Dave Ramsey Advises On Next Steps With $60K In The Bank: Pay Off Student Loan, Car Loan Or Both?

Decision-making is at the center of every aspect of your finances. Make good decisions, and you're rewarded. Make bad decisions, and you're faced with financial uncertainties. 

Brandon, a recent college graduate from Atlanta, called into "The Ramsey Show" to discuss his situation and ask several key questions about what to do with his money next.

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To set the table, Brandon earns approximately $2,700 per month from his day job in addition to $72,000 per year from a business he started. 

He has $31,000 in student loan debt and a $33,000 car note. 

But that's not all: He also has $60,000 in the bank from his side business. Once hearing this, Ramsey begins to share his advice.

"Pay off your truck," he said. "Today."

While that sounds easy enough, Brandon is a bit hesitant to spend half his savings from the business to pay off the truck. He's concerned about the impact that could have on the future growth of his company.

"I want the business to grow, not be like oh, you have $30,000," he said before trailing off. 

Ramsey then explained the situation in simpler terms. 

"You grew it from nothing, brought in $72,000 and netted $60,000," he said. "So do that again."

Ramsey ended the call by telling Brandon to use his savings to pay off both his student loan and car loan within the next 2½ months. 

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A Common Problem For A Common Situation

While Brandon may be in better financial shape than many, thanks in large part to his two incomes, it doesn't mean he's without questions. 

Deciding how (or whether) to use savings to pay down debt is tricky. There's no one-size-fits-all solution. 

One approach is to begin by assessing your financial circumstances. If you have substantial savings, you’re in a unique position to make impactful choices. 

This financial buffer can cover unexpected expenses or income fluctuations, ensuring stability without accruing new debt.

From there, turn your attention to your debts. High-interest debt erodes your financial health over time, making it a prime target for repayment. 

Compare the interest rates on your student loan and car loan. If one significantly outweighs the other, prioritize paying it off to reduce the total interest paid. 

This approach not only saves money but can also improve your credit score.

And always remember this: The psychological and financial relief of being entirely debt-free is considerable. 

If feasible, as suggested by Ramsey, paying off both your student and car loans frees up monthly income, reduces stress and accelerates your journey toward financial freedom. This move simplifies your finances, allowing you to focus on wealth-building activities without the drag of monthly debt payments.

Consulting a financial adviser can help you better understand how to tackle debt. A professional can review your situation and offer personalized advice to help you make the best possible short- and long-term decisions.

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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.

Chris Bibey has written about personal finance and investment for the past 15 years in a variety of publications and for a variety of financial companies. He is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Bibey believes the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.