3 Things My Dad Taught Me About Debt
It’s my pleasure to host Rachel Cruze today at MegMeekerMD.com. Rachel is the daughter of bestselling author and financial expert Dave Ramsey. She brings a unique perspective to talking to kids and teens about money. We hope to bring you more financially-oriented posts from Rachel in the future. —Meg
~~~~~
Guest Post by Rachel Cruze
Last time I guest-posted on Dr. Meeker’s blog, I wrote about how to teach your kids about money at an early age. But what if your kids are older, and what if college is right around the corner?
I was blessed to have parents who talked with me about the dangers of credit cards and student loans—these are issues that are very, very real for 18-year-olds entering college.
Today, I thought I’d share some of the principles my parents taught me:
1. Stay away from credit cards.
Nothing good comes from credit cards. You’re charged ridiculous interest rates to spend money you don’t have, and if you breathe the wrong way, the credit card companies will nail you with all kinds of penalties and fees.
Debit cards are always a better idea, because they are connected to your bank account, which means you’re using actual money, not a promise to pay later. Better yet, using cash instead of plastic will make you spend less. When it came to credit cards, my dad always told me, “If you play with snakes, you’ll get bitten.” The best way to avoid financial drama is to stay away from credit cards.
2. You CAN be a student without a loan.
A lot of people consider student loans to be “good” debt. That’s just not true. The average student loan debt for an undergrad degree is now more than $25,000. That means a 22-year-old, just getting his first taste of the real world, will be starting his career in a load of debt.
Instead of loans, take a part-time job during school, work full-time during the summers, and apply for every scholarship and grant you can. Also, be willing to go to a community college for a year or two, work and save money, then transfer out to a state school later.
3. Make a plan with your money.
You guessed it—budgeting. But, honestly, budgeting gets a bad rap. For a college student, it’s really easy. You’re not making that much money, and you don’t have many bills, so is it really that difficult?
All a budget does is tell your money where to go so you don’t wind up wondering where it went. You sit down and make a plan before each month begins. Break up your spending into categories—food, entertainment, gas, rent, etc. Give every dollar a name.
The key to teaching your kids about money is to connect with them before they head off to college and into the real world. If you don’t help them understand how to win with money, our culture will do the job for you. And you don’t want that.
Growing up as Dave Ramsey‘s kid, Rachel Cruze learned the basic principles of money at an early age. She travels across the country teaching those same principles, in a personal and passionate message of money and hope, to teens and young adults. To find out more about Rachel, visit daveramsey.com/speakers or follow her on Twitter at @RachelCruze.
4 Responses to “3 Things My Dad Taught Me About Debt”
These truths cannot be said often or loud enough! I was speaking with a young woman recently who was just finishing her master’s degree, and being thrilled that her loans were only $50,000. She thought she’d gotten a bargain.
One problem I learned about after teaching Generation Change is that the kids reported back that the schools often have folks teaching “Finance” who believe in credit cards and have lots of debt. As your dad says, it’s like having a shop teacher with missing fingers.
Just got to keep moving forward, one baby step, one changed mind at a time!
Thank you Dr. Meeker. I’ve always thought You and Dave Ramsey should go on the road together – I may just be able to figure all of this out. After reading Strong Fathers Strong Daughters I started to become more aware of the attacks on my Daughters. One of my girls received a toy cash register for a birthday present; complete with play cash, coins and CREDIT CARD. This was a great learning experience as my 3yr old and 5yr old daughters and I practiced cutting up a credit card. They are learning how to pay cash for the things they want.
I disagree with Dave Ramsey. How can you get a home or car loan without a credit score. How you get a credit score? By having a credit card and paying it in full! There is nothing wrong with credit card. Just use credit in a responcable manor.
You can do it, but you are not buying a $50000 car! Save $400 per month for a year(roughly the amount for a car payment), and buy a $4000 car. Do that again for another year. Sell your car for $3000 or whatever you can get for it, and use that 4000 saved up along with your $3000 and buy a $7000 car.
After 5 years you are driving an almost new car without debt, and your neighbor who bought that shiny new car the same day you bought your $4000 car, well, he has a clunker, and has finally paid off his car. Maybe! Seeing some 7 year loans out there now, so he might have another 2 years to pay on his clunker…
McDonalds found out it was a great idea to bring in debit and credit cards as payment for their food as people tended to buy up to 30% more than if they used cold hard cash. Profits went up! You don’t feel the pain of the cash leaving your purse or wallet when you use debit or credit cards!
Your FICO score is all about your debts and your ability to pay them. Put money aside to buy the house and when you have 20-30% down, and are financially stable with an emergency fund of 6-9 months of your monthly expenses, there are finacial institutions that are willing to look at YOU rather than the monkey crunched numbers that the FICO score is.
FICO is Oooh! Oooh! They have the right number! They get the loan. Oooh! Oooh! They don’t have the right number! They don’t get the loan! Set yourself up to be able to proove the ability to pay the loan even when some kind of problem comes up and the bank can use the real numbers rather than a FICO score to give you the loan.
Dave Ramsey has a ZERO FICO score. Try and tell me he can’t go and buy a house whenever he has the money handy to go and buy one. He can because he uses CASH!!!
I doubt I will get this across to you. Try it! If it doesn’t work, go out and get you some credit cards and get back in debt and see if that works…
Good luck!