The Dirty Little Secret Behind Credit Card Rewards (Hour 2) - Transcripts

March 17, 2023

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Dr. John Delony & George Kamel answer your questions and discuss: "Should I save up for a down payment or pay for a house in cash?" The truth behind credit card reward points, "How do I best prepare for my future family?" "I have $230k in undergrad student loan debt", "I'm having a hard time emptying our savings to pay off debts" "We have rental properties but no retirement" Support Our Sponsor: Neighborly Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Want a plan for your money? Take our FREE 3 minute assessment: Listen to all The Ramsey Network podcasts: Learn more about your ad choices. Ramsey Solutions Privacy Policy


Live from the headquarters of Ramsey Solutions, broadcasting from the pods moving in storage studio, it's the Ramsey Show live from Franklin, Tennessee, where we help people build wealth, do work they love, and create incredible relationships. I'm John Deloney, joined here by one of the greatest humans who's ever lived, George Campbell, and we are taking your calls on life, money, relationships, marriage, whatever you got going on, we probably have an opinion. Leave us a buzz at 888-825-5225, the call is completely free, 888-825-5225. We're not supposed to talk about him, but let's go out to Bruno and Lincoln, what's

up Bruno? What's up Bruno? I see what you did there. Bruno, how sick are you of that? Hey, what's up?

How's it up guys? How are you? Good. Hey, are you sick of the don't talk about Bruno jokes?

Because I'm just going to keep making them. Oh yeah.

Yeah. I hear that a lot. Hey, my name rhymes with a bad lunch meat, so same team. All right.

So what's up dude? My question is, is it better to save only for a 20% down payment to go ahead and purchase a house or may wait for the next five years and then buy the house cash?

Okay. So walk us through the situation. So your debt for you with an emergency fund and now you're looking to become a homeowner and you're saying, hey, in five years I could pay cash for a $300,000, $400,000 home.

Is that the idea? So what's the idea? You're looking at 250, 300.

Yeah. That's the range. Okay. And it would take you five years to do this based on your current income? Yes. All right. Yes. You're correct. Here's the way I look at this and John may have a different opinion. I get worried about waiting five years because we saw what the housing market did the last five years. And so the house that you're looking at that's 250 today could be 400, five years from now. And all of a sudden you're so excited you saved 250 and now you're still 150 shy.

You see what I'm saying? So it's a moving goal post. And so what I like to do is just using the Ramsey parameter saying, hey, if I did a 15 year fixed rate where the payment was no more than a quarter of my take home pay, what would it take to get there? And that number may be 25% down. It may be 40% down, but I don't know that I would personally wait five years to become

a homeowner if you're financially ready.

So it's a moving goal. I see. Yeah.

Okay. It's an awesome goal to have.

Because you're also paid rent too on top of it. Yeah. Yeah. I would say we're not paying like a huge amount for rent is only 1300 bucks. We're fine where we are. And it's, it's kind of a tough decision because whenever I'm thinking on interest rate, how much am I going to be paying interest? Even if I, if I pay principal early.

But here's the thing about number one, but here's the thing about number one, you can always refinance later. Let's say the rates magically dropped back to 3% or all high fiving. You can always refinance later. And number two, your goal should be to pay off that house as soon as possible, which is going to save you probably six figures in interest. So if you pay that house off, let's say you bought it in the next year and you took the next four years to pay it off. Well, now you only paid five years of interest instead of what people normally pay, which is 30 years of interest at a higher rate. Okay. Yeah. So crunch the numbers. And I still think it's an awesome goal to pay cash, but generally we'd say, hey, if you can't save up and pay cash for it within a few years, it's just a long time to wait

while the housing market keeps appreciating and shifting.

So if you pay that house off, let's, so crunch the numbers, and I still think... Okay. And let's say if I go ahead, even though I can pay early, is it better to come up with a 30 years mortgage or a 15 years? 15 only.

No, 15 only. 15 only. And then you'd be about the business of paying that thing off like a five year, seven year

loan and you you'll be about the business... Great. Okay.

And you'll be better off that way because you'll be building equity. Yeah I know I'm there. Okay. Initially locking in that housing price and then building equity and paying that thing off

very quickly.

Bruno, are you married? Yes, I'm married. Is she sweating you down for a house? I have no kids? You're down for a house? Say it again? Is she sweating you down for a house?

Uh, no, I haven't, that's what happened. My wife just started working. And now finally we can breathe financially and we can start building up the savings account so we can start looking at a house. Yeah, I foresee in one year and a half, we'll be able to save enough for a 30% or a 40%. That's incredible. That's my question. Yeah. That's awesome. Yeah. Yeah. I've been waiting my entire life to that. And finally we got to the point that we're very thankful for what happened to our lives.

So yeah. That's incredible.

Yeah. That's awesome. Dude, I'm so proud of you, man.

You guys are in a great spot. You guys are in a great spot. And let me just say it's a fantastic goal to pay cash for a house. That's the way we would always recommend it if we could. But we live in a fallen world and so the only debt we won't yell at you for is a 15-year fixed rate loan. Let me make that clear. I thought Dave said debt's bad. It is. We don't like it, but we understand that in today's world, if we said you can only pay cash for a house, we would have zero listeners left on the show.

These people are insane. That's right. All right. Let's go out to Jason in Pennsylvania. What's up, Jason? Good afternoon, guys.

How are you? Great. How are you, man? Not too bad. So, a quick question. I'm going through some of the steps that you guys put out there and right now I'm setting around $45,000 in debt that will be paid off in a maximum of four years with if I continue doing the payment, but I also have $65,000 in classes. The capital gain would be $15,000 or the capital gain tax I would pay on it, roughly $2,500. Okay. Does it make sense to sell off that stock to eliminate that debt or is it- It makes perfect sense.

I would do it yesterday.

It makes perfect sense. I would do it yesterday. All right. And I've done this, Jason. When I was in debt, I had a few stocks from Apple, not nearly what you have, but it helped me pay off debt and I've never looked back. And you can look at the numbers and go, oh, what the stock would have been. But man, single stocks, number one, are super volatile and that money is way better spent freeing you up instead of doing this for the next four years. And you're still-

Yeah, I would definitely save money on interest, yep. Yeah. Yeah, I'm 100% George.

Any stocks, I'd sell them and get them out of it. Set aside the money for those taxes, but man, 2,500 bucks in taxes to be debt free today and still have almost 20 grand left over. Done. That's a win-win.

That's your emergency fund too. I mean, you just skipped baby steps one, two, and three. Just leapfrog that thing. Hey, before we head into commercial break, it means a lot to people who have no idea who we are. When they are scrolling around on YouTube and you have hit the subscribe button, you've left a five star review, it pops up in their feed. It sends this thing up into the magical wizard algorithms and it gets the show in front of more people who are sitting at home with their face in their hands and little kids running around and they don't know how they're going to pay their bills. Not asking for money, not asking for all the buying of our, like what we're asking you to do is hit the subscribe button. It doesn't make us, it doesn't give us any more money. It doesn't make us all feel better. It puts the show in front of other people. It's a zero cost way for you to help out your neighbors and to begin to take into our own hands this financial mess that our country is in. There is not going to be a savior on a white horse on this one.

We're going to have to decide his neighbors how to do this. And if you've always wondered, why don't more people just do the Dave Ramsey play? A lot of people don't know about it. And so if you hit the subscribe button, if you hit, go to Spotify, go to Apple, hit the subscribe button. If you leave your five star reviews, it just kicks it up and puts the show in front of more people and it's more people that can get help. And George, I've never in my life would have imagined that I was asking people to hit the

subscribe button.

Well said. Yeah. Generally you're doing it for validation. This is at a very pure motive and intentions that he really just wants impact. Exactly.

I should tell you, John, I'm proud of you, exactly it's such an easy way to help out your neighbor these days. It really is. Hit subscribe. Hey, this is the Ramsey show. triple eight, eight, two, five, five, two, two, five, five, two, two, five. Triple eight, eight, two, five, five, two, two, five. This is the Ramsay show. I'm John Deloni joining here by George Kimmel. We're taking your calls on your mental health, your marriage, your money, whatever's going on in your life. Give us a shout. Triple eight, eight, two, five, five, two, two, five. And George, I am usually not correct.

But this time I was whoa this time I was does your wife know about this? She does not gonna be ecstatic. I'm gonna keep it to myself I need to put this one in my back pocket just because I needed it at a later date because usually save that as the great Social distortion said I am wrong. Okay, so New York Times comes out in a couple couple days ago The New York Times the dirty little secret of credit card reward programs now for years I've been saying she does not going to be ecstatic very they work they absolutely do work and people always call us and like oh you're telling me that you don't take free flights and They for sure do if you're just swiping the card I got a buddy who puts a hundred percent of his life on these cards everything on the card sew that and he pays off every month and he just does it for the for the Full free miles are free whatever sure that's a real thing that happens now Most people don't pay it off every month and they're like no I was just going to bro and they don't but fair enough. There are people who do and my buddies were always Surprised that I didn't participate and it wasn't me trying to take a moral high ground or anything like that But I didn't want to participate in this program because I knew that these credit card companies are not my friend They don't like me. They're not hooking me up because I'm hooking them up. It's not like yeah, bro. Let's do this We're in this together. I'll buy some stuff. You give me free flights. That's not how it works Somebody is paying for my flights and as I dug into it a few years ago. It appeared to me that the single mom with three kids who can't float the Price of eggs and the increase in gas prices and the natural gas prices She was paying for my flights because she was having to put this stuff on a credit card conceivably to survive And so my free flights were being paid for by people who had way less and were struggling to make it and turns out I was running turned into studies and data.

That's incredible. This is why okay. That's incredible. This is why okay

Tell us about this. Okay, so the you know, it goes on to talk about hey You're these swipes you're using to get first-class airfare and trips and all your awards It's it's not from nothing the credit card perks for educated Usually urban pros are subsidized by people who have less So poor consumers are ultimately footing the bill and in 2022 a federal reserve data Show that the cost of rewards as a share of total transaction volume on these credit cards increased 25% from 2015 Through 2021 and so it's interesting John is the data was so clear in this study It showed that 15 billion dollars in reward value moved from the poor to the rich from the unsophisticated Folks who couldn't pay their bills on time to the affluent wealthy and not normal people go. Well, yeah, that's how the system is set up John So I'm just gonna take advantage of that Why would I not but here's what's wild a lot of the people that come at us going John's I can't believe John's trying to use This moral angle to say that it's not coming from people who have less than it's coming from swipe fees from the businesses And interchange fees and my annual fees But I looked at capital ones They put their shareholder reports out every year and in Q4 of 2022 It turns out that two-thirds of their credit card revenue came from interest and fees not from the interchange not from the other fees

Interest so two-thirds is blood diamond money. Yeah, and let's also It's also easiest to to get on a high horse and say well They're just making dumb purchases and they don't know if you've ever spent some time with people on the margins So many don't know right that they haven't been told they're just trying to claw their way out of the world that they found themselves in and they don't know that it's not normal to Roll fees over like this is they don't know that a 30% APR isn't just the price of doing life these days and so I I Don't know how people can look in the mirror and say, you know What I'm comfortable with a single mom trying to just trying to scratch through life with her buying my flights because they're free now

Like I just can't wrap my head around it George and the other problem is we're all paying for this through the increased cost of goods The United States has some of the highest credit card processing costs in the world Typically two to two and a quarter percent on every purchase And so the merchants the businesses the small businesses They have to pass these costs on to the consumers by charging more for the products

Regardless of how you pay and you see you see some of the local merchants that will say here's the price for if you play with A card. Oh, here's the cash price. It's less and George I it has I'm sure it's happened to you more because you're out in the world more than I am That's true, but I have my first exchange the other day where I was at a place I was traveling at a speaking event now I was out on the road and they said we don't take cash here and it was like I'm not gonna do business with you

Just just on principle. I'm signing a business with you. Wow. Yes, that's true

But and it was like just well the date is clear here John lower-income consumers are forced to pay higher prices on the goods they buy but they rarely receive any Benefit from rewards programs according to the Federal Reserve and so it's been tracking all of this And so to put another way they say credit card rewards are essentially a tax on less affluent consumers Who are much more likely to pay for the goods with cash debit cards or standard credit products that accrue no such rewards So, you know you have a lot of people have a lot of opinions about this, but across the aisle politically I mean NPR and Vox and New York Times. They're covering the same thing going. Hey, this isn't innocent Yeah, someone is paying for this and it's either the small business owner or the single mom But you can't act like this is just an innocent I'm just gonna reap the rewards your free vacation came from somewhere and we have to at least acknowledge that

Yeah, that's right. And if you in God bless you if you can sleep at night knowing that I pay my bills I do my thing. So hot That's that's I mean if that if you your conscience can carry that weight more power

And even if you don't have a conscience every single piece of data shows that you spend more when you use a credit card every piece of data So regardless if you're saying hey I'm going to use every I'm gonna use my card for everything to get these rewards The chances are you overspent to where the rewards were negligible, right you You maybe got a thousand bucks in rewards You spent more than $1,000 than you were if you were going to use a debit card on a budget or using cash

Right, so here's here like to me the cornerstone rule is opt out of the system Just opt out, man.

This is like Matrix style stuff, but just opt out of this. I haven't had a credit card in 10 years and I can unequivocally say my life has been better for it. No question about it. Not once have I wondered, well, they've got 5% cash back on restaurants this month, so I'm gonna switch the card. I was hanging out with some guys the other night, they're all personal finance, influencer type guys, and they're all showing me their different cards, and this one's made of three inches of metal, and I get this much rewards. And I'm like, guys, you make millions of dollars, how much money do you get back in rewards? They were like, I'll probably get two grand worth of value. I went, so you're playing this game for two grand worth of value, and you make millions. Why?

Yeah, exactly. No question about this.

Yeah, exactly. It's a crazy, I mean, when you put it that way,

you go, is it worth?

It's like real life Dungeons and Dragons. You're getting paid $200 a month to overspend and play this game and support this system.

It's just not worth it for me. I'm out, I'm out. I opt out of the system, opt out of the system. All right, let's go to Silas in Nashville, down the street.

Silas, how we doin' brother? I'm doing good.

How are you guys doin'? Excellent, what's up man?

How can we help? Okay, so I'm 18 years old, and I just got a job making about $75,000 a year. Wow, congratulations! What are you doin' man? Thank you. I'm working on wind turbines. Excellent. No college degree needed.

Oh, congratulations.

What are you doin' man?

No college degree needed, 75-round a year. Yeah, 100% school and it's all paid for.

Very cool.

No, 75-round a year. Very cool. All right, hey, we're up against the clock. Right's your question, brother.

The clock here. Yeah. So I'm really trying to look in a way to save for my kids so that I can take off work. I don't have any kid yet. I don't even have a girlfriend, but I plan on having kids in the future and I want the first five years or so, me being able to spend a majority of time because studies show that that's really important, spending time with your kids at that age. So I want to create a short-term savings account for five to 10 years in the future. I can't find really good rates on it, like it's usually like 3% for a bank. And so I was just curious what you guys thought of like short-term savings.

Where should I put that money? I don't know that savings is the best route to do this. What you're essentially saying is I want to be a stay-at-home dad for five to 10 years and I don't want my spouse to work either.

Yeah. Is that the idea? Yeah, for five years. Yeah, for five years.

Yeah. I mean, you might be better off looking at some kind of passive income. It's not passive in the sense that it won't take work, but it may be tough to save up $400,000 to live off of for 10 years in the next five years. So you can save aggressively. A high-yield savings account is good.

Five years or longer, you can invest it into the market, but also live your life, man. You might have read some research, but having one of the parents working full-time does not negatively correlate childhood development. So I don't know what studies you're reading, but that's not accurate. This is The Ramsey Show. What is up? What is up? This is The Ramsey Show. 88825-5225. I'm John Deloney, joined here by George Camel, and we are saving the world. Listen, a lot of you have questions about taxes. We get it. Taxes are confusing.

I think they're intentionally confusing. That's another podcast. To help you get a better handle on them, let's unpack a question from one of our listeners. I'm looking into Ramsey Smart Tax and want to know if it offers forms and online filing for state tax returns. Is it as simple to use as TurboTax? Great question. Yes, you can add a state return if you need one, or you can just move to Texas or Tennessee. All the information on your federal return is automatically transferred to your state forms. It could not be much simpler than that. Ramsey Tax is easy to use and gives you access to all major federal forms and deductions without any upcharges. George, this year, I got a tax person for the first time ever, but the last few years, I've just used Ramsey Tax at my kitchen table, and it is so easy, and I'm just knocking out right there. I actually like doing it at home because I like my kids watching.

They get to ask questions and see it, and they're like, what's this for me?

What's this for me?

They get to punch in some numbers, too, for fun.

I don't let them touch the numbers, but I do let them know this is how confusing the government makes it just to exist. When you switch from another software, Ramsey Tax can save you up to 70%. Plus, we won't offer you loans or credit cards. Most tax programs are designed just to get you in the door, free tax, free tax, so that they can sell you a bunch of crap. We're not going to do that. We're not going to put you in the debt. That's not how we do things here at Ramsey. If you're ready to file, head to slash smarttax. It's just $24.95 right now to file a federal return, $39.95 for a state return. That's slash smarttax. All right, let's go out to McKinsey in Orlando, Florida.

What's up, McKinsey? Hi. How are you? Great. How are you?

I'm really glad to be talking to you guys. We're here to save the day.

What's up? So I'm 25 years old. I have an overwhelming amount of undergraduate debt, and I'm at a point in my life where I'm hoping to be buying a house or something, but I know that the advice is to lower the debt before buying a house. Correct. Yeah. Correct. How bad's this overwhelming debt? It's $235,000.

Ouch. Wow. That is a box of farts on a pony, McKinsey.

What did you study? I studied electrical engineering.

Okay. Did you do a special electrical engineering, like the secret underground guy?

No, this is standard one, unfortunately.

You just did it at 60 grand a year, 60 grand. I just took a little longer. I'm a first-generation college student, and there's a bunch of reasons, but I didn't really feel like I had the toolbox starting out, and it took me a while to get into the groove of things.


So what are you doing now?

I'm an engineer. Good.

That's a good start. What are you making?

I make about $70,000. Okay.

And what other debt do you have outside of the $235,000? I have no other.

I mean, I have about $1,000 on a credit card, but... Okay. So one, let's pay that off and cut up the card. That'll cut that crutch out of our life and help us get rid of this debt.

So are you calling to figure out how best to pay off the debt? Yeah. I guess I'm looking at two options, kind of waiting for that 20-year forgiveness or just paying it down as quick as possible.

Did you hear what you just...

Just the idea of like, well, one option is waiting 20 years. Just the idea of like...

Not my favorite. No! Terrible option. The better option is for you to take control of this and get rid of this in way under 20 years. And you can do it.

So the $235,000, I'm assuming it's made up of a bunch of smaller loans?

I have about $30,000 in private and the rest is all federal. Okay. But they're made up of a ton of loans. There's either like a dozen or more loans involved here or is it a few big ones?

Oh, yes. Or is it a few big ones?

It's a bunch of small ones, yes. Okay. Okay. So here's what to do to help you have some peace about this. Instead of staring at the mountain, let's break this up into little chunks. So lay them all out from smallest to largest and we're going to start attacking the small one first. Step two, baby step $1,000 in the bank.

I assume you have that already.

I do. How much other money do you have sitting around?

That's liquid. That's liquid. Maybe $7,000.

Great. That's going to knock out the credit card and probably one of the smallest student loans?

The next smallest one? Yeah.

Yeah. I could see that. Boom. We already have some progress, don't we, Mackenzie? We didn't need Biden.

Listen, Mackenzie, here's the uncomfortable truth about the situation you're in is a big hole and there is not going to be some night on a white horse coming to save you on this one. There's just not. And so all George and I were talking about this earlier off air. There is this moment when I want something else to be true so bad and this can be any number of things. This could be like, I wanted my dad to live forever and he passed away. I wanted this relationship with my romantic partner to go forever and they stepped out on me. These things, this happens all throughout our life and the, we got to grieve this thing that we hoped for, that we wanted to happen, that didn't happen. And then we have to ask ourselves, okay, what are we going to do next? Because most of the time, nobody's coming to rescue us. And so you saying, I am an electrical engineer. I'm a first gen student. What that means to me is that I've worked with first gen students my entire career.

Here's what I know about you.

You are really, really smart, right?

Thank you. No, no, no. I'm not just blowing smoke at you. You're a first gen electrical engineering student. You are very smart, correct? Except when it comes to the loans you took out. You looked around your classes and your classmates were mostly dumber than you, correct? I know this is a fact, right? I don't know. Yes, you do. She's so humble. Exactly.

You are correct. And I think that you're being underpaid. I think you can make more money than $70,000. You might not be at the most comfortable firm right now or you might like, I really want to be doing these kinds of buildings instead of these kinds of buildings. Right now we're going to take a few years and we're going to go for money. We're going to work really hard to make a great salary and we're going to get this thing paid off. And I'm telling you, from a guy that has six figures of student loan debt myself, on the other side of this, you will be an unstoppable force in anything you do. You get what I'm saying? Because here's what I think. I think there's some shame wrapped up in this. Like how can I be so smart and so dumb at the same time? And I want you to put that down.

The whole system prays on first gen students.

You get what I'm saying?

Because here's thets. Put it down.

You know what, Mackenzie? The good news is you are among 43 million other people who feel the same way. So you're not even special. You're not even a snowflake like we all call it. Right? So there's a lot of people in this together. The differences you're going to be the one who gets out and doesn't wait on someone else

to save the day who feel the same way. Yeah, you're not even a snowflake. Like we all call it. And make no mistake, this will be awful. Your friends are going to be buying fancy cars and you're going to be in the same stupid car.

And you're still not gonna have a home two or three years from now

cause you're still going to be paying this off. And all of your family, you didn't go to college and be like, Mackenzie, you did all this work, why aren't you buying this and why aren't you dressed like this? Because they have a picture of success that is not based in reality.

And they're not the ones paying your student loan bills. That's right.

So they don't get a say. So you commit to this in front of a couple, I don't know, 10, 15 million people, Will you commit, I'm done with this,

I'm going to knock it out?

Absolutely, yes. Dude, we will walk with you every step of the way. I want you to hang on the line. I'm going to send you a copy of, we're going to send you a bunch of stuff. I'm going to send you a copy of Total Money Makeover the book and we're going to put you in Financial Peace University and give you a year subscription to every dollar. And it's the premium budgeting app that we all use. It's first class, the best there is and it's going to teach you the step by step step process on how to get out of this thing forever. And as a first-gen student who is just now making big money, you are going to be first-gen in a lot of different stages here. And so this program is going to help you, not only get out of debt but build wealth in the backend too. And we are going to walk with you every step of the way. In about six months, you are going to get really frustrated because you are going to be working really hard. And this number is still going to be big.

I want you to call us back and we will give you another pep talk or wherever you get stuck we will be here to help you along

the way. to be getting roommates, getting a side job, getting a different job that pays more for your full-time gig, cutting your expenses down to nothing, but then you're gonna be able to throw 30, 40 grand at this debt, and all of a sudden, you see the light at the end of the tunnel. You go, three years from now, four years from now, five years from now, I'm completely debt-free.

And then we can look at homeownership down the road. And in four years, a Mackenzie who has worked her way through electrical engineering school

and paid off all her debt, there's literally no stopping her. There's literally no stopping her. No, and go watch Borrowed Future if you wanna know why John and I are so riled up about this. Delay dreams are on the other side of student loans, and that is why we're angry at them.

You can rise above it. This is The Ramsey Show, we'll be right back. This is The Ramsey Show, 88825-5225. The Ramsey Show question of the day is sponsored by Neighborly, your hub for home services. From repairs and maintenance to remodeling and upgrades, Neighborly's trusted home service provides you, providers have trained local experts who can handle just about any job. So go to to find and schedule service today. Dude, I just wear out our maintenance guys here at the building, Winston and those guys like, hey I need a contractor, I need a deck person, you got a roofer person, Neighborly. Saves the day.

They've got it all, man. They've got it all, man. DIY, more like DIY. Just hire a guy. That's their tagline. I'm just pitching taglines for him. I don't think they want that one. I don't think they want that. That one's free. Okay, here's the question of the day comes from Chris in the Ramsey Baby Steps community. We are on baby step two and I'm having a hard time emptying our savings aside from the thousand bucks to pay down debt as our emergencies are never less

than a thousand bucks. Yeah, right.

That's their tag. Just trying to get over this mental hump. I feel like I will be forced to charge something like a car repair or furnace, which just happened. Then we will be thrown back so far. I'm just really scared. I think that's the place to focus.

This is more mental and emotional than it is financial. I think that's the place to focus. Correct. It's almost entirely. And as my friend, Dr. Lane Norton says, data is more important than feelings a lot of the times. Right? So it's easy to look back and go, all these repairs cost this much money. Be honest with yourself. And they usually don't. A couple of times they do. I've had to replace a roof. I had to replace, you know, part of a car.

Like they can be expensive. Most of the time they're not. And George, you can tell me if I'm wrong, but they're not designed for that. This is designed to light a fire under you to get you running and gunning.

Absolutely. It's not meant to cover the big emergencies. That's why we call it a starter emergency fund and baby step one. And here's the truth. If an emergency happened, what would you do if you had a thousand bucks and it was a $1,500 emergency? Well, you'd pause the baby steps. You'd pause it and you'd stack up cash as fast as you could in order to cover it. And then you're back on the wagon. The problem is right now you feel like you're safe, even though you owe lenders a whole bunch of money. That's the confusing part to me is like, if you wanted safety so badly, why are you sitting there with money in the bank while owing people money? To me, true safety, true freedom comes on the other side of being completely debt free and not owing anyone anything. To where if everything went down, I know John, you like to think about this scenario.

I got to play it, man.

Owing and don't want anything is the best way to go. It's just total freedom. That's right. It's total freedom. The government telling me what's it and stop owing people money. I don't want my boss to stop owing people money, right? It's super simple. You have more options and so. On Saturday, you're coming in at eight o'clock. Actually, no, I'm not. I'm actually not coming in at eight o'clock. I've got other stuff with my family and you can make that choice.

You don't owe anybody any money, right?

So it's just total freedom. So you can do this. Again, I like being a little bit scared because it fuels me to get rid of this debt once and for all and stop playing the game. And it takes something that drastic

in order to get there.

Yeah. Chris, let me affirm you. I work here and $1,000 in a savings account I would not be able to sleep. I would be so terrified. I got two little kids. I got a wife. I wouldn't be able to breathe. And that's kind of the point. I would be so paranoid that I would be delivering pizzas at night and driving people, Ubering before work in the morning. I would be so maniacal about getting this thing knocked out so that I could get this savings account up. And that is the point. Most people don't take us seriously when we say gazelle intense.

That's an animal running for its life because it's about to be ripped apart and torn apart and eaten and killed. And that's the level of intense and we want people to have. And so I'm with you, Chris. If I had a thousand bucks in a savings account and that was it, I would not be able to breathe. And that's the point. That's the point. So let this fear drive you to none of us are eating out. Nobody's getting new shoes. None of us are going to the movies. We're cutting all the subscriptions. We're getting rid of everything so we can get this crap done so that mama and dad can sleep again. That's right.

All right, let's go out to Marissa in Richmond. What's up, Marissa?

How are we doing? Hi, how are y'all?

Right, right, right.

How are you?


What's up? I had a question about 53 and my husband's 54. And we did Financial Peace University about 15 years ago but now our kids have both finished college and we're just trying to figure out what to do. So we don't have very much money in retirement. We only have about $90,000 each. And we do have five houses, two of which are paid off and three we have mortgages on. We rent them all out. So we're just trying to decide should we try to pay off the mortgages or should we throw money into our IRAs

and do that makeup and put as much away as we can for that. Okay, so you're essentially using these rental homes

as a replacement for your 401k currently. Yeah, that was right.

The intent, yes. And that can work.

What's the net profit of these properties currently per year? Well, they, let's see. I didn't write that down on my list. That's okay.

She's like what's a great George? She's like, what's some good homework?

Are we gonna cut some good? What's some good homework? Are we gonna cut some good? Do that tonight, that's some good homework for you. But here's why I ask, my hunch, my hunch is that you should sell one of these, your least favorite rental property and use it to pay off the others or sell two of them and pay off the others to where you have a fully paid for real estate portfolio to where you get to keep 100% of that profit and it'll lower your expenses. And once you do that, then I would start shoveling money into retirement accounts, which you have some great ketchup contributions

you can make after 50. That's why I ask, my hunch.

You don't make money, right? Yeah, but you don't think, my only hesitation about that is, then is it bad if we don't have the deductions for the rental properties?

Cause you know that- The deductions are not what's gonna save your butts in retirement. You're stepping over a dollar to pick up a quarter. And so that's not like a wealth hack just to use the deductions that you can't live off of that in retirement. What you can live off of is having very little expenses. And so you can make six grand a month and be okay

because you don't need to cover 10.

So that's where I would want to be in retirement is have as few expenses as possible. Paid for home, paid for rental property and a pile of money in investments.

I think that's a well-rounded portfolio.

So that's where I- So however you guys want to go about paying off the debt is great, but it sounds like right now you're feeling the pinch with retirement. I would want more cashflow to funnel into retirement, which means getting some of these rental properties,

getting rid of the mortgages on them. And George, in some ways, Marissa and her husband just went about this backwards, right? Most people will fund their Roth IRAs, they'll fund another IRA. And then if they've got money left over, they'll start thinking about buying rental properties, they just went ahead and bought rental properties. And so we're going to sell a couple of them. get clear of the debt. And so they're going to have their primary house maybe two, maybe three other houses that are completely free and clear of theirs.

And then they're going to start backfill on that. Yeah. And some people, I mean, they're clearly very comfortable with real estate, which is awesome. We love real estate. Pretty much Dave's entire portfolio and he's worth hundreds of millions of dollars is just real estate and mutual funds, right? It's that boring and it's and he's that wealthy. So you tell me he's not at work on Friday. That's all I'm saying

We're here. That's right. What are we doing wrong? John on Friday?

But it's a great question and a lot of people are wondering why should get into the real estate investment game Here's when we tell you to that. That's a good move You have a paid for personal residence and you pay cash for investment property That is an insane thing to say in today's world. I understand how controversial that is

But it's also the right way to do it to reduce risk and maximize your wealth and the question is always would you take a loan?

Against your personal house to buy a rental property. Nobody would don't don't don't tempt America with a good time They might do this God's a great idea I'll take out the HELOC use that as the down payment these are the wealth strategies that you find on social media these days and it's all from real estate bros and Permanent life insurance bros who all have a vested interest to get you to do that thing

We don't we want you to build with this true wealth Independently not dependent on if this thing goes right. It's all it's like putting in a parlay bet man Like you got to make every shock what a crazy way to live just enjoy the game. Yeah

Yeah, so that's the way to do it and obviously I'm a big fan of using your retirement accounts tax advantage accounts are awesome You're 401k or IRA you can become a millionaire you invest a hundred bucks a month from 25 to 65 You're gonna be a millionaire a boring 100 dollars a month boring So don't feel like you have to do something fancy or like doing nothing down on real estate property You don't have to own real estate investments your whole life. You can have a paid house and millions of dollars in the bank It's a choose your own adventure. Just don't do something stupid and don't do debt Stay away from drugs and debt

Yes. I feel like you have to do that. Stay away from drugs and debt. There you go. Yes. Don't do drugs and don't do debt. That is the new George Campbell t-shirt. Hey, it's another hour in the books here on The Ramsey Show and I thank the guys in the booth. I want to thank you, America, for listening to us. We will be right back right here on The Ramsey Show.

I do debt. Hey, George Campbell here. If you love the show and you want a deeper dive on your money journey, we've got a weekly newsletter that gives you helpful articles and tips on following The Ramsey Way. Just go to today to sign up for the newsletter. Again, that's to sign up for our weekly newsletter.

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