QUESTION: James on Twitter asks if it’s possible to book a hotel without a credit card. Dave says yes.
ANSWER: Sure. It’s called a debit card. I don’t own a credit card. I have four pieces of plastic in my pocket. That’s all. Cash and four pieces of plastic. I have a debit card on my business and a debit card on my personal account. I have a driver’s license and a handgun carry permit. Those are the only plastic I have in my pocket. That’s it.
My debit card will take me everywhere your credit card will take you. It’s a Visa card. It will be accepted everywhere that Visa is accepted.
Some hotels put a hold on your account for the amount of the room or one night’s stay or two nights’ stay or whatever, so you actually need to have money in your account. Hello! There’s a thing. Don’t be traveling without money. “I’m too broke to travel.” That means you stay home. That’s how that works.
QUESTION: Miranda on Facebook asks how to sell a vehicle with a lien amount higher than the value.
ANSWER: You have to cover the difference, and there are two ways to cover the difference—well, three. One is you have the money.
Let’s use an example. The car is worth $15,000. You owe $18,000, so that would leave you $3,000 in the hole—upside down by $3,000. How do you get out of that car? The bank holds the title, and until you give the bank the payoff amount of $18,000, you’re not getting the title. If I come along and buy the car for $15,000, you’ve got to have the other $3,000 covered to be able to send it to the bank. I’m going to give you $15,000. You can send that to the bank, but I’m not going to be able to get my title then, so you’ve got to have the other $3,000.
The other $3,000 can come out of your pocket if you’ve got the other $3,000. You could borrow the other $3,000 from your local bank or credit union, or if your car is financed with a local bank or credit union, you could talk them into letting you sign a note for the other $3,000 and work your way through that then as payments there. But one of those three ways, you have to cover that deficit amount or that upside down amount of $3,000 in our example. Then the buyer gives you the other. You send the sets of money over to the bank, which includes the total payoff, and they send you the title and you sign it over to your buyer. That’s how it works.
QUESTION: Mitchell in Chicago is about to start a new job with a $20,000 income increase. He needs to adjust his budget. What would Dave suggest for this new income?
ANSWER: You can do whatever you want. The more you put toward the debt, the faster the debt goes away. It’s a pretty simple formula.
Maybe you snatch enough out of that first check to have a celebration dinner, and then you go back to getting the debt knocked off. A permanent adjustment to luxury while we’re in debt? No. We’re getting out of debt.
You do whatever you want, but that’s what I teach. The thing that I have found that gets people out of debt is when they get passionate about getting out of debt—so passionate that they don’t even consider doing anything else except getting out of debt. It’s like, “Woohoo! Got a better job. Boom! I’m going to knock the debt out faster.”
If you want to adjust it a little for one month or something and give yourself a little bit of a high five, that’s fun, but I wouldn’t go too crazy. Let’s turn around and knock the debt out. The idea is we’ve got $65,000 hanging over our head. We want that thing gone. The more you focus on it, the faster it’s gone. It’s a pretty simple formula.
QUESTION: Michelle in California and her husband are newly married and currently renting. They are paying $1,200 a month. What range of houses should they look at with an income of $7,000 a month?
ANSWER: You need to clean up the debt, and you need to build an emergency fund of three to six months of expenses. Then you need to save a down payment. Then what we recommend is that you buy a home where the payment is no more than a fourth of your take-home pay on a 15-year, fixed-rate mortgage. At 3.5% on a 15-year fixed right now, that would be about $250,000 for you, because a fourth of your take-home pay is about $1,750, and I ran the numbers while we were talking. But you’ve got to get the other stuff cleaned up before that makes sense.
You need to look around and say, “What is more important to me—horses and boats or home ownership? I’d never get rid of that horse, but I’d part with that one.” That brings some money in towards the debt and it cuts down the stable bill. “I’d love to have a boat, but it’s not nearly as important as being debt-free and owning our own home someday soon.” Those kinds of things.
I don’t know, but that’s kind of how we would look at it, and I’ve got to tell you we’re fans of both—horses and boats. Bigger fans of boats. They don’t eat as much. I’m not mad about either one, but you’ve got three things there pulling at you as a priority: home ownership, horse ownership and boat ownership. And they’re pulling at each other. They’re limiting each other—your enjoyment of any of them or getting there—so you really need to say, “I’m willing to wait a little while longer so I can keep the boat.”