My mom has about $35,000 worth of debt from a $17,000 car and $18,000 in student loans. She makes $20,000 a year. How can she get out of this mess?
No one needs a car that’s worth nearly all of their yearly income. That’s just ridiculous. If you listen to me on the radio, I’m sure you’ve already heard me say what I’m about to say now—sell the car! That will get rid of almost half her debt, then find her a little $2,000 beater to drive until she can save up for a better car.
Remember this simple rule: Never buy a car that costs more than half of your annual income. Also, never go into debt to buy a car. Automobiles go down in value like a rock, and you never want that much money wrapped up in something that’s depreciating.
We also have an income issue here. Your mom has to do something in the short term to get her income up and pay off debt. A part-time job nights and weekends would be a really good idea. Then, she needs to address her long-term situation with an eye toward a decent job. Whether it’s more formal education or technical training in a particular field, she needs to find a career that will significantly increase her income.
* 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.