The Madill Record
Dear Dave,
I’m thinking more seriously aboutbuyingahomein the next year or so. It seems like the housing market has cooled off a bit, so I am also planning to get a secured credit card to help me rebuild my credit score in the meantime. I make $60,000 a year, and I have about $15,000 in debt and $3,100 in savings. Is this a good idea and a good start toward getting my credit back on track and taking control of my finances?
Martin Dear Martin,
In a word, no. I want you to become debt-free before you buy a home. I also want you to have an emergency fund of three to six months of expenses set aside, and have adownpayment—preferably of at least 20%, so you can avoid having to pay private mortgage insurance—before buying a home.
Let me tell you a couple of things. Number one, your incomeisyourmostpowerful wealth building tool. If you don’t have any payments, you have the ability to build wealth and be generous. When you have debt, all you do is send money out the door to make payments. So, being in debt is a guaranteed way to stay broke. That means getting a secured credit card is not a good idea, either.
Also, did you know you can get a home mortgage with no credit score through a process called manual underwriting? All you have to do is make sure you have a good, long history of paying other things, like your utilities and rent, on time. Most mortgage lenders who do manual underwriting would also require that you have all your debts paid off completely and the accounts closed for at least six months. Buying a house when you’re in debt and broke is a really bad idea, Martin. It’s the fastest way I know to turn something that should be a blessing into a financial and emotional curse. Just be patient, get out of debt and save up. Getting control of your finances is the smartest thing you can do before buying a home!
— Dave Dear Dave,
How do you handle a situation where someone needs financial help, but has misspent money you’ve given them in the past? My wife andIhavebeentryingtohelp ayoungmanwerecentlymet. He told us he was trying to get his life together after a divorce and job loss, and he just needed a little money for groceries and household items. He has asked us a couple of times since for more money, but we discovered he wasbuyingalcoholwithmost of the cash we gave him. We learned from friends what he said about losing his job and being divorced was true, but we are unsure what to do next.
Andrew Dear Andrew,
Thisyoungman’sproblem sounds as much like a mismanagement of money as it is a lack of money. He seems to have an issue with lying, and possibly an addiction problem, too.
I’ve never been against helping people who have good hearts and just need a break. But if someone is bold enough to ask for your money, you have every right to attach requirements to the help you give—especially when it’s for their own good. If he really needs food or household things, you can just buy them for him. At least that way, you’d know you were providing necessities.
But in many cases, truly helpingsomeoneisalotmore work than just giving them money.Sometimes,youhave to get down in their mess, get real with them and walk with them. If you haven’t been put off by what has already happened, and you still really want to help, I’d suggest getting to know this young man and his situation a little better. Be straight with him, and let him know you’velearnedhehasn’tbeen honest with you in the past. Hopefully, as a result he’ll apologize and start making better choices. If he does, you might even offer to arrange for him to talk to a good pastor or counselor.
This whole situation is much bigger than helping someone with a little cash. This guy needs someone who cares enough to help him get his life back together.
— Dave Dear Dave,
Ihaveanunclewhowants to gift some property to one of his sons, myself and my sister. The property is about two-and-a-half acres, and it’s probably worth around $125,000. My wife and I are trying to pay off debt in Baby Step 2 of your plan, and we’re not sure how we feel about the situation. What do you think?
Dave Dear Dave,
If your uncle asked me if he should do this, my answer would be no. The thing is, you’ve got three different sets of people with different lives and very different situations. Not only that, but these three potential co-owners probably have differing ideas about the land and what should or shouldn’t be done with it. To me, the whole thing sounds like a big family fight just waiting to happen.
If I were in his shoes, I’d just sell the property and split the money equally between the three of you. It’d be a lot easier that way, and you’d avoid the chance of hard feelings between you
Dave Ramsey is a seventime #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.
and your relatives down theroad.Don’tgetmewrong, your uncle sounds like a kind and generous man. He’s trying to be a blessing to all three of you, but it has a very real possibility of causing unintendedproblemshemay not see coming.
That’s the way I’d handle it, Dave. A couple of acres of dirt split between three people isn’t worth all the squabbles and bad feelings it could cause.
— Dave