Personal Finance

Don’t quit work to pursue master’s degree

  • Education and debt: Dave Ramsey suggests not giving up work to complete a master's degree, especially when in debt

Dear Dave,

My wife and I have $72,000 in debt from student loans and a car loan. Weíre trying to pay off our debt using the debt snowball system, and we each make about $45,000 a year. Sheís a teacher, and sheís planning on going back to school for her masterís degree, but sheís thinking about quitting her job to do this. Sheíll be able to make more money with the additional education, and she would only be unemployed for two years. The degree programme will cost us $2,000 out of pocket per semester for two years. Does this sound like a good idea?

ó Chris

Dear Chris,

Thereís no reason for your wife to quit her job to make this happen. Lots of people ó especially teachers ó hold down their jobs and go back to school to further their education. Iím not sure trying to make it on one income when youíre that deep in debt is a good idea.

Whatever you do, donít borrow more money to make this happen. Cash flow it, or donít do it. Weíre talking about $8,000 total, and youíve got $72,000 in debt hanging over your heads already. My advice would be to wait until youíve got the other debt knocked out, then save up and pay cash for school. You could slow down your debt snowball, and use some of that to pay for school, but Iíd hate to see you lose the momentum you have when it comes to getting out of debt.

The choice is yours, but donít tack on anymore student loan debt. I know her income will go up with a masterís degree, so from that standpoint itís a good thing to do. But if you do a good thing a dumb way, it ends up being dumb!

ó Dave

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Dear Dave,

My grandmother passed away a week ago. She was 98, and I know both she and my grandfather had prepaid for their funerals in 2004. However, there were outstanding costs of $1,500 with the funeral services we had to pay out of pocket, because she had outlived the insurance policy attached to the prepayment plan. I know you say itís always better to pre-plan, not prepay, for a funeral. Can you refresh my understanding of this?

ó Rebecca

Dear Rebecca,

Letís use a round figure, and say the cost of a funeral is $10,000. What would $10,000 grow to 25 years from now if it were invested in a good mutual fund? Now, juxtapose that number with the increase in the cost of a funeral over that time. The average inflation rate of consumer-purchased items is around four per cent. So, the cost of funerals, on average, has risen about four per cent a year. By comparison, you couldíve invested that money, and it wouldíve grown at 10 or 12 per cent in a good mutual fund.

Now understand, Iím not knocking folks who are in the funeral business. But lots of businesses that provide these services realise more margin in selling prepaid policies than they do in caskets. In other words, they donít make as much money selling the casket as they do selling a prepaid policy on the casket.

Do you understand my reasoning? If we knew the exact date she prepaid, and how much she prepaid, that figure invested in a good mutual fund would be a whole lot more than the cost of a reasonable funeral. Itís the same principle behind the reason I advise folks to not prepay college, or just about anything else, thatís likely far into the future. The money you could have made on the investment is a lot more than the value of prepaying. Pre-planning, on the other hand, is a great idea for many things ó including funerals.

Iím truly sorry for your loss, Rebecca. God bless you all.

ó Dave

ē Dave Ramsey is chief executive officer of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey