Dave Says: Hands off that IRA!

Finance, Home & Family, People
on October 7, 2010

Dave Ramsey is a money management expert, national radio personality and the author of the New York Times best-sellers The Total Money Makeover, Financial Peace Revisited and More Than Enough.  

Dear Dave,
Ive paid off $45,000 in debt in the last three years, and Im down to my last credit card before Im debt-free. It has a balance of $9,000. My Roth IRA has really taken a beating lately, and its down to about $14,000. Should I cash this in to pay off the credit card?
 ­­ Matthew in Lexington, Ky.

Dave Says: No way! Youre within a few months of being debt-free, man. Youve made tons of progress, so nows not the time to give up on your Roth. I know you think this is a good way to kill off the rest of the debt and be done with it, but I want you to take a deep breath and finish your swim. Now, if the Roth is in a bad mutual fundlike if its still sitting at half of what it was worth a few years agoyou might consider moving it to a better one. But the truth is that most mutual funds are down right now, because the market as a whole has been taking a beating. I know mine are down, but theyre recovering. Never cash out retirement to pay off debt, unless its to avoid foreclosure or bankruptcy. Youre a long way from either one of those situations!

Kids need financial coaching
Dear Dave,
My daughter is a freshman in college, but I didnt save for her education. My parents said it was my job to pay for my college, and thats what Ive told her. Shes going to have about $12,000 in student loan debt after her first year, but how do I talk to her about not ending up with $50,000 in debt when shes through?
Paul in Minneapolis

Dave Says: If you want her to pay for college, then, as her dad, you have to coach her on how shes supposed to come up with the money and manage it properly. Shes already behind the eight ball because it sounds like you didnt teach her the correlation between work and money earlier. So, youre going to have to get real busy, real fast, unless you want her to be drowning in debt when she graduates. I think you owe her a leg up at this point. Twelve thousand dollars doesnt just magically appear in an 18-year-olds hands. Im perfectly OK with kids working through college and parents cracking the whip when it comes to acting responsibly. But if you expect them to pay for it, you first have to show them how to do that. Otherwise, theyre going to hit the default button and wind up $50,000 in debt when they graduate. Thats a really bad plan! If you have some money, I think you should help her along while teaching her how to make money, save and budget. Then, maybe shell be prepared to pay for her last couple of years with some good, hard work!