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My wife and I have been investigating Dave Ramsey and we both are in agreement that we should make some changes. However, I am not so sure that Daves program is a complete fit for us.

Financial Thumbnail: Family of 4.

330K First Mortgage, 130K 2nd (business pays the 2nd payment.)

Small business owner – Established business long term viability a plus. Take home varies between 90-160K per year. Current business cash flow is very good and has been re-investing in inventory. Business does not have any lines of credit and debt currently at about 100K

Personal Cash Reserve of 45K

Zero Credit Card Debt – 50K available

2 Student loans totaling 23K

1 Car Loan totaling 21K – The TDI that gets the best mileage.

2 Newer Reliable Cars paid off. – 1 beater, 1 very nice that gets lousy mileage. (Wife is also very attached to this one.) 3-4 other “collector cars” that could be used for transport. The nice one (wifes) could be sold to pay off the 21K car loan.

Not currently contributing to retirement accounts. 25K in a 401K from past employment.

Childrens college funds are funded at about 60K. (Grandparents)

Current budget is break even, without room for 401K. (not really true as if we conserve we can cut a lot out of our budget.) All insurances in place and funded. Health, life, homeowners, etc.

Concern #1 – If following DR we would take our 45K cash reserve, and pay off our student loans and car loans. Then build back up our emergency fund. This is a big one for me as if I pay off the debt and have a major financial “life changer” I will not have the ability to easily deal with it. One of my thoughts is that if I were to keep my Credit Cards open, with their zero balances, that would give me a fallback. However this seems to fall against DR’s teachings.

With some business tweaks and cutting back on our lifestyle, we could keep the 45K reserve, cut up the Credit cards, and have the student loans, and car paid off in 18 months.

Any feedback would be appreciated.

Scott
 

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If I were in your situation, I would pay off *either* the student loan or the car, whichever is costing you more in interest. Then tighten your belts like you said and get the other debt paid off fairly quickly...that way you still have a very healthy cash reserve for emergencies while paying down debt. I would definitely start contributing to retirement as soon as you are debt free.

No, it's not the Dave Ramsey baby steps, but I've found most people working his plan tweak at least a bit anyway. You have to do what works for you.
 

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I'm probably in the minority here but me, keep the 45K reserve, cut up the Credit cards, and have the student loans, and car paid off in 18 months.
We were in the wage brackets you're talking about in '08 and self employed. We were also in the meltdown. We easily went thru about $40,000 or more of all the money we had saved up trying to avoid the inevitable.
18 months isn't that long and a safety net is good.
If something were to happen using the credit cards and start using them is only going to compound whatever problem you're having when it happens.
Cut back and shorten the 18 months.
 

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I agree with Emjo. Pay off one of them, cut up the cards, and then get the other one gone within a year or so. Also depending on your income each year look into a roth ira or traditional ira. There is also a special IRA for small business owners that could work in your situation where the business can contribute for you. After that I would start working towards paying off the business debt and the second mortgage because then you will have more cashflow at the business!
 

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QUOTE...
With some business tweaks and cutting back on our lifestyle, we could keep the 45K reserve, cut up the Credit cards, and have the student loans, and car paid off in 18 months.
UNQUOTE

Keep your 45k reserve intact. Go on a tight budget and hammer down the credit cards and student loans. You probably might have them paid off way under 18 months, if you put your mind to it. Life is never certain, and having a back up plan and a cash reserve in place is always a good thing. Good luck :)
 
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In this economy it's good to be liquid in cash or cash equivalents. Keep the 45k in reserve and pay off the student loans first, even if they have a lower interest rate.

You can't discharge them in bankruptcy unless you are completely disabled. If you default, they don't need a judge to garnish wages, seize tax returns, bank accounts, or other assets. If you still owe at retirement they will garnish your social security.

They are absolutely that worst debt to deal with if you have a set back. Some people are actually having to leave the country to get away from them. Many high profile people and organizations are working to get them back to a normal unsecured debt process by changing some of the recent laws on student loans. If I were you, they would be the first ones I would pay off and be done with.
 
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