We Have Over $2,500,000 Of Debt

Summary

Summary of "We Have Over $2,500,000 Of Debt" – The Ramsey Show Highlights

Release Date: January 30, 2025

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Introduction

In this enlightening episode of The Ramsey Show Highlights, the Ramsey Network addresses the complex financial situation of a caller named Nateish. Struggling with over $2.5 million in debt, Nateish seeks guidance on whether to maintain a lucrative rental property or sell it to alleviate his financial burdens. Hosted by financial experts George Kamel and Dave Ramsey, this episode delves deep into debt management, risk assessment, and strategic financial planning to achieve long-term stability and peace of mind.

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Caller’s Financial Picture

Nateish begins the conversation by outlining his substantial real estate investments and the associated debts:

"My wife and I bought a house worth around 2.5 million and we have another house which is worth around 1.3 million and it has 500k remaining. We have rented it out. It's around $4,000 per month." [00:02]

With a combined annual salary of approximately $900,000, Nateish is at a crossroads, contemplating whether to keep the rental property or sell it. He highlights that the rental income covers all associated expenses, including mortgage payments and insurance:

"So our salary is around 900,000. And yeah, so we were just kind of concerned whether to kind of keep the rental property or sell it off." [00:02]

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Assessing Debt and Financial Stability

George Kamel delves into the specifics of Nateish's debt beyond the mortgages:

"What is the mortgage on your current home?" [01:12]

Nateish responds:

"It's around two million." [01:16]

Further probing reveals an additional car loan:

"Just a car loan, maybe 40k." [01:24]

George emphasizes the inherent stress and risk associated with carrying over $2.5 million in debt, regardless of the impressive income:

"Your plan isn't working as you wanted it to. There's some stress here and I would feel it if I was over 2 1/2 million in debt regardless of my income and how great things were right now." [01:24]

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Evaluating the Rental Property

Nateish expresses his wife's confidence in the rental property's ability to sustain themselves:

"My wife kind of feels that the rental is self-paying, so why should we worry about it? Let's just like the dentists pay for our mortgage pretty much." [03:02]

However, George counters this optimism by highlighting the potential risks:

"I would feel it if I was over 2 1/2 million in debt… you just go, well, we can acquire more and handle more payments and it leads us to this place where we have to decide do we want to keep going this down this road or do we want a more peaceful path." [01:48]

Dave Ramsey adds his perspective by referencing the unpredictability of rental income, especially in light of past events like the COVID-19 pandemic:

"I don't know if you remember. It was a while ago, there was this thing called COVID and people quit working and then the local government said they don't have to pay rent and you can't evict them." [03:19]

He cautions against relying solely on rental income, pointing out the potential for long-term legal battles and financial instability:

"You guys get tied up in court, but the bank doesn't care. They want to get paid every month." [04:03]

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Risk of Concentrated Investments

George shifts the conversation to investment risks, particularly the dangers of having significant wealth tied up in a single stock:

"The stock is non-retirement, right? It's vested, fully vested." [02:40]

"So you could sell a whole bunch of that and knock out a lot of this debt. You could knock out the car loan instantly and knock out the rental loan instantly and make about, you know what, a quarter progress on your own mortgage." [02:40]

Dave echoes these concerns with personal anecdotes:

"My mom worked at this company called Enron that used to do that. Gave everybody a lot of stock. And I had friends who went to bed millionaires who woke up one morning with $0 because all their retirement was in stock in that company." [04:13]

He emphasizes the importance of diversifying investments and prioritizing tangible assets over volatile stocks:

"I'd much rather have two tangible assets, two homes I can go see than a company saying no, no, no, I promise we're worth it." [04:38]

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Strategizing Debt Reduction

Nateish seeks actionable advice on managing his debts more effectively:

"So I have some extra like $5,000 per month that I can contribute towards my mortgage. Do you recommend me putting that into the mortgage too?" [04:59]

George recommends adhering to the Ramsey Baby Steps, which prioritize eliminating consumer debt and fully funding an emergency fund before aggressively paying down the mortgage:

"Once the car is paid off, then your next step, you know, if you're following this through our Ramsey baby steps, you should be completely consumer debt free with a fully funded emergency fund. Then begin investing 15%. Then any money beyond that can go to kids college and paying off the mortgage early." [04:43]

He advises leveraging Nateish’s high income and substantial assets to expedite debt elimination, potentially clearing the mortgage within five years:

"With your income in under five years. Yeah, that's pretty amazing." [05:16]

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Achieving Financial Freedom and Peace

The conversation shifts to the broader implications of becoming debt-free. Dave Ramsey articulates a modern perspective on wealth:

"The new status of wealth is nobody owns me and my family. Me and my family have freedom. We've got peace." [06:03]

George reinforces this by highlighting personal fulfillment over societal expectations:

"Your buddies are going to think this advice is stupid. They're going to be like you should buy nine more properties and leverage all the debt and do HELOC on the first one. That's what's going on out there in the culture. But they don't live your life… And that's where John and I go. We're solving for freedom all day long." [06:12]

He underscores the importance of aligning financial decisions with personal well-being and security rather than external pressures:

"This problem is pretty easy to solve but the hard part is the choice and getting your wife aligned on this." [06:44]

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Conclusion

George Kamel and Dave Ramsey converge on a unified strategy: selling the rental property and liquidating stock investments to eliminate debt. This approach not only reduces financial risk but also paves the way for long-term peace and freedom. They emphasize that true wealth lies in financial independence and the ability to live without the constant stress of overwhelming debt.

Nateish concludes the call with a newfound clarity on prioritizing financial stability over potential high-yield but risky investments. The episode serves as a testament to the importance of strategic financial planning, risk management, and the pursuit of true wealth defined by freedom and peace of mind.

"George is solving for freedom all day long and you're in an amazing position where you have a million dollars sitting there in stock, you have about a million dollar income. This problem is pretty easy to solve but the hard part is the choice and getting your wife aligned on this." [06:44]

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Key Takeaways

1. Prioritize Debt Reduction: High levels of debt, regardless of income, can lead to significant stress and financial instability. Addressing and eliminating debt should be a primary financial goal.

2. Assess Investment Risks: Concentrating wealth in single stocks or rental properties can be risky. Diversification and owning tangible assets can provide greater financial security.

3. Follow Proven Financial Steps: Adhering to structured plans like the Ramsey Baby Steps can streamline the path to financial freedom.

4. Align Financial Decisions with Personal Values: True wealth is defined by freedom and peace, not just accumulated assets. Financial strategies should reflect personal well-being and family security.

5. Communicate with Your Partner: Financial planning should be a collaborative effort, ensuring that both partners are aligned and committed to the chosen path.

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By carefully analyzing Nateish's situation and providing tailored advice, The Ramsey Show Highlights offers valuable lessons on managing substantial debt, mitigating financial risks, and achieving lasting financial peace.

Transcript

[Nateish]

Brought to you by chm, a biblically based alternative to health insurance. Learn [e-mail] budget I have a question that my wife and I bought a house worth around 2.5 million and we have another house which is worth around 1.3 million and it has 500k remaining. We have rented it out. It's around $4,000 per month. So our salary is around 900,000. And yeah, so we were just kind of concerned whether to kind of keep the rental property or sell it off. The rental is coming like pretty nicely. Like it's around 4,500, which is kind of like covering all the mortgages and any other insurance and stuff like that. So I was just wondering what your thought is on that.

[George]

Yeah, what is the mortgage on your current home?

[Nateish]

It's around two million.

[George]

Okay, so you've got two and a half million. Do you have any other debt outside of these two mortgages?

[Nateish]

Just a car loan, maybe 40k.

[George]

Okay, well, you're calling us because your plan isn't working as you wanted it to. There's some stress here and I would feel it if I was over 2 1/2 million in debt regardless of my income and how great things were right now. In the back of my mind, I, I would be knowing this is a house of cards. It could all come crashing down any minute.

[Nateish]

Yep.

[George]

And so you want to reduce risk in your life. You're using language like, well, it's just a 40k car loan. That's kind of what gets us here. Right. You guys have an just undeniably insane income and yet what happens is you just go, well, we can acquire more and handle more payments and it leads us to this place where we have to decide do we want to keep going this down this road or do we want a more peaceful path. So if I was in your shoes, I'm going to try to reduce that risk. So you have an amazing income. How much extra margin do you have at the end of each month?

[Nateish]

So we have around cash coming in around 25k. After all the 401k savings and everything. We have around 1 million in stock and around 401k is around another million.

[George]

Okay. And the stock is non retirement, Right? It's vest, fully vested.

[Nateish]

Yes.

[George]

Okay, so you could sell a whole bunch of that and knock out a lot of this debt. You could knock out the car loan instantly and knock out the rental loan instantly and make about, you know what a quarter progress on your own mortgage.

[Nateish]

That's. That's absolutely correct. My Wife and I like to. My wife kind of feels that the rental is self paying, so why should we worry about it? Let's just like the dentists pay for. For our mortgage pretty much. And I'm trying to convince. Kind of like lowering the risk. So I don't know.

[Dave]

Do you remember? I don't know if you remember. It was a while ago, there was this thing called Covid and people quit working and then the local government said they don't have to pay rent and you can't evict them.

[Nateish]

Yeah.

[Dave]

Remember that?

[Nateish]

Yep. Yep, I do.

[Dave]

So I would, I would, I would assume the mortgage on your rental property is not very safe because you don't. You don't ever know. And especially in California with the squatting laws, the res. I mean, I mean it. Y. Y'all are. Y'all have good tenants and God bless you because those tenants can go south in a hurry. And it might be 30 days, 60 days, 90 days, six months, two years. You guys get tied up in court, but the bank doesn't care. They want to get paid every month.

[George]

And the other risk is having all this money tied up in a single stock in a single company. So I like the idea of offloading it for other reasons other than just getting debt free.

[Dave]

My mom worked at this company called Enron that used to do that. Gave everybody a lot of stock. And I had friends who went to bed millionaires who woke up one morning with $0 because all their retirement was in stock in that company. So yeah, man, if you're talking to me and George, our families, our houses, we sell that stock and start paying off everything we own, man. I'd much rather have two tangible assets, two homes I can go see than a company saying no, no, no, I promise we're worth it. I'd much rather that, man.

[Nateish]

Okay.

[Dave]

And especially you're too rich to be holding a depreciating a loan on a depreciating asset like a vehicle, man.

[Nateish]

Okay, sounds good. So I have some extra like $5,000 per month that I can contribute towards my mortgage. Do you recommend me putting that into the mortgage too?

[George]

Yeah, once the car is paid off, then your next step, you know, if you're filtering this through our Ramsey baby steps, you should be completely consumer debt free with a fully funded emergency fund. Then begin investing 15%. Then any money beyond that can go to kids college and paying off the mortgage early.

[Nateish]

Okay.

[George]

And with your income, I think. Sit down with your wife, show her. Okay, here's where we're at. Here's where we could be. And if we go down this path, we sell the stock, we become debt free, we free up that rental mortgage payment, we're free up a car payment, we have all this extra money, we, we could tackle our own mortgage and probably be done with that. With your income in under five years. Yeah, that's pretty amazing. And how old are you two?

[Nateish]

We are 39 and 40.

[George]

Think about that. You're in your mid-40s and you will have, I'm not even saying sell the rental property. You could keep it if you're going to knock it out and reduce some of the stress and increase the cash flow. You'd be sitting with a about a $4 million net worth of paid for property, your mid-40s and a million dollars.

[Dave]

In your retirement fund.

[Nateish]

Yeah.

[Dave]

So you're worth 5 million bucks free and clear. And here's the thing you have then that you don't have right now. Absolute freedom. Peace.

[George]

And guess what, your buddies are going to think this advice is stupid. They're going to be like you should buy nine more properties and leverage all the debt and do HELOC on the first one. That's what's going on out there in the culture. But they don't live your life, they don't pay your bills, they don't know what happens inside your home, what's happening inside your body, how you're feeling about it. And, and that's where John and I go. We're solving for freedom all day long and you're in an amazing position where you have a million dollars sitting there in stock, you have about a million dollar income. This problem is pretty easy to solve but the hard part is the choice and getting your wife aligned on this.

[Dave]

I think the new, the new wealth moving forward in the 21st century, George is can you fall asleep on your pillow at night? I think the new status of wealth, like Dave used to say, it's not the BMW. I think the new status of wealth is nobody owns me and my family. Me and my family have freedom. We've got peace. And man, I don't care how little or how big your salary is, solve for that man. You change everything in your home.

[George]

Well said. Thanks for the call Nateish. Good conversation.

[Nateish]

CHM isn't health insurance, it's a health cost sharing ministry. Check it out for [e-mail] budget.