In response to:

Dave Says Hold that Cash

Steev Wrote: Jan 22, 2013 8:08 AM
Why not pay off the debt and then go back into debt if you absolutely have to, but try not to? Holding cash loses 10% a year to inflation (the govt's 2.5% number is bogus...if you don't believe it, go buy a single apple for $1.50). Meanwhile that $25,000 debt is being charged what interest? 15% ? 25%? In year 1 you'll lose more than 10% of the inheritance to interest on the $25,000.
Kris12 Wrote: Jan 22, 2013 10:00 PM
In the long run, you are right, paying off the loans would save lots of money, especially if it's a high interest rate like a credit card account. The problem with your reasoning is that the long run only matters if you survive the short term issues you are facing.

Paying off debt now, then being unable to secure a loan later if they can't get a new loan would likely end up causing financial ruin. They might be forced to declare bankruptcy, lose nearly everything, and face sky high interest rates for years as they rebuild their credit.

Oh, and the bombed out credit score will also make it difficult for him to get a job, since many employers check credit scores these days before hiring.
MrTufts Wrote: Apr 11, 2013 12:58 PM
Actually, very few do that, Kris. It's something the media made a big deal over, so now everyone thinks all employers do it and base hiring decisions on it. Besides, they can't do that randomly. You must give them permission first.
Kris12 Wrote: Jan 22, 2013 9:52 PM
Ramsey is right on this one. With the husband out of a job, and possibly for an extended time due to his injury, they need this money to live on. It would be foolish to pay off debt now, because there is no way to know how long it will be until he is working again, and as long as he is unemployed the chance of being able to secure a new loan is basically zero. Kristen might have her own source of income, but it will likely not be enough to cover expenses if they have been living on two incomes long enough to get used to it. Any lender would look at the ratio of income to expenses as a definite red flag to their ability to repay. When you have great unknowns like this, the best thing to do is make cash last as long as it can.
Don664 Wrote: Jan 22, 2013 10:32 AM
You don't get it. Live on it while you're making the decisions you have to. Don't squander it, but use if for groceries and minimum living until they have done what they can to consolidate and assure the future. As far as back surgery, it depends. My back surgery was successful. They've made great strides in recent years. Avoid it certainly if you can, but if you can't work, that diminishes your earning power greatly.

Dear Dave,

Recently, my husband had to quit his job due to an old back injury. We have $25,000 in debt, but I’ll be receiving a $38,000 inheritance in a couple of weeks. Should we use the money to pay off our debt, or hold on to it in case he needs surgery?


Dear Kristen,

Now is the time to keep the cash piled high. You’re in the middle of an emergency, and that means you push the pause button on your Total Money Makeover and stop paying extra on debt. Surgery is a possibility at this point, plus...