Dear Dave,

My husband and I are on Baby Step 2, and we’ve paid off about $30,000 in consumer debt since March. We were wondering if we should refinance our mortgage. Our current rate is 4.875 per cent, with 28 years remaining on the loan. We found a 15-year refinance at 2.5 per cent, which would raise our monthly payments about $200, but we can handle that. We have $150,000 in equity in our home and about $207,000 left on the loan. What do you think we should do?

Raye

Dear Raye,

You two have done a great job this year! I’m so proud of what you’ve accomplished and that you’re looking to the future.

Baby Step 2 wouldn’t be affected, except that your monthly mortgage payment will go up a little. I wouldn’t pay the refinance costs out of pocket, though. I’d roll them into the loan. You’d be saving more than 2 per cent by locking in this crazy-low interest rate, and you’re knocking the whole thing down to a 15-year loan. I love all that. It’s definitely worth the extra $200 a month to make it happen.

Think about it this way. You’re going to be saving more than $4,000 a year with the interest rate reduction. You’re not going to see it in cashflow because of the $200 increase in monthly payments, but over the scope of the loan, you’re going to be charged between $4,000 and $4,500 less per year for interest. All that money is going towards paying back the closing costs and reducing the principal built into the move from 28 years to 15 years.

Yes, you should do this.

– Dave

Dear Dave,

I just saved up my $1,000 beginner emergency fund, and I’m looking at paying off my car and credit card debt, a total of $3,400, by the end of January. Before I started your plan, I took out a $7,500 student loan to pay for my fall and spring semesters. I still have a year of school left, which will cost about $10,000. Should I save up the money for my final year before attacking my student loan debt, so I don’t have to take out another one, or go ahead and begin paying it off?

Emma

Dear Emma,

Well, it doesn’t make much sense to pay off the current student loan, then turn around and take out another one. Your first goal, after you get the credit cards and car paid off, should be saving cash to finish school. Once you’ve done that, start paying off the student loan.

Long story short, you’ve got to stop borrowing money. The idea of saving up to pay for things should be the default setting in your brain, Emma. Otherwise, you’re going to spend the rest of your life with car payments and other debt hanging around your neck. That’s not being responsible with your money, and it will keep you from saving for stuff that matters and becoming wealthy.

Stop. Borrowing. Money. I hope I haven’t been unclear.

– Dave

Dave Ramsey is a seven-time #1 national bestselling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.