Maya, a mom from Colorado who recently got engaged, called The Ramsey Show (1) to ask for expert advice about how she should manage her debt snowball.
She has around $53,000 in debt, including $16,000 in credit card debt, $14,000 on a vehicle loan for a car that was wrecked when she was uninsured, $12,000 in unpaid rent from an eviction and a few small personal loans.
She was calling to find out if she should prioritize the $12,000 in unpaid rent because her ex-boyfriend had co-signed for the debt for her, and she didn’t want him to have trouble when he had to lease another apartment after his current lease expired.
Ramsey ended up commenting on more than just the debt snowball process, though. He said the caller had created a crisis and desperately needed to change course in important ways. In fact, Ramsey even referred to her situation as a "hot mess."
Here’s why Ramsey was so troubled about her financial situation, as well as some of his advice on how she should manage the payoff process.
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A medical issue and bad choices create a situation Ramsey describes as a crisis
Maya had a lot to say about her financial situation when she called Ramsey, and most of it, Ramsey wasn’t a fan of.
Many of Maya’s problems stemmed from a medical issue that prevented her from driving, which impacted her ability to work for a mobile grooming business as a dog groomer. When she had no paycheck coming in, she stopped paying her rent and got evicted.
The unpaid rent was the debt she was considering prioritizing to avoid putting her co-signer in a bad situation. However, Ramsey said the damage was already done since he already had the eviction on her record.
"He’s already screwed because he’s got a judgment against him," Ramsey said. "He’s got pretty heavy damage to him. Most of the damage has already been done."
Since that was the case, Ramsey said there was no reason to deviate from the normal snowball approach, which involves paying extra to your debt with the lowest balance first, then moving on to the debt with the next lowest balance, and so on until all debt is paid off.
Ramsey also told Maya that many of her problems were self-inflicted, including the credit card debt and the car loan she was stuck with for a vehicle she no longer had. It was the decisions she made that put her in this situation that Ramsey felt were really problematic.
"You are paying double and triple for a lot of things because you are paying it poorly," he said. "There’s a lot of things that are out of control. A car that I wrecked, that I didn’t have insurance on. Other stuff I haven’t gotten around to, and it’s piled up back there. There’s a lot of different crises represented in those things that you created by not taking care of business."
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Here’s how to fix the crises situation
Ramsey did believe that the caller could turn things around, but in order for that to happen, Maya would need to make big changes.
Specifically, Ramsey advised her to make her fiancé actually set a date to marry her, since otherwise, he was just making promises that there was no guarantee he’d keep. If the couple could pool their financial resources, they could dig out of the hole quicker.
He also said she should follow the baby steps plan he has repeatedly laid out for debt payoff, and she should work more since she was only working for three days per week. The baby steps plan involves:
- Saving up a small emergency fund first
- Paying off debts, paying extra each month to do so
- Saving three to six months of emergency expenses
- Investing 15% of household income for retirement
- Saving for college
- Paying off a home early
- Building wealth and giving
The caller is still only on steps one and two, but Ramsey didn’t mince words. He told her not to jump ahead, to buckle down, work more and pay off her debt fast. He also urged her and her fiancé to start making smarter money choices. After all, she’d gotten herself into this mess — and the only way out was to get serious and stay focused.
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This article originally appeared on Moneywise.com under the title: Colorado mom $53K in debt asks for help managing her debt — but Dave Ramsey gets stuck on why she’s in such a ‘hot mess’
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