Good Debt vs. Bad Debt: How to Prioritize

Dear Dave,

My wife and I make $140,000 a year, and we’re working on our debt snowball. We’re almost out of debt, but we still have two small car payments and some credit card debt. She wants to get rid of the credit card debt but doesn’t mind us having car payments. Can you help me understand this?

-Kelly

Dear Kelly,

I’m not sure I understand her thinking either. The car payments and the credit card debt are the same thing. They’re both debt payments, and you’re being charged interest on both of them. The only difference is that one is attached to a car and one’s not. It makes about as much sense as saying you like Visa better than MasterCard.

Even if she has some strange hang-up about car depreciation, that argument doesn’t hold water either. Cars go down in value whether you borrowed money to buy them or not. A $20,000 vehicle will be worth $10,000 in just a few years no matter what you do. A car payment won’t keep it from depreciating or slow the rate of depreciation.

Sometimes people get burned out or tired of paying the price to become debt-free. It can happen when you’ve been working on something for a while, and it seems like you’re never going to get there. Sit down and have a gentle, loving talk with your wife. Find out why she feels that way about the car payments and where the root of the problem really lies.

She may just need some support and encouragement from the man in her life. Remind her how far you’ve come together on this journey, how close you are to winning, and how much you love her. You’re too close to making your financial dreams come true to stop now!

-Dave

Dear Dave,

I’m 23 years old, and I was in the military for five years. While serving I received what is now $2,700 in Series EE bonds. Should I keep them?

-Tammy

Dear Tammy,

If it were me, I’d cash them in and do my own investing with the money. Series EE bonds have a very low rate of return. They don’t pay much, and they’re not good long-term investments. They’re almost like keeping your money in a certificate of deposit over the long haul.

Investing is never a bad idea, and I know that may seem like a lot of money to you at the moment. But my advice is to cash out the bonds, find a financial advisor with the heart of a teacher, and invest the money in growth stock mutual funds with a good five- to 10-year track record. After that, get set up for auto-draft on your checking account and put at least $50 a month into your new mutual fund. That’s a much better plan!

-Dave

* Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.