“You’re $250,000 in Debt!”

Summary

Podcast Summary: The Ramsey Show Highlights – “You’re $250,000 in Debt!”

Introduction

In the episode titled “You’re $250,000 in Debt!” released on December 26, 2024, the Ramsey Network’s “The Ramsey Show Highlights” delves into the complex financial predicament of Erica, a case manager at a rehab facility. Hosted by financial expert Dave Ramsey, along with guest Ken Coleman, the episode provides a candid discussion on managing overwhelming debt, particularly focusing on high-interest car loans and substantial student loan burdens.

Erica’s Debt Situation

Car Loan Details

Erica begins by sharing her struggle with an upside-down car loan. She currently owes $20,864 on her 2020 Chevy Malibu, a vehicle whose market value has plummeted to approximately $7,000 due to depreciation and extensive use as a rental car. Erica mentions minor damages, including missing back cover mirrors and several scratches, which she considers negligible.

• Erica (00:09): “I owe 20,864 on it. It’s a 2020 Chevy Malibu. ... it’s just so many of the cars and they’re being used as rentals that the value of it isn’t that great.”

Despite attempts to sell the car, the dealership offers significantly less than the loan amount, reflecting the negative equity Erica faces.

Student Loans

In addition to the car loan, Erica is grappling with substantial student loan debt totaling nearly $200,000. She is in her final year pursuing a master’s degree in marriage and family therapy, anticipating that her remaining student loan balance will be approximately $2,000 upon graduation.

• Erica (04:27): “Close to 200,000. I think it’s 189,000.”

Discussion and Analysis

Ramsey’s Financial Assessment

Dave Ramsey quickly identifies the crux of Erica’s financial distress as a result of high-interest rates and unfavorable loan terms. He suggests that Erica may have a subprime loan, characterized by the exorbitant 11.89% interest rate, which disproportionately increases the total cost of the car.

• Dave Ramsey (02:03): “That’s 11%. It’s $2,000.”

Ramsey further clarifies that the $20,864 figure represents the payoff amount rather than the total remaining payments, highlighting the misalignment between the car’s value and the loan balance.

Impact of High-Interest Rates

The high-interest rate on Erica’s car loan exacerbates her debt situation, making it increasingly difficult to reduce the principal balance. Dave Ramsey criticizes the dealership’s practices, suggesting that Erica was targeted with predatory loan terms that significantly disadvantage her financial standing.

• Dave Ramsey (05:14): “They screwed you on the loan, they screwed you on the car ... They saw you coming a mile away.”

Proposed Solutions

Selling the Car Privately

Ramsey advises Erica to consider selling the car through a private sale, which could potentially fetch a higher price, estimated around $12,000. This approach would still leave a $9,000 gap that Erica would need to cover.

• Dave Ramsey (02:56): “Maybe you could sell the car, private sale for ... 12,000.”

Covering the Difference

To address the remaining $9,000 after a private sale, Ramsey suggests seeking a low-interest loan from a credit union. This strategy would reduce the burden from $20,864 to approximately $9,000, making the debt more manageable.

• Dave Ramsey (03:15): “... how you get out of a trap is it hurts.”

Aggressive Debt Repayment

Ramsey emphasizes the necessity of a drastic lifestyle overhaul to eliminate the remaining debt swiftly. He proposes that Erica should aim to earn an additional $20,000 within the year by taking on multiple jobs, thereby enabling her to pay off the car loan entirely.

• Dave Ramsey (04:13): “I might just go make an extra 20,000 next year and pay it off in one year by working all the time like a maniac.”

Strategies for Avoiding Future Debt

Ken Coleman reinforces the importance of exploring multiple options before committing to significant financial decisions such as purchasing a car or pursuing advanced degrees. He criticizes the tendency to accept the first available offer without thorough evaluation, which often leads to unfavorable outcomes.

• Ken Coleman (07:33): “Don’t take the one offer out there ... think through this stuff, multiple options.”

Ramsey echoes this sentiment by cautioning against impulse borrowing and underscores the necessity of forward-thinking in financial planning.

• Dave Ramsey (07:33): “Options, when your mind tells you there’s only one way to do it, your mind is lying to you.”

Insights and Conclusions

The episode underscores the critical need for individuals to exercise due diligence when taking on debt, particularly for large purchases and education. Erica’s situation exemplifies how high-interest loans and significant student debt can create a long-term financial burden, necessitating comprehensive strategies to regain financial stability. Ramsey and Coleman advocate for aggressive debt repayment, lifestyle modifications, and a proactive approach to financial decision-making to prevent falling into similar debt traps.

Notable Quotes

• Erica (02:22): “It was 95 when you bought it.”
• Dave Ramsey (05:14): “... You gotta stop just every time you want to do something, going freaking borrowing to do it.”
• Dave Ramsey (05:46): “You got to stop, kiddo. You got to lean into it.”
• Ken Coleman (08:08): “You were not ROI things ... have five or six different things in front of you to say, what’s the better deal?”
• Dave Ramsey (08:12): “Being stupid when you’re doing your education is a bad plan.”

Conclusion

“You’re $250,000 in Debt!” serves as a sobering reminder of the implications of poor financial decisions and the importance of strategic planning in debt management. Through Erica’s narrative, Dave Ramsey and Ken Coleman provide invaluable insights into overcoming substantial debt through disciplined repayment strategies, lifestyle changes, and informed financial choices.

Transcript

[Dave Ramsey]

Brought to you by the Ramsey Network app Download today. To go further with Ramsey, I wanted.

[Erica]

To get advice on an upside down car loan that I'm in. I owe 20,864 on it. It's a 2020 Chevy Malibu. I've been trying to get rid of it for a while now, but they're saying the value is down. It now is worth $7,000 and I guess I do have a little bit of damages on it, but they were saying like basically the car, it's just so many of the cars and they're being used as rentals that the value of it isn't that great. Pretty much.

[Dave Ramsey]

Wait a minute, what's a little bit of damage, Erica?

[Erica]

Well, it's just a bad. The back cover mirrors are off and there's like a couple scratches on it, but it's really nothing that bad.

[Ken Coleman]

Okay, and when you're saying they are telling us. Telling me who's they? The dealer?

[Erica]

Yeah, the dealership.

[Ken Coleman]

Have you just Kelly blue booked it at all?

[Erica]

I did. It's priced now, I think between like 8 and 9.

[Ken Coleman]

Man, that dropped a lot.

[Dave Ramsey]

You must have had a negative. You must have been upside down. Another car, you rolled it into this one?

[Erica]

No, this is a new loan. I had a co signer with great credit because my credit was trash at the time.

[Dave Ramsey]

How long ago did you buy the car?

[Erica]

Was it a 20, 22.

[Dave Ramsey]

And what's your interest rate?

[Erica]

11.89.

[Dave Ramsey]

Okay, you may be looking at the wrong number. I think you've got a subprime loan because they're screwing you on the interest. And I think the 21,000 is not the actual payoff. I think it's the total of your remaining payments.

[Erica]

Well, yeah, no, so when I looked at the loan it said we got the car for 27,000 and some change. I can't remember the exact number, but right now the payoff is $20,000 864.

[Dave Ramsey]

That's the payoff, not the total of remaining payments exactly.

[Erica]

But I've made 13 that almost $14,000 payments. So I had called them and I was like why? Where's the money going? And it's all going to interest pretty much.

[Dave Ramsey]

Well, yeah, it's 11%. It's $2,000.

[Erica]

Yeah. So I want a new car. I want to know what to do. Like should I pay it off and keep it at this point and then just start a new, like be on a new lease and not get a new car?

[Dave Ramsey]

How many miles did you put on.

[Erica]

This car is 95. Thousand, 125 right now.

[Dave Ramsey]

It was 95 when you bought it.

[Erica]

No, it was like 46.

[Dave Ramsey]

Oh, you. But you've run it up to 125,000 miles.

[Erica]

No, it's at 95,000 now. Oh, so, like 50.

[Dave Ramsey]

There's something wrong with these numbers. Okay. Because Chevy Malibu has not dropped 70% in value during that period of time. Okay. So are you. Look, when you pulled up Kelley Blue Book, did you look at trade in or private sale?

[Erica]

Trade in, I believe.

[Dave Ramsey]

Yeah, I think you did. Okay, so maybe you could sell the car, private sale for. Let's call it 12,000. Okay.

[Erica]

Okay.

[Dave Ramsey]

And then you would have to cover the difference, and so you'd still need $9,000 to do that. Do you have any money at all? I'm sure you don't.

[Erica]

Not that, no.

[Dave Ramsey]

How much do you have?

[Erica]

2,000 in savings and then a thousand in the checking.

[Dave Ramsey]

Okay. What do you make?

[Erica]

50,000 a year.

[Dave Ramsey]

Okay. All right. Yeah, you do need to get out of this. But, you know, basically, if you went to the credit union and you borrowed $9,000, $10,000 to get $1,000 car and cover the difference to sell the thing for 12 to an individual, that would get you out of it, but you still have payments on $9,000 instead of $20,000. The thing I might do instead is I might just go make an extra 20,000 next year and pay it off in one year by working all the time like a maniac. Like six jobs, and then get this off of you.

[Ken Coleman]

She goes, oh, man.

[Dave Ramsey]

Yeah.

[Ken Coleman]

Well, I mean, do you have any other.

[Dave Ramsey]

Listen, I don't. It depends on. You don't have to do that, Erica. But you're trapped. And the way you get out of a trap is it hurts.

[Ken Coleman]

Yep.

[Erica]

Yeah.

[Ken Coleman]

Do you have any other debt, Erica, or is it just this?

[Erica]

School loans.

[Ken Coleman]

How much are Those?

[Erica]

Close to 200,000. I think it's 189,000. I know.

[Ken Coleman]

What's the degree in master's?

[Erica]

Well, I'm in school now for my master's in marriage and family therapy.

[Ken Coleman]

Is the 180 include that master's? Is that the total once you get out, or will there be more?

[Erica]

It might be exactly at 2,000 when I get out. I'm in my last year.

[Ken Coleman]

200,000.

[Erica]

Okay.

[Ken Coleman]

And what are you doing now for a job?

[Erica]

I'm a case manager at a rehab.

[Ken Coleman]

Okay. Okay.

[Dave Ramsey]

Yeah.

[Ken Coleman]

Your kids. It's gonna be a. It'll be a.

[Dave Ramsey]

It's gonna be a long road.

[Ken Coleman]

Long road.

[Dave Ramsey]

But.

[Ken Coleman]

But can I Just say, though, the number one, we. We hear people with these numbers, okay? And they get out. It takes. It does take years, but this is gonna be a total change of lifestyle for. For the next probably five years.

[Dave Ramsey]

Yeah. And you gotta quit just every time you want to do something, going freaking borrowing to do it.

[Erica]

That's true.

[Dave Ramsey]

It's killing you. I mean, you're a quarter of a million dollars in debt. You gotta stop. I mean, you're like an alcoholic. You gotta stop.

[Ken Coleman]

Well, it's all this. It's all student loans. I mean, no, it's not.

[Dave Ramsey]

It's a. It's 11 12% loan on a car. Yeah, she impulsed and then scratched it after she went out to happy hour. Stop it. No, stop, stop, stop, stop, stop living like this. You're a case manager. You see people doing stuff. Stop it. You've got to say, no more debt. Next time. I want a car. The answer is no. I don't need a car so bad. I got an 11.8% interest rate. What that tells me is I know enough about the car business. They not only screwed you on the loan, they screwed you on the car when they sold it to you because you paid premium for both. They saw you coming a mile away. They said, here comes Erica, we go take her. That's exactly what they saw. You got had, kid. Same thing they did when they told you $200,000 was a good deal to get a master's to be marriage and family therapy. That's a complete screw job, too. You paid double what you should have paid for that degree. And you got to. You got to say, no more borrowing. My life is not better. When I borrow to make my life better, it doesn't do it. You got to stop that, kiddo. So if I'm you, I'm going to go get that degree fix, finish that thing up, pass your dadgum bars, get out there, get your dadgum income up to 100k, live on nothing, and raise your right hand and swear I am never borrowing again because it has not brought me blessings. And yes, you have to work all the time. That's the way it is. That's how you get out. You got to pay a price to clean up your dadgum mess. That's the way this works. No other way around it, kiddo. You got to do this. You got to lean into it. This is what they teach you in the field you are studying. You can't keep doing the same thing over and over again. Expect a different result. That's the definition of insanity. That's counseling 101.

[Ken Coleman]

Well, and I think you made a good point earlier that, and this is good for people, especially young people that are entering into adulthood of buying new cars, may getting advanced degrees, getting job. Like this whole thing is don't take the one offer out there, the one car, and go and take exactly what they say the one school you look at and get accepted to and you just take, right? There's a life of options out there. And I don't think people do that, right? They, you know, they get into a situation and they just, okay, this is great, this is what they're offering and I'm just gonna sign my name and do it. And so thinking through this stuff, multiple.

[Dave Ramsey]

Options, when your mind tells you there's only one way to do it, your mind is lying to you.

[Ken Coleman]

And Erica, that could be your situation, right? You, you go and come into this car loan, you get accepted to a school and you know, you accept it. It's just this one option path that a lot of people take that ends up usually not with a great deal. Like you were saying, getting screwed in the car, whole thing and the degree. And you're not, you're not ROI things. You're not looking at other options and, and have five or six different things in front of you to say, what's the better deal?

[Dave Ramsey]

So guys, forward thinking, all education is not good. Some education is overpriced crap just to go to school. Hey, you gotta go to school. No you don't. Being stupid when you're doing your education is a bad plan. I'm not saying Erica was completely. But she got taken. It's bad. I'm sad for her, what a horrible situation she's in. I'm angry for her. Brought to you by the Ramsey Network app Download today to go further with Ramsey.