Dear Dave,

My husband and I have our emergency fund in place, and we’re about to start the debt snowball. We’re also doing a budget, but we still have trouble finding money to put toward our lowest debt. Plus, Christmas is getting closer. The company we financed our car with allows us to skip a payment once a year. What do you think about using that to help out?

Sarah

Dear Sarah,

What do I think? I think you guys need to create some income.

The issue here is that you’re trying to treat the symptom instead of the problem. The symptom is that you guys are tight on money. The problem is that you have too much debt versus income. In this kind of situation you’ve got to either create extra income or get rid of some stuff. Just skipping a payment won’t do that for you. All that does is postpone the inevitable. But getting rid of a big car payment – now THAT helps solve the problem!

It may take a little while to get these things going – and you guys may have to go easy on Christmas this year – but once you do these things you’ll find some wiggle room where your money is concerned!

- Dave 

Dear Dave,

My wife and I bought a house last year when we were making $50,000 a year. Now, we make $120,000 a year, and we’d like to move up in house. The problem is that we still have $23,000 in other debts. What’s your rule for determining when you’re ready to move up?

Dustin

Dear Dustin,

Congratulations on raising the income! You guys have really been kicking it.

If it were me, I’d wait until I had the first three Baby Steps in place – start out with a $1,000 emergency fund, pay off all debt except the house and then fully fund your emergency fund with enough money to cover three to six months of expenses. After that, save up to make a 20 percent down payment on the house you want.

I’ll tell you something, Dustin. If you move into a home with an emergency fund in place and no payments, that home will really be a blessing to you. But until then you’re just begging Murphy to move into your spare bedroom!

You’re not quite in driver’s seat yet, but you can be soon. And it will feel really good!

- Dave Continued...