Dave Says

Advice for old debts and pre planning funerals.

Quit job for school?

Dear Dave,

My wife and I have $72,000 in debt from student loans and a car loan. We’re trying to pay off our debt using the debt snowball system, and we each make about $45,000 a year. She’s a teacher and she’s planning on going back to school for her master’s degree, but she’s thinking about quitting her job to do this. She’ll be able to make more money with the additional education, and she would only be unemployed for two years. The degree program will cost us $2,000 out of pocket per semester for two years. Does this sound like a good idea? 

—Chris

Dear Chris,

There’s no reason for your wife to quit her job to make this happen. Lots of people—especially teachers—hold down their jobs and go back to school to further their education. I’m not sure trying to make it on one income when you’re that deep in debt is a good idea.

Whatever you do, don’t borrow more money to make this happen. Cash flow it, or don’t do it. We’re talking about $8,000 total, and you’ve got $72,000 in debt hanging over your heads already. My advice would be to wait until you’ve got the other debt knocked out, then save up and pay cash for school. You could slow down your debt snowball, and use some of that to pay for school, but I’d hate to see you lose the momentum you have when it comes to getting out of debt.

The choice is yours, but don’t tack on any more student loan debt. I know her income will go up with a master’s degree, so from that standpoint it’s a good thing to do. But if you do a good thing a dumb way, it ends up being dumb!

—Dave

Preplanning explained

Dear Dave,

My grandmother passed away a week ago. She was 98, and I know both she and my grandfather had prepaid for their funerals in 2004. However, there were outstanding costs of $1,500 with the funeral services that we had to pay out of pocket, because she had outlived the insurance policy attached to the prepayment plan. I know you say it’s always better to preplan, not prepay, for a funeral. Can you refresh my understanding of this?

—Rebecca

Dear Rebecca,

Let’s use a round figure—$10,000. What would that grow to 25 years from now if invested in a good mutual fund? Now, juxtapose that number with the increase in the cost of a funeral over that time. The average inflation rate of consumer-purchased items is around 4 percent. On average, funeral costs have risen about 4 percent a year. By comparison, invested money would grow at 10 or 12 percent in a good mutual fund.

Now understand, I’m not knocking the funeral business. But lots of businesses that provide these services realize more margin in selling prepaid policies than in caskets.

Do you understand my reasoning? If we knew the exact date she prepaid, and how much she prepaid, that figure invested in a good mutual fund would be a lot more than the cost of a reasonable funeral. It’s the same principle I advise folks to not prepay college, or just about anything else, that’s far into the future. The money you could’ve made on the investment is a lot more than the value of prepaying. Preplanning, on the other hand, is a great idea for many things—including funerals.

I’m truly sorry for your loss, Rebecca. God bless you all.

—Dave

About the writer → Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including “The Total Money Makeover.” “The Dave Ramsey Show” is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.