Get a HELOC to Pay Off My AMEX and buy a new car?

Brought to you by the EveryDollar app. Start budgeting for free today. I am debating on getting a HELOC to pay for one, clear up some Amex debt that my wife and I have, to buy a new vehicle. Wait, is this a prank call, dude? No. You said long-time listener, and then you mentioned three things that we are vehemently against. Or did you just wait until Dave wasn't here? I totally get that. I was going to be like, I kind of sound a little bit silly, long-time listener. I know you guys don't like going into debt. So the goal of all this is to buy a new car? Well, Amex is a big one as well. But yeah, we need a new vehicle. Our last one, the one that we currently have is on the fritz. And yeah, that's the primary concern right now with me and my wife is getting a new car. Okay. So let's kind of pan back here because if you're doing all of this rigmarole to get a new car, this is a symptom of a much greater issue, which is you guys are out of control, right? There's something going on with debt. There's something going on with income that's causing you to spend on the credit card, not be able to pay the balance. And then instead of looking to something like savings or liquid cash, you're now looking to a line of credit that's attached to your home, which is what a HELOC is. And you're now thinking about draining the equity in one of your greatest assets to now fund what I think you said is, I don't know if it's a brand new car, but a new car. So I'm a little nervous about that. Very nervous about that. Tell us when you say your current car is on the fritz, what does that mean? Does that mean, hey, we just have to make some repairs and just don't want to pay the $700 or is it, you know, the engine exploded and it needs a new driveshaft? Like what's going on? I'll never use that terminology again, by the way. That's the best I've got. It's going to be one of those scenarios where we either keep it for maybe a year, but it is a 2018 and it's gotten so many problems to where the next time we get any sort of, we have to pay more money for this car. It's we're just going to sell it at that point. Okay. So you said you could make this work for another year. So the question now is, can we clean up the financial mess in a year and save up for this car in cash and get a new-to-you car? Well, yeah, I have cash. That's the thing. How much cash do you have? About 15 grand right now in a savings, but we have a lot of money actually in an inherited IRA, but we want to use that money technically as our income. So we use the stipends of that to add to our current income. What's your current income without the IRA? The IRA right now is giving us an additional 30K a year. So that would be about 135. Okay. 135K is your household income. And what's left on the Amex? What's the balance? About 14K. So why don't you use your savings and pay off the Amex today? Hey, what's up guys. It's Jade. Listen, my husband and I drive used vehicles and we really do plan on keeping those running for a long time. So we trust Christian Brothers Automotive to take care of them. Their team is honest. Their shops are super clean. And what I love is they don't try to upsell us on things that we don't need. I personally feel really confident walking into Christian Brothers because I know that no one's going to try to take advantage of me or scare me into unneeded repairs. Christian Brothers gets it. So schedule a service today at cbac.com slash Ramsey and get 10% off your visit. That's up to a $250 value. See stores for details. So why don't you use your savings and pay off the Amex today? Well, because we then we don't have any savings. Well, we technically do, but then we don't have any like liquid cash. Like I don't like taking money out of that IRA. I want to use that, use those monthly stipends for, you know, as long as I possibly can. But you like putting your house at risk with a HELOC to pay off the Amex to buy a brand new car that's going to go down in value? I get that it's going to go down in value, but I don't think the home is technically at risk because if I make a plan to pay this HELOC off quickly. If I had a nickel for every time someone had a plan on this show, I wouldn't be in the job. So you know what to do. Use your cash savings to pay off the debt, cut up the freaking Amex, never use it again, never take out a HELOC, and then you save up for a car you can afford in cash. That's it. And make the repairs needed until you have the cash to buy the car you want and make sure that car and everything other cars don't add up to more than half your annual income. So for you guys, that's, you know, 65K in cars. Yeah. That's plenty of car. Plenty of car. And I think the rule of thumb, there's a lesson to be learned here, and I think it's worth highlighting. So you cannot solve a problem while simultaneously creating the problem. And in simplest terms, that is, if debt is your problem, you cannot solve the problem of debt while going into more debt. You cannot use debt to solve for debt. The only way you solve for debt is to pay it off. And the problem with it is a lot of times people use language like, I'm going to use a HELOC to pay off my credit card debt. Like, you're not paying it off. You're simply moving it. It is not a solution. It's just I'm moving it from here to over here. And the saddest thing about it, George, is they're thinking that that's a better position for the debt. They're like, well, I'd rather, I need to pay off the mafia. So I'll go borrow from the cartel. I'd rather owe the cartel money than the mafia. You're like, dude, this is a terrible life you've created for yourself. Yeah. And it's not even, I don't even want to create any shame around it because I think what's speaking here is desperation. It's, I see a situation, it's not good. And I'm looking for a quick fix. Can I fix it quickly? Because you know, you know, you're not safe. Like, you know, it's not a good thing. So the quickest possible thing I can do, I can go over here and get a HELOC. They're going to loan me up to 80 to 90% of my home equity. I can do that. And it's like, hold up, pump the brakes. Let's just think for a second. This guy's got the money sitting there. And in many cases that is, you've got the money liquid, but there's that false security of, I have this cash. I need this cash. But we're telling you, once you pay off the debt and you're free, now suddenly you've got more income. You can save up that cash again. If you saved it up once, you can save it up again. Well, if you're scared to part with the cash, you already did by going 15 grand to debt. That's right. Just you did, did it without realizing it was someone else's money that you got to pay back later. And later always comes, unfortunately. It does. And that's the part where, and this is, I'm not saying this to be snarky, although George, you could say it to be snarky. I appreciate that. Math. If you're deciding to do math, then you have to decide to do math on both sides. If you're deciding to say, I care about my 15,000, it took me X amount of months to save it up. It's precious to me. Then you have to do the math on the other side that goes, well, you don't really have that because you owe 14. On a balance sheet, it's, it's not math. Yeah. And so that's, that's just a little something to remember. It's, it's important guys. Okay. Brian in Sacramento, California. I'm sorry, Brian, how can we help you today? Is it another car question? Hi, Jane. Hi, George. Yes, it is. I want to buy sort of my midlife crisis car. How much is the Mazda Miata going to cost you? Close. It's a 12 grand. Okay. What car is it? I would rather not say cause it's very rare, but it's as old as I am. And it's a convertible. That's fun. All right. And it's only 12 K. Do you have the cash to do it? I do. Are you in debt? What bothers me? No, I have no debt other than my mortgage. But I am 54. I have only about a hundred grand in retirement savings at this point. And you know, my mortgage I'd like to pay off by the time I'm in my mid sixties. I'm currently on track to pay it off by 66. So you're saying you feel bad blowing 12 grand on a toy when you're behind on retirement? Yeah. Yeah. I feel self-indulgent and frivolous. It's, you know, it would be fun to have, but yeah, I just, I feel like I need to pay off my mortgage as fast as possible and I need to build up my retirement. I'm currently putting 15% every year based on a $185,000 salary into my 401k. Would you be trading your existing car for this car or would this just be another car to add to the garage? This would be another car. Okay. Are you married? Single. Okay, man. Well, here's the thing. I don't think this is going to make or break your chances of retiring, but I do think if you buy this car, I would really hit the accelerator to get your retirement in order and get this house paid off faster, get your income up even further. You're doing really well right now. You just are in, you know, later on in the game. So I'm not mad about it. For you to get this 12k car, you got to be ready for the insurance, the maintenance, the repairs as well. There's going to be ongoing costs, but again, it's not a make or break. I think it's not a make or break. By the time you retire, your house is going to be paid off and that money is going to, a lump sum that's earning the right rate of return is going to double every seven years. So I think that you can be okay. Just be okay working four months longer than you would have. There you go. Create your free every dollar budget today. The simplest way to budget for your life.