1 (19:07) it's the worst. But, man, if it sets you up. If it says 28-year-old you up, 30-year-old you up, man, it's a pain in the butt now, but I promise you when you're 30, you're going to be glad that you slowed down and did it the right way. It's just like a slingshot. Speaker 2 (19:23) This is a slingshot. You're pulling it back, and you're like, wait, I'm going backwards. I want to go forwards. You're like, hold on, bud. Hold on. We're pulling it back. We're pulling it back. And when you release that thing with a strong down payment, she gets to stay home. You live on one income. There's no stress. Dude. you are going to skyrocket ahead of everyone that you know that's going, oh, I'm doing so good. I had a house five years ago. Where are they now? Might be selling that house because they did it before they were ready. We don't want that to be you, man. So do it the right way. I'm going to send you a link to our free home buying course that I did. So hang on the line. We'll get you a link to that. And for the rest of you, we'll put a link in the description to that course for first time home buyers completely free. Speaker 5 (20:25) Hey, what's up guys? It's Jade Warshaw. Now, I know a little something about saving money. While my husband and I were paying off over $460,000 in debt, we went over every expense in our budget to find ways to cut back. Nothing got a free pass, including our phones. And you need to be doing the same thing. And now with Boost Mobile, one of the easiest places for you to save money is your phone bill. Their unlimited plan is just $25 a month. Forever. With a price that nice, why would you ever go back to your old carrier? 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So go to RamseySolutions.com slash coverage to find the type of insurance you're looking for and connect with a Ramsey trusted agent. Lee is in Seattle up next. What's going on, Lee? Speaker 4 (22:08) Are Speaker 2 (22:08) you there? Hello. Speaker 4 (22:10) Sorry about that. I have a good question for you guys. I make $120,000 a year, but I'm sitting on about $100,000 in consumer debt. To break it down, I've got $25,000 on a single car loan, $45,000 in credit cards, and $25,000 in student loans. I've also got about $5,000 left on a couch I financed for my wife, Cheryl. Speaker 2 (22:37) Oh, wow. We're dragging Cheryl now into this? Man. Speaker 1 (22:40) She caught some strays out of this. Cheryl on the couch. She's not even here, brother. Exactly. I agree. Do Speaker 4 (22:47) you get use of this couch, too? You might be sleeping on Speaker 2 (22:50) it after this call, brother. Hope it's comfortable. Speaker 4 (22:52) Yeah, I might be. Yeah, it's definitely been a tough one for me. I just think I'm just spinning Speaker 1 (23:00) wheels here. I feel terrible about all this. Lee, what? What is $45,000 in credit cards? Speaker 4 (23:08) Let's see. Speaker 4 (23:11) I mean, is that... Speaker 1 (23:12) Don't misunderstand. Speaker 2 (23:14) What did you use that Speaker 1 (23:16) money