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Dave Says - Dave Ramsey

Mortgage disability insurance? Skip it

Dear Dave,

If someone is following your plan, is it a good idea to get mortgage disability insurance during Baby Step 2?

– Craig

Dear Craig,

No, it is not. Mortgage disability insurance is a gimmick, and I would never recommend it to anyone.

I think I know where you’re going with this. During Baby Step 1, I encourage people to save up and set aside a beginner emergency fund of $1,000. Baby Step 2 is where you start paying off all your debts, except for your home, using the debt snowball system.

A thousand dollars may not seem like a lot in savings during that time, but in the beginning it’s an attainable amount to save. Plus, it’s more than a lot of people have when they make the decision to get out of debt and gain control of their finances.

Then, after finishing Baby Step 2 you move directly in Baby Step 3 — fully funding your emergency fund with 3 to 6 months of expenses.

What I would recommend is having long-term disability insurance in place. It’s fairly inexpensive, especially if you get it through your employer.

– Dave

Fix the car, or
buy another?

Dear Dave,

I’m driving a 12-year-old car with 210,000 miles on it. The car needs close to $2,000 in repairs, and it’s worth $5,000. I have $40,000 in cash saved, $40,000 in investments, and I make $80,000 a year.

I also have $15,000 in student loan debt, but the only other thing I owe on is my house.

Should I pay to repair the car, or buy something else in the $15,000 price range?

– Brett

Dear Brett,

Let’s see, if you wrote a $15,000 check for a newer car and wrote a $15,000 check for the student loans, it would leave you with $10,000. I wouldn’t buy a $15,000 car in your situation. I’d buy a $10,000 car. You could probably sell the old one for around $3,000 if it needs repairs, combine that with your money and get a $13,000 car. Then, you could write a check and pay off the student loan debt.

With no car payment, no student loan payment and a good car, you can really lean into your budget. You’d have no debt except your home, and you could rebuild your savings in a hurry. You’d be in really good financial shape in about 6 months.

Plus, you’d have $15,000 in the bank in the meantime!

– Dave

Follow Dave on Twitter (@DaveRamsey), or go to daveramsey.com. 

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