Dear Dave: I currently have student loans in deferment from earning a degree in hospitality management. My career goal is to own a mobile food vending company, so I’m putting most of the money I make from eBay and ride-hailing services — around $1,000 a month — aside in savings for that. Should I forego my business idea for the time being, and knock out the student loan debt instead?
Dear Nicholas: You should put this business idea on hold for now, unless you can start it for less than $1,000. The first thing you need to do is go out, and get a real job. I know you have this dream of being self-employed, but right now you’re not doing so well as an entrepreneur.
With a hospitality degree, you can make $30,000 to $50,000 a year within the industry, clean up your mess, and build out the eBay thing on the side. Just think about how quickly you could save up money for a jump into the food truck or mobile food business, then!
Pay your way through it, Nicholas. Don’t sit around scraping by on the kind of money you’re making now and call that winning. You have a real economic engine at your fingertips, because you have the knowledge from the degree you earned. And it’s a valuable degree. If you go in there and bust it, you can escalate yourself upward through that industry in a hurry.
While you’re doing that, you can clean up all your student loans and save up money for your food truck. Boom! You’re self-employed and you learned a lot of stuff you can use in your new business. Go make some real money, then follow your dream, man!
Dear Dave: I have a whole life insurance policy with zero cash value due to loans I took out per the advice of my agent. I finally realized this wasn’t a smart move, as I now owe premiums plus interest every year. Am I still on the hook for the policy loans if I forfeit the policy to buy term insurance?
Dear Tanner: No, you are not. Get your term insurance in place first, then when you cancel the policy your cash value will offset your loans.
They won’t loan you more than your cash value. It’s seldom that they will loan you 100 percent of cash value, so you might actually have a cash value that is above your loan amount. If they have loaned you the full amount of your cash value, it’ll be an exact break even, and just canceling the policy means you cancel the interest and cancel the premiums.
It was bad advice to buy the policy, and even dumber advice to clean the whole thing out and sit there paying interest to borrow your own money and pay a premium to keep the loan open.
I recommend 10 to 12 times your income on a 15- or 20-year level term policy. During that 15 or 20 years, of course, you should be getting out of debt and building wealth so that you have a big pile of money and no need for life insurance.
Dave Ramsey is CEO of Ramsey Solutions. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.