New Castle News

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May 31, 2013

Dave Ramsey: Time to pay off the home debt

NEW CASTLE — Dear Dave: I’m retired, and I have $400,000 in an IRA that’s earning 10 to 12 percent. The only debt I have is $20,000 on a home equity line of credit, and my home is worth $500,000. Should I pay off the home equity loan using funds from my IRA? — Janet

Dear Janet: Wow, you have a half-million dollar home on the line for only $20,000? There’s no way I’m going to have a $500,000 asset pledged for that kind of money. No way! If I were in your shoes, I’d pay off the loan today.

You’re obviously a smart lady. You’ve got an IRA that’s busting it, and this little loan is the only thing standing between you and complete financial freedom. But that loan represents risk you don’t need in your life. I know you probably haven’t been lying awake at night worrying over it, but you’re going to have a wonderfully weird experience when you knock this thing out. A wave of peace is going to wash over you, and you’re going to feel lighter and more liberated than ever before.

Your retirement isn’t at risk, and it won’t cost you much money. Pay it off today, Janet, and discover the true meaning of financial peace. — Dave

 Dear Dave: How do you feel about an exchange-traded fund (ETF) as an investment device? — Charles

Dear Charles: The main reason to do an ETF is it allows you to trade your stocks or mutual funds easily and often. I can’t recommend them because I don’t advise buying and selling all the time where your investments are concerned.

In most cases, getting into this kind of thing implies that you’re trying to time the market. It means you’re trying to buy at the low point and ride them up to the high point. Based on my understanding of the market, I’m a buy-and-hold kind of guy. So, I have no need for ETFs whatsoever. — Dave

Dear Dave: I have $2,400 in transmission repair work that needs to be made on my old truck, and I don’t have the money to pay for it. I tried to get a loan, but was turned down. I’m single and make $26,000 a year. Do you have any ideas? — Eric

Dear Eric: As you probably know, I teach people not to borrow money. So, I’m glad you were turned down for the loan. That’s the last thing you need in your life right now, plus the terms of the loan would’ve been a rip-off.

My advice is to sell the truck as-is. You probably could still get between $500 and $1,000 for it. Combine that with as much money as you can save in the meantime. This could put you in a little beater that would last a while, then save up some more and get a nicer beater a few months down the road.

Sell the truck, save money and work your way up through some better vehicles. That’s what I had to do years ago in a very similar situation. — Dave

 

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