Pay Off $250,000 in 7 Years On This Income?

Summary

Podcast Summary: The Ramsey Show Highlights – "Pay Off $250,000 in 7 Years On This Income?"

Episode Information:

• Title: Pay Off $250,000 in 7 Years On This Income?
• Host/Author: Ramsey Network
• Release Date: January 31, 2025
• Description: In this episode of The Ramsey Show Highlights, the Ramsey Network hosts experts including Dave Ramsey, Rachel Cruze, George Kamel, and Jade Warshaw to provide daily advice on managing life and finances. The episode focuses on a listener's query about paying off significant debt within a specific timeframe.

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Introduction

The episode begins with Dave Ramsey introducing a caller, Shirley from Harpers Ferry, West Virginia, who seeks advice on eliminating $250,000 in debt within seven years on a net monthly income of $4,000. The conversation quickly delves into Shirley's financial predicament, with Ramsey and his team dissecting her current situation and exploring feasible strategies to achieve her goal.

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Shirley's Debt Situation

Shirley outlines her debt landscape:

• Total Debt: $250,000
  • Mortgage: $38,000
  • Student Loans: $72,000
  • Other Debts: Includes a car loan and an HVAC loan
• Income:
  • Monthly Net Income: $4,000
  • Annual Pre-Tax Income: Approximately $72,000 (including overtime)

She expresses her desire to be debt-free in seven years, raising concern about the feasibility of her plan given her current financial metrics.

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Expert Analysis and Initial Feedback

Rachel Cruze immediately addresses the core of Shirley’s question:

"No. Not on $4,000. You can not in seven years. That's 48,000 a year times seven years doesn't get you there if you eat. So something's going to change in the math for you to be there in seven years or it's going to take longer than seven years."
(00:39)

Rachel emphasizes that Shirley's current income and debt levels make her goal unattainable within the desired timeframe without significant changes. She probes further to understand the breakdown of Shirley’s debts and her job scope to identify potential areas for financial improvement.

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Strategies for Debt Reduction

1. Increasing Income

Rachel Cruze suggests that increasing income is essential to meet Shirley's goal:

"You need to increase your income. It's just a math thing."
(02:34)

Jade Warshaw echoes this sentiment, highlighting the importance of sustained motivation over a long debt-free journey:

"Seven years is a long time to be paying off debt. You can absolutely do it. That's how long it took Sam and I to pay off our debt."
(04:17)

She further advises leveraging existing skills for side hustles:

"We trained dogs, we sold cupcakes, we did lessons... you're always going to make more money if you pick something that it's a skill that you have."
(04:37)

Jade Warshaw also shares her personal experience of incrementally increasing income through career advancements:

"We started at 30,000... realized, okay, we've gotta get our career on track... by the time we called the Ramsey show to pay off, we were at, I think, 230,000."
(06:17)

2. Assessing and Reducing Expenses

George Kamel proposes evaluating assets to potentially reduce debt:

"Is the car worth selling? Is it worth a lot of money and you can make a little profit and buy something cheaper."
(03:17)

While assessing Shirley’s car revealed that selling it would not substantially reduce her debt, this approach underscores the importance of scrutinizing all assets for possible financial relief.

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Maintaining Motivation and Consistency

Jade Warshaw stresses the psychological aspect of long-term debt repayment:

"It’s hard to stay motivated and focused... If you can sacrifice now, pick up more hours... you have all the time in the world."
(04:17)

She urges Shirley to embrace short-term sacrifices for long-term financial freedom, highlighting that maintaining consistency is crucial:

"It's short term sacrifice for a long term gain."
(04:24)

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Encouragement and Long-Term Outlook

Dave Ramsey reinforces the importance of staying committed and being adaptable:

"If you're on this long journey, you have to put things and rhythms in your life in place to stay motivated and to stay consistent."
(05:02)

He also highlights the natural progression of income growth over time:

"Income goes up over time. It's not going to be a ton, but your income should go up year after year."
(06:01)

Rachel Cruze adds that many individuals experience income growth during their debt-free journey, often facilitated by side hustles or career advancements:

"I've noticed that when you start paying attention... your career thing, something pops up over there... life starts happening."
(06:14)

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Conclusion and Final Encouragement

The episode concludes with heartfelt encouragement for Shirley, emphasizing that her goal is attainable with the right strategies and mindset:

"You got this, kid. You can do it."
(07:50)
"We are cheering you on, girl."
(07:54)

Dave Ramsey reinforces the possibility of Shirley's success by referencing similar stories from the Ramsey Show community:

"We've seen a lot of Shirleys up there doing their debt free scream, so this is such a possible journey for you."
(07:59)

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Key Takeaways

1. Income Must Increase: To achieve significant debt reduction, especially within a set timeframe, increasing income through side hustles or career advancement is crucial.
2. Assess and Optimize Expenses: Scrutinize all expenses and assets to identify potential reductions or sales that could aid in debt repayment.
3. Maintain Consistency and Motivation: Long-term debt repayment requires consistent effort and the ability to stay motivated through periods of financial strain.
4. Leverage Skills for Additional Income: Utilizing personal skills for side hustles can provide substantial additional income, accelerating debt payoff.
5. Embrace Life’s Changes: Life circumstances will evolve, potentially offering new opportunities for income growth and debt reduction.

This episode serves as a beacon for individuals grappling with significant debt, providing actionable advice and encouraging stories to inspire financial transformation.

Transcript

[Dave Ramsey]

All right, we're going to go to Shirley from Harpers Ferry, West Virginia for our next question. Hi. Hi, Shirley.

[Shirley]

Hi, guys. Oh, my goodness, I'm so excited.

[Dave Ramsey]

Oh, we're so glad you're here.

[Shirley]

So my question for you is, how do I pay off $250,000 in debt? Now, that includes my mortgage on a $4,000 a month net income. And here's a little kicker. My plan is to be debt free in seven years. Can I do it?

[Rachel Cruze]

No. Not on $4,000. You can not in seven years. That's 48,000 a year times seven years doesn't get you there if you eat. So something's going to change in the math for you to be there in seven years or it's going to take longer than seven years. The good news is it never stays the same. How much of the 250 is mortgage and how much is the rest of it?

[Shirley]

139,000. 38,000 on mortgage and about 72,000 in student loans.

[Rachel Cruze]

Okay.

[Shirley]

And then some other things. A car, an H VAC loan.

[Rachel Cruze]

Yeah. So you're single?

[Shirley]

Yes, sir.

[Rachel Cruze]

What do you do for a living?

[Shirley]

I am a claims analyst. I work for a government contracted company.

[Rachel Cruze]

Okay, good, good. All right. And so if an insurance company had a disaster area and they send in claims adjusters, traveling claims adjusters, is that your skill set?

[Shirley]

No, sir. So I work in medical claims. I am a claims analyst for a government contracted medical claims company. And I can't really say who they are.

[Rachel Cruze]

No, I don't want you to. That's fine. I was just trying to figure out how you can make more money because you need to get your income up. That was where I was going. You don't have to, but I'd like for you to hit that seven year goal. But we've got to use numbers that get you there. And so number one, you definitely can clear up everything but the mortgage inside seven years for sure.

[Shirley]

Okay. Okay.

[Rachel Cruze]

And then the question is, what could you do to add some income to your situation?

[Shirley]

I work a lot of overtime. Well, about five to six months out of the year.

[Rachel Cruze]

And that's in addition to the 4,000?

[Shirley]

Yes.

[Rachel Cruze]

Okay, so what do you make in a year? What's your annual income average, including OT.

[Shirley]

About well, before taxes and everything? About 72,000.

[Rachel Cruze]

Okay, so you're getting a little OT, but you're not getting a ton of it. Okay, so I'm not telling you what to do. But you know, here's the thing.

[Jade Warshaw]

More.

[Rachel Cruze]

Yeah, I'm not. I'm not saying you have to change jobs. You don't. But to hit that goal, you've got to increase your income. It's just a math thing. And, and to hit that goal, you need to do something to kick your deal up. And that's either a job change or it's adding some stuff on. And that's why I was reaching around in your skill set trying to figure out what a great side hustle is. Anybody got any great ide.

[George Kamel]

Well, are you doing any investing right now?

[Shirley]

No.

[George Kamel]

Okay, good. Tell you to pause investing. Is the car worth selling? Is it worth a lot of money and you can make a little profit and buy something cheaper.

[Shirley]

So I owe about 11,000 on it and I think it's about, it's worth about 8,000. It's a little 2020 Mitsubishi Mirage.

[Rachel Cruze]

That's not a help. Okay, we're not there yet. Did you get a tax refund?

[Shirley]

I haven't filed for this.

[Rachel Cruze]

I mean, did you last year?

[Shirley]

No, I owed $600.

[Rachel Cruze]

That's good. That's about where you want to be.

[Jade Warshaw]

I mean, the truth is seven years, I can tell you from experience, seven years is a long time to be paying off debt. You can absolutely do it. That's how long it took Sam and I to pay off our debt. But the truth is, the longer that journey is, it's hard to stay motivated and focused. Right. And so if you can sacrifice now, pick up more hours. I think I heard you say you're single. If you don't have kids. The great thing is you got all the time in the world. Like you don't have to get home and cook anybody dinner, you know, Nobody's telling you.

[Shirley]

Where were you, dog?

[Jade Warshaw]

Listen, come on now.

[Dave Ramsey]

George can empathize with him.

[George Kamel]

I have empathy. The dog needs love.

[Jade Warshaw]

I don't have that much empathy. Trust me, you will thank yourself for really digging in and cutting this down, cutting this timeline in half. Just, it's short term sacrifice for a long term gain.

[Rachel Cruze]

Jade. I mean, how many different side hustles did you guys.

[Jade Warshaw]

Oh, I don't know if I could go through all of them, Dave. I mean it's like do everything you can. We trained dogs, we sold cupcakes, we did lessons, we. Boy, what else did I do? I worked at a tent place that installs tent on the windows.

[Rachel Cruze]

Yeah, but you made more money with voice lessons, probably because that was your skill than you did anything else.

[Jade Warshaw]

Yeah, you're always going to make more money if you pick something that it's a skill that you have. You set the hours, you set the rate. As opposed to working for someone, I'm.

[Dave Ramsey]

Saying you go straight to the consumer.

[Rachel Cruze]

Yeah. If there's anything tent steak, that's a little. That one's probably low pay.

[Jade Warshaw]

No, no, no.

[Rachel Cruze]

Oh, tinting.

[Jade Warshaw]

Tinting the windows. Yeah, yeah, yeah. Wrong tint.

[Rachel Cruze]

I think Jay joined the circus. I didn't know what happened there.

[Dave Ramsey]

Oh, my gosh. Yeah. So, Shirley, I think the biggest thing is to know, okay, if you're on this long journey, you have to put things and rhythms in your life in place to stay motivated and to stay consistent. And then the other great thing is too, Shirley, income goes up over time. It's not going to be a ton, but your income should go up year after year. And so that is a positive in there. And then you may look and say, hey, there's some expenses that I'm going to able to kind of adjust here or there as well to get that extra margin. But, yeah, that's the hard thing about money, you guys. And I think this is what's always tough for us when we're on the Ramsey show, we're doing this is money doesn't have feelings, doesn't have emotion. And if you have, you know, a big hole in a smaller shovel, it's just going to take a longer process versus the vice versa. So I think I will say, you.

[Rachel Cruze]

Know what we've noticed over the years when we're doing debt free screams right upstairs up there on that debt free stage, the number of times we ask someone what happened to your income during the time you were getting out of debt, 95% of them say their income went up.

[Dave Ramsey]

Yes.

[Rachel Cruze]

And it's partly because of side hustles. Sometimes it just means because you're just aware and you're going, I need some money. And you're starting. Your brain starts looking around for stuff and all of a sudden that career thing, something pops up over there. And, oh, I get paid 8,000 for that. I'm going over there in the life change, stuff starts happening. I don't know, there's not a magic to it, but I have noticed that. I think it's just you start paying attention.

[Dave Ramsey]

Yeah. And a lot happens. And Jade, you probably speak to this too, over those long years. Like, people that are on a long journey of this, things happen. You end up moving, you end up. I mean, like, just life happens in seven years. A lot of life. So your circumstances can shift as well, which, you know, may be in your favor when it comes to paying off debt.

[Rachel Cruze]

What's y'all's income peak at?

[Jade Warshaw]

Well, yeah, I wanted to say that. So Sam and I, when we started, our income was at 30,000. And I think it's really important to talk about that because if you're here and your budget isn't quite balancing and you're trying to figure that out, it could be one of two problems. Right. If your income is just low, that's not sustainable. So doing a side hustle. Sam and I did tons of side hustles, but that wasn't really the thing that broke us free. It helped, but when your income is low, you have to get on a trajectory that's gonna raise your core income, meaning your main job is enough money to pay off your debt. And so to your point, Dave, we started at 30,000 and realized, okay, we've gotta get our career on track. And when you're changing your career trajectory, that can take time. And so for us, it was like 30,000 next year, 50,000 next year, 80,000 next year. And by the time we called the Ramsey show to pay off, we were at, I think, 230,000. Oh, wow. So, yeah, it was a boom, boom, but it was a stair step over seven and a half years, which is what it should be.

[Dave Ramsey]

Yes.

[Rachel Cruze]

Yeah. It's not linear.

[Jade Warshaw]

No, it's not.

[Rachel Cruze]

It's on a curve. So good stuff.

[Dave Ramsey]

Yeah. Thank you, Shirley. We are cheering you on, girl.

[Rachel Cruze]

You got this, kid. You can do it.

[Shirley]

Thank you so much.

[Dave Ramsey]

Yes, you're so welcome. We've seen a lot of Shirleys up there doing their debt free scream, so this is such a possible journey for you. So, yeah, we are. We're cheering you on.