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House is paid off but student loans are not

Road to financial freedom: Dave Ramsey's guide on how to get there

Dear Dave,

My husband and I have been following your plan. We just paid cash for our new home after selling the old one, so we’re out of the Baby Steps. But we’ve still got about $50,000 in student loan debt hanging over our heads. We make over $100,000 a year combined, so how would you suggest handling this?

— Stephanie

Dear Stephanie,

Whoa, hang on a minute! I think you’re a little confused about the steps in my plan. You’re not out of the Baby Steps quite yet. You just got Baby Step 6, which is pay off your mortgage, done ahead of time.

Go back to Baby Step 2, which involves paying off all your debt except for your house, and take care of the student loans. You guys make good money, so it shouldn’t take long at all. After that, if you haven’t already, move to Baby Step 3 and set aside a fully loaded emergency fund of three to six months of expenses. Baby Step 4 is investing 15 percent of your income for retirement, and Baby Step 5 means putting aside money for the kids’ college education — if you have kids. The seventh Baby Step is building wealth and giving.

I hope that helps straighten things out. The good news is you won’t have to fight through a house payment while you’re paying off the student loan debt. So for now, just get into attack mode and make it disappear. Then, move on to the other steps. Other than getting the sequence a little mixed up, you guys are doing great!



Dear Dave,

I’m returning to school to finish my degree this year, and I’m going to ask my girlfriend to marry me. We both have decent jobs, but I also have some previous student loans that I could put into deferment. Do you think I should pay off the debt before getting engaged?

— Colton

Dear Colton,

Congrats on finding that special someone! Now, if I were in your shoes, here’s the way I’d line up my priorities.

First, don’t do any more damage where debt is concerned. I want you to pay cash for your food, lights, water, gas for your car and housing. Obviously, you have to live, but I want you to all this without adding any new debt. The next priority would be to pay for college, and pay cash for your tuition and stuff from this point forward. Remember, no new debt!

After that, let’s save up and pay cash for a nice, inexpensive ring. The student loan debt comes last through deferment. I’d really attack it with a vengeance after I was married, out of school and had an even better job and bigger income.

You’re going to be a busy guy for a while, but I’ll bet this lady’s worth it. Gaining control of your finances now will be a great gift for you both when you start your new life together.

— Dave

Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Dave’s latest project, EveryDollar, provides a free online budget tool. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.