Episode #126: “We have $30k of CC debt. Why did we buy a $10k timeshare?” (Part 2)

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[00:00:00] Ron: When we were down in Jamaica–

[00:00:02] Ramit: You went to a fucking timeshare presentation.

[00:00:05] Ron: We did.

[00:00:06] Ramit: Is this a joke right now?

[00:00:08] Ron: So it’s a 15-year–

[00:00:09] Cristina: Vacation club membership.

[00:00:11] Ron: It’s not a timeshare per se. It’s a vacation club.

[00:00:14] Ramit: It’s a timeshare.

[00:00:14] Ron: They did start the package off at 36,000, and because I kept saying, no, no, no, no, no, no, no, no, no, I got them down to 10,000 for it.

[00:00:24] Ramit: Wow. Bravo. You put down 5,000 while you had tens of thousands of dollars of credit card debt. Do you think that’s a good decision now that I’m saying it out loud?

[00:00:34] Ron: No.

[00:00:34] Cristina: No.

[00:00:35] Ron: So we have this club for 15 years. Prime deals on everything that Hyatt owns, I think. Premiere everything. So VIP and concierge services, better rooms, and then we get a crazy amount off of them.

[00:00:55] Ramit: Oh, the stuff you already paid $10,000 for, you get a little discount on it. Wow. 

[00:00:59] Ron: Yeah, pretty much.

[00:01:00] We said yes to go into a free breakfast. That’s what it was.

[00:01:03] Cristina: I wanted free breakfast. I didn’t know that that was going to be a timeshare presentation.

[00:01:08] Ramit: That free breakfast cost you $10,000.

[00:01:10] Cristina: I know but I think I just didn’t know how to get out of it. I felt very uncomfortable in that situation.

[00:01:17] Ramit: Oh my God. There are suckers. You two are the suckers.

[Narration]

[00:01:22] Ramit: Welcome to part 2 of my conversation with Cristina and Ron. You can check out last week’s episode for a lot of important background information on these two, but let me give you a quick recap. She’s 30. He’s 45, and she’s frustrated that she’s the one who manages money in their relationship. 

[00:01:39] I thought that was the major problem, but as I started looking at their numbers, including their net worth of negative $47,000, I discovered they have a ton of big red flags in how they spend their money, including a timeshare, which we are going to talk about today. Now, some of you love to talk about the things that you enjoy spending money on. 

[00:02:04] For me, I have an Amex Platinum card. I like it for the lounges. Doesn’t make any financial sense, but I love it. This coming Saturday, in my newsletter, I’m going to talk about different money lenses that we can look through. A lot of people use frugality or cost. That’s the number one money lens they look through, but there’s so many more. Just remember a timeshare does not fit into any of these. Make sure you’re on my list at iwt.com/podcastnewsletter. That’s the only place you can get this material. Now, let’s get to the conversation.

[Interview]

[00:02:35] Ramit: All right. You have pet insurance? Is this for real?

[00:02:39] Cristina: We do. 

[00:02:40] Ramit: You know what? I don’t even know. Whatever. It’s fine. All right. Your car payment is a $1,000 a month. What car is this?

[00:02:49] Cristina: That’s two cars and two motorcycles.

[00:02:51] Ramit: Okay. That’s a lot of cars for two people. Debt payments. What is 450? What is this debt payment?

[00:03:02] Cristina: That’s the credit card that– 

[00:03:04] Ramit: Huh?

[00:03:06] Cristina: We have a credit card debt.

[00:03:07] Ramit: How much?

[00:03:08] Cristina: Right now about 30 of that is credit card.

[00:03:13] Ramit: $30,000 in credit card debt? How did this not come up before? Is this the minimum, 450 a month?

[00:03:20] Cristina: Yeah. There’s no interest on them right now because I balanced transfer them, but 30,000 is the whole lot of it.

[00:03:28] Ramit: Everybody sounds real calm about $30,000 of credit card debt. How come I’m the one freaking out about this?

[00:03:35] Cristina: I’m not scared of debt. 200,000 of student loan, that’s scary to me more than the 30,000-dollar credit card debt, and we’ve paid off a lot from that.

[00:03:45] Ramit: Your pet care is 500 bucks plus the 175, that’s 675 a month, plus probably some extra stuff you didn’t counter. That’s 700, 800 bucks a month for pets. 

[00:03:57] Cristina: Yeah.

[00:04:00] Ramit: Domestic help, 380. Somebody to clean your place. Is that what we’re talking about? 

[00:04:05] Cristina: Mm-hmm. 

[00:04:05] Ramit: Okay, fine. And you have a vacation– Oh my God. Do you have a timeshare? Is this a joke? What is this?

[00:04:14] Cristina: I’m going to let him take it.

[00:04:17] Ramit: What is this shit?

[00:04:19] Ron: Yeah, it is– 

[00:04:22] Ramit: Okay. What is this life insurance? Is this whole life insurance, Cristina? 

[00:04:26] Cristina: Whole and term. 

[00:04:28] Ramit: Oh my God. What the fuck? 

[00:04:29] Cristina: I know.

[00:04:30] Ramit: You’re putting 430 a month into this whole life insurance policy?

[00:04:35] Cristina: Yeah, for both of us.

[00:04:37] Ramit: That’s a lot of money.

[00:04:38] Cristina: I read it in your book. I know, but that was the time that his dad passed away. That’s like the first death that I’ve experienced and he’s experienced that’s close to us. And so we decided to get a life insurance because it scared us both. And it was a fight. And so I fought with him about it. We ended up getting it, but there’s still a part of me that’s like, did we make the right decision financially to get this life insurance? Some people say it is. Some people say it’s not. But I don’t care what other people say. What I want is what he thinks and what would be best for us. And I just felt like he gave in because I convinced him.

[00:05:22] Ramit: Tell me about that time, Ron. And I’m sorry to bring up memories of your dad passing away.

[00:05:27] Ron: At that point, yeah, it was a little hard just to have that conversation.

[00:05:32] Ramit: I know sometimes people overcorrect. You had a death in the family. You want to protect, all that stuff. I would look at what your options are in terms of getting out. You probably spent a certain amount of money on it, but I never am a fan of throwing good money after bad, especially for the next 20 years. 

[00:05:49] Insurance is insurance. It’s not an investment. It’s different. Oftentimes, it’s better to take the same money you would have put in to a whole life insurance policy and just invest it. Invest it, whether through a retirement account, or even a taxable account, and you’ll end up with way more money. Don’t fall for the sales guys talking about cash value, borrow against it, all this nonsense. That right there’s a lot of cashflow every month that you could–

[00:06:15] Cristina: Yeah, yeah.

[Narration]

[00:06:17] Ramit: Listen up. Whole life insurance is not an investment. In fact, insurance is not an investment. Insurance is insurance, and whole life insurance is a scam to fill the grubby little pockets of these insurance salespeople. Almost everyone would be better off buying term life insurance and investing the difference in all the fat fees that you would be paying this salesperson.

[00:06:40] I say almost everyone because there’s this myth that rich people can benefit from whole life insurance. But I’m rich, and I know a lot of rich people, and we’ve never been able to make the numbers work on whole life insurance. I avoid it like the plague.

[Interview]

[00:06:55] Ramit: I’m going to go out on a limb here. Ron, can I guess that you absolutely hate debt?

[00:07:02] Ron: Absolutely.

[00:07:03] Ramit: So how long is it going to take you to pay it off?

[00:07:06] Cristina: My plan is to pay off aggressively within a year or two if we find a way to make some money, some extra money that we get, since we both are–

[00:07:16] Ramit: Yeah, I got away. It’s sitting in your garage.

[00:07:22] Ron: Is it smart to do balance transfers from one credit card to another to get out of like the interest to a 0%, even though you have to pay a little bit to do it, or are giving money away at that point still?

[00:07:40] Ramit: It’s a good question. Balance transfers can be okay. They can save people a lot of money, but I will tell you that I often find people in credit card debt will do everything except making a plan to actually pay off their credit card debt. They use balance transfers as a gimmick.

[00:08:02] Ron: Mm-hmm.

[00:08:02] Ramit: Basically, how do I buy myself another 12 months. But what they don’t do, which is the most important thing, is they don’t look at their fixed costs, and go, okay, what are we eliminating? Okay. We’re going to cut $500 a month off, and it could be by, we’re going to eat out way less. We’re not going on vacation, etc., and I’m going to take all that money and automatically set it up to be transferred to my credit card bill every single month.

[00:08:34] It’s not a choice. It’s not chance. It’s math. It just happens automatically. So do the balance transfer. Don’t do the balance transfer. But what matters really is setting up an automated transfer every single month, aggressively paying off your credit card bill.

[00:08:53] Cristina: I am still at school. I’m getting my PhD. That’s why there’s such a big student loan. So after calculating the cost of the program, with all the PhD and everything, my student loan’s going to be around 250,000. I have not paid because I’ve always been in school, and then when COVID happened, there was a postponement. There was no interest. So it’s almost like I didn’t worry about it, but I will be having to pay for it in 2025, 2026. So I don’t know what to do either.

[00:09:24] Ramit: Do you know the interest rate?

[00:09:26] Cristina: The ones from the bachelors were about 3.99, or something around that. And then the ones for my graduate school and the PhD program is about seven or eight, I believe.

[00:09:38] Ramit: And any chance of income-based repayment?

[00:09:40] Cristina: I could try to apply for it. I know I was approved before, after my bachelor’s, but the difference is because we are dual income now, I don’t know how much that’s going to save me or not.

[00:09:52] Ramit: Right. Okay. Why don’t you find out? And also find out about any possibilities of student loan forgiveness. There are people in your program who will definitely be able to advise. Financial aid office, for sure. Let’s assume the worst case, where you’re not eligible for anything. The way that I would think about it would be, okay, the bulk of your higher income, it’s probably going to have to go to loans.

[00:10:18] You control how fast you pay those loans off, but I would definitely pay more on the eight, nine, 10% interest, and I would pay the minimum on the lower interest ones. Anything with a higher interest rate, high being like over seven, I want to pay that off as aggressively as possible.

[Narration]

[00:10:40] Ramit: There are often options for student loans that a lot of people are not aware of. I’ll take you back to my undergrad. When I was in school, my dad literally marched me over to the financial aid office, and he introduced me to Mary, Head of Financial Aid office. He’d been emailing with her for weeks months. I literally knew Mary by her first name. And that’s how I got to know all kinds of financial aid options that most people just don’t take the time to get to know. If you are in school, or even if you have graduated, I want you to use every resource at your disposal, including going back to your college financial aid office and asking for help. Okay, now let’s talk about this timeshare. 

[Interview]

[00:11:23] Ron: When we were down in Jamaica–

[00:11:26] Ramit: You went to a fucking timeshare presentation.

[00:11:29] Ron: We did.

[00:11:30] Ramit: Dude, you’re a finance manager. How did you sign this? Is this a joke right now?

[00:11:37] Ron: No, because I have a wife that I want to please.

[00:11:41] Ramit: Okay, so what did you sign?

[00:11:43] Ron: So it’s a 15-year– 

[00:11:45] Cristina: Vacation club membership. 

[00:11:47] Ron: Yeah, so it’s not a timeshare per se. It’s a vacation club-

[00:11:50] Ramit: It’s a timeshare. Go on.

[00:11:52] Ron: Yeah. So we get four weeks in the US. We get a couple of weeks overseas, then we get discounts over the next 15 years on stuff. 

[00:12:06] Ramit: Tell me. 

[00:12:07] Ron: And I’ll say, in our defense, they did start the package off at 36,000 for this package. And because I kept saying, no, no, no, no, no, no, no, no, no for five hours, and I was trying to leave, and they just kept me there, I got them down to 10,000 for it.

[00:12:23] Ramit: Wow. Bravo. Bravo. So how much did you put down?

[00:12:32] Ron: 50%.

[00:12:34] Ramit: You put down 5,000. Okay. How long ago was this?

[00:12:39] Cristina: Last year.

[00:12:41] Ron: December.

[00:12:42] Ramit: You put down 5,000 while you had tens of thousands of dollars of credit card debt. Do you think that’s a good decision now that I’m saying it out loud?

[00:12:51] Ron: No.

[00:12:51] Cristina: No. 

[00:12:53] Ramit: Okay. Some people ask, Ramit, does it actually feel good when other people realize that you were right and they were wrong? And the answer is yes. It feels great, but it also does not feel good to know that you’re now locked into payments for how many more years?

[00:13:11] Cristina: It’s 48 months.

[00:13:16] Ramit: So you have to pay $5,000 more or so.

[00:13:20] Cristina: For 48 months.

[00:13:22] Ron: But no interest. 

[00:13:23] Ramit: Wow, great. For four more years, and then what happens after that?

[00:13:27] Cristina: We just have it. I don’t know.

[00:13:31] Ramit: You have it for– what? You don’t know?

[00:13:33] Cristina: I don’t know.

[00:13:33] Ramit: Please someone tell me what happens after 48 months.

[00:13:37] Ron: So we have this club for 15 years. So we get prime deals on everything that Hyatt owns, I think. So whether it’s in the US, if it’s out of the country, we get premiere everything, so yeah.

[00:13:55] Ramit: What the hell is premiere anything? What is that? You get nuts when you get into your room? What is that?

[00:14:00] Ron: No, we get VIP and concierge services, better rooms, and then we get a crazy amount off of them.

[00:14:11] Ramit: Oh, the stuff you already paid $10,000 for, you get a little discount on it. Wow.

[00:14:15] Ron: Yeah, pretty much.

[00:14:16] Ramit: All right, so let me tell you the following. First of all, timeshares are a scam. They are never financially a good decision. You can see this because there are forums and forums of desperate timeshare owners who are trying to offload for literally pennies on the dollar. You can buy timeshare contracts for super cheap, but even still, it’s not a good decision.

[00:14:40] There are lots of different ways to take vacations on an economical level. Here’s the facts. You already signed up. Their contracts are pretty ironclad. You could try to sell it for pennies on the dollar. If it were me, I would try to sell it. Let me tell you why. This is just my personal opinion. It’s of course your money. It’s up to you.

[00:15:05] I don’t like throwing good money after bad. And what I find is that when people make a decision that they then are committed to, they really twist themselves into a pretzel trying to justify it, and oftentimes they wake up and their fixed costs are really high, and it’s on stuff they bought six years ago, and they don’t even remember why they bought it anymore.

[00:15:24] Sometimes you have to take a loss on certain things. I’ve had people on the show who bought a house they couldn’t afford. I was like, get rid of it. Just sell it. They go, we’re going to lose money. I go, yeah, you either lose it now or you’re going to lose it over the next eight years and fight every day of your life. That’s just my personal opinion. I don’t even know if you can sell, but I think what’s more interesting to me is what happened to cause you to get into that situation. Have you ever considered it? 

[00:15:51] Ron: I haven’t considered it.

[Narration]

[00:15:53] Ramit: All right, let me just break this down for timeshares. First of all, the math is extremely complicated on timeshares, and just like a casino, it always advantages the person selling the timeshare. Next, it is almost always a better decision to simply spend money on your own hotel, or Airbnb, or even rent someone else’s timeshare.

[00:16:13] You can tell. Because there are so many desperate timeshare owners, you can often get these things for a steal. Then we hear the argument that a lot of people say, if we have this timeshare, it will force us to take vacations. Are you kidding me? That’s the same argument with people buying a house. This will force us to save money.

[00:16:31] In what fucking world do you think I’m going to approve of people literally spending hundreds of thousands of dollars to force yourself to take a vacation, or to save a little money? Get your life together. If you want to take a vacation, put it on the calendar and take it. In fact, you can actually take more vacations, longer vacations, better vacations, and you can end up with hundreds of thousands of dollars more by doing one thing, one secret little trick. It’s called avoiding timeshares. Fuck you, timeshare industry.

[Interview]

[00:17:01] Ron: We said yes to go into a free breakfast. That’s what it was.

[00:17:05] Ramit: I love those sales things. I love those because you get to see really talented salespeople at work.

[00:17:11] Cristina: Mm-hmm.

[00:17:11] Ramit: My parents used to take us to them when we were kids because you get a free breakfast or a free whatever. I would just watch these salespeople at work. Of course, we didn’t ever buy anything my family literally had no money to be able to afford it, but I learned to really enjoy it. It’s a really interesting dynamic. Ron, especially, most days, you’re sitting here saying no to the things that your wife wants to do. Dinner, trip, whatever, but on this one, it’s like, fuck it, let’s go. $10,000, Hyatt, here we come. It’s interesting, right? 

[00:17:46] Ron: No.

[00:17:47] Ramit: He’s visibly uncomfortable. He’s stretching in his chair. What do you say, Ron?

[00:17:51] Ron: I didn’t want to do it. 

[00:17:54] Cristina: It’s pretty funny. 

[00:17:55] Ramit: You didn’t want to do it? Oh, she wanted to do it?

[00:18:00] Cristina: If I would say, I didn’t know what I was getting into.

[00:18:04] Ramit: Okay.

[00:18:05] Cristina: I wanted free breakfast. I didn’t know that that was going to be a timeshare presentation.

[00:18:09] Ramit: That free breakfast cost you $10,000.

[00:18:12] Cristina: I know, but I didn’t know. This is the moment I say I relied on him to make a decision.

[00:18:20] Ramit: Bullshit. Come on. Let’s be honest. All right. I don’t mind, Cristina, that– Ron has admitted. He has not been a financial partner. He’s admitted that, and I think he’s willing to make some changes, but you can’t be like, I’m the one who manages all the money day-to-day. I know all this stuff. And then like, oh, Ron, what do you think about this? Little old me. 

[00:18:39] Cristina: True. Okay.

[00:18:41] Ramit: I would say it’s not fair to put it on him if you’re the one who wanted it and drove the decision.

[00:18:47] Cristina: I think I just didn’t know how to get out of it. I felt very uncomfortable in that situation.

[00:18:53] Ramit: Let’s role play right now here. I’ll show you how to get out of it. I’ll be the aggressive sales guy. Okay. If you come to this Hyatt thing, you get an extra discount than the VIP and the concierge. We’ll even pick you up. We’ll send you a town car. And of course, you get preferential rooms, and you’ll never have to worry about where you’re going on vacation.

[00:19:07] Just think about having kids and a family. It’s so beautiful. You bring your dogs too. Of course, we’re pet friendly. And I’ll give you a special deal. I know you started. 30,000. Just for you, because you’re so special. You folks are so great. I could bring it down to 23,000. How’s that sound to you?

[00:19:22] Cristina: Sounds great.

[00:19:25] Ramit: Oh my God. There are suckers. You two are the suckers.

[00:19:31] Cristina: It does sound great.

[00:19:33] Ramit: What in the hell is happening right now here? Why don’t we flip it? You be the salesperson. You don’t have to do the whole thing. And I’ll be me. This is as recent as three years ago when I sat in a sales presentation and watched. Go ahead.

[00:19:45] Cristina: Okay, baby, you do it because you do this.

[00:19:47] Ron: No. This for you. You wanted this thing.

[00:19:50] Cristina: We have a timeshare. Really great. You have VIP, premier discounts. You have a concierge, and you’ll have a great time.

[00:20:03] Ramit: Oh, that sounds really great. I appreciate it, but I think we’re going to pass. Have a nice day.

[00:20:11] Cristina: He literally even walked out. And I said to Ronnie, you take care of this. Literally, there was a moment I said, I got to take a business call. I walked out of the room.

[00:20:23] Ramit: I don’t even know what to say. It’s so American that, actually, I’m speechless, to not want to make somebody uncomfortable, so you just signed over a 10,000-dollar contract instead of being like, not interested. Bye.

[00:20:45] Cristina: Yeah.

[00:20:46] Ramit: What the hell?

[00:20:47] Cristina: Yeah.

[00:20:48] Ramit: All right. Listen. Luckily, it was only $10,000. And your stupid whole life insurance policy, which is another fucking scam that you fell for. Can I just say, it’s really important that the two of you build the skill of saying no together? 

[00:21:05] Cristina: Okay.

[00:21:06] Ramit: Because the world will come after you to take your money.

[Narration]

[00:21:10] Ramit: All right. When I was a kid, my parents loved timeshare presentations. They loved it. Why? Because they sit there for two hours knowing full well that they’re not going to buy anything. They can’t afford it. But they get a free gift. So one day, as a little kid, my dad’s very excited. Hey, everybody, get in the van.

[00:21:28] We’re going to a presentation. So we go there, and they sit there for an hour and a half, two hours, and they get that cardboard breakfast, and they have to listen to the– does that sound like that’d be something you’d be interested in? And my dad just smiles. Literally, there’s no universe in which he was going to sign a single thing.

[00:21:48] By the way, which is exactly how I feel. I find it so comical that people are afraid they’re going to trip and fall and sign for $200,000. I’m like, in what world? But obviously, it happens. So my dad comes out of the presentation with this box in his hand. He’s got a pep in his step. He’s excited. We go, dad, what’d you get?

[00:22:11] He goes, we got a grandfather clock. We drove two hours with the entire family for him to sit in this presentation with my mom, and then we get a grandfather clock. We said, wow, okay. That’s actually pretty cool. A grandfather clock for our house. We get home, he pulls out the box, opens it up. The grandfather clock, literally– let me show you how big it was.

[00:22:31] It was this big. We thought we were getting a six-foot grandfather clock made of oak. We got a plywood piece of crap that was this big. That thing sat in our house for years. First of all, props to my dad who just loved it. He loves that story. I love it because I love the chance, as I got older, to sit in those rooms and watch these salespeople at their craft.

[00:22:57] Now, do I respect them? They’re definitely going to hell, but I like to watch their sales techniques. And I will say, occasionally I speak to couples who just constantly get taken advantage of. Constantly. And at first, I feel sorry for them, but then it just happens over and over, and I realized they also play a major part in it. It’s not like they’re innocent does walking through the world. They literally hand over their credit card repeatedly and then rationalize their decisions. Cristina and Ron have yet one more example of this. Listen.

[Interview]

[00:23:29] Ramit: I’m telling you right now. You make $200,000 plus. Everybody’s going to come after you. Financial advisors charging 1.45%. Whole life– do you have that too? What’s that look on your face, Cristina? How much do you pay your financial advisor? You don’t know.

[00:23:45] Cristina: I don’t know.

[00:23:45] Ramit: Is this a joke? How did this not come up in the prep? What the fuck is– all right, let’s get into this then. All right. So just 1, 2, 3. You got the whole life insurance. You got the timeshare, and you got the financial advisor charging AUM. You are the trifecta of Americana. The two of you, the more money you make, the more you are giving away in fees every single day. 

[00:24:10] And one day, you wake up. Whoa, the American dream, what happened? The American dream got stolen by Wall Street, and the two of you let it go with a big old smile on your faces. How much is the financial advisor– are they managing all your investments?

[00:24:26] Cristina: I don’t do investments. The Roth IRA is with them, and the life insurance is with them.

[00:24:31] Ramit: Of course, the life insurance is with them, which is why they’re a salesperson.

[00:24:35] Cristina: There were a friend from high school that I met up with and told me that they were a financial advisor. And I was like, great. Help me.

[00:24:44] Ramit: Ron. What are you hearing when you hear this?

[00:24:50] Ron: That if it sounds good, she’s going to go with it.

[Narration]

[00:24:53] Ramit: How many of you would trust your high school friend to manage your money? Half of you wouldn’t even trust your high school friend to cut your hair. I’m going to do an entire episode about paying a financial advisor a percentage-based fee, which you should never do. Stay tuned for that soon. And if you have any crazy stories about paying 1.5% AUM to a financial advisor and finally discovering it, send it to me on Instagram DMs. You know I love these stories. 

[Interview]

[00:25:19] Ramit: All jokes aside, I think what I’m really noticing is that at the beginning of this call, there was this dynamic that Cristina is in charge of money, and Ron is this hapless guy. He’s just not into money, so Cristina does it. And truthfully, what I’m really hearing is that both of you are not especially savvy with money.

[00:25:42] And that’s okay, that you haven’t made huge mistakes yet. But I’m concerned for you. And all jokes aside, I don’t want you to get taken advantage of by financial advisors, whole life insurance salespeople, and timeshare salespeople. I don’t. So the way that I would look at it, if I were the two of you is, gosh, we’ve almost been battling each other for years on this, and what we need to do is realize that it’s got to be the two of us against the world. 

[00:26:14] That’s the way to look at this. If you two work through my book together, I would recommend you get the book, get the journal, do a six-week thing, six-week program. Each week, the two of you read it. You put your questions and notes in a Google doc and alternate who leads the conversation. Oh, bank accounts. I’ll take this one. You take that one. You two are going to be so much smarter and more confident with your money. 

[00:26:42] And I think, I’m just going to fast forward to the end, what you will realize is that you need to fire your financial advisor, who’s not really an advisor. They’re a salesperson. You need to get out of that whole life insurance. If I were to go look through it all, I’m confident that’s the conclusion I would come to. And this timeshare, if you can get rid of it, I would hopefully get rid of that.

[00:27:06] I would then take the money that I saved and put it all towards credit card debt. I would get extremely aggressive. Now I understand why the two of you seemed so calm about the credit card debt. And the answer is that you don’t really understand the implications of this debt. If you can’t pay this debt off quickly, it will stay with you for five or 10 plus years.

[00:27:34] Cristina: Yeah.

[00:27:37] Ramit: Any reactions to that?

[00:27:39] Cristina: A lot. Yeah.

[00:27:43] Ramit: Ron?

[00:27:45] Ron: Yeah, just hearing you talk about it, man, it’s a slap in the face to see some of the decisions we’ve been making and the money we’re just wasting.

[00:28:00] Ramit: Yeah.

[00:28:02] Ron: You said it’s better to take a loss right now than to have that loss follow you, and you’re paying it off for years and years. So just cut it and be done. Makes sense.

[00:28:17] Ramit: Yeah. There’s a sense of freedom, and there’s a sense of agency about being decisive. Yeah, we made a mistake. We were new. We weren’t paying attention. We weren’t aligned, but we caught it. We got rid of it. Sure, we took a little bit of a loss, but we’re not going to make that mistake again. Something very powerful about exerting control over the world instead of letting the world exert its control only over you.

[Narration]

[00:28:42] Ramit: Here are my observations. Number one, we learned that Cristina, who was painted as the responsible money manager in part 1 is honestly just as in the dark as Ron is. And that false confidence in her abilities has led to some really bad spending. And then Ron, who’s very quick to defer to her, he’s starting to get empowered to make hard decisions for the benefit of himself and Cristina.

[00:29:12] Now let’s zoom back out because they’re going to have to make some difficult decisions. But why? One of the things I like to do is to show people why they have to make these difficult decisions. In other words, what do they get?

[Interview]

[00:29:26] Ramit: So if it were you two– well, it is you two. What do you want to do with your money?

[00:29:35] Ron: I want to be smarter with it. I want to save and invest more.

[00:29:38] Ramit: Okay. How much more?

[00:29:45] Ron: The life insurance is 400, and then this vacation club is another 100, so at least putting that extra 500 into investments or savings, even if it’s split up, or if it’s split 60-40, 70-30, whatever it is.

[00:30:03] Ramit: I like that. All right, good. What else? Let’s go back and forth. Each of you give me one thing and then go back and forth. What else would you do?

[00:30:12] Cristina: I want to, yeah, lower our fixed costs as much as possible, and then increase our investments.

[00:30:21] Ramit: Okay. What do you want to lower on your fixed costs?

[00:30:23] Cristina: I really want to lower our car payment.

[00:30:27] Ramit: Okay. How do you want to do it?

[00:30:29] Cristina: Sell the motorcycle.

[00:30:32] Ramit: How much can you get for these two motorcycles?

[00:30:37] Ron: Oh man, it’s so hard to say. We already know we’re selling the more expensive one. 

[00:30:43] Ramit: How much are you going to get? 

[00:30:47] Ron: Realistically, depending on when we actually sell it, if I sell it now, it’s towards the end of the season. I might only be able to get eight for it. If I wait until the next season, when it starts, I can probably get like 10 for it.

[00:31:02] Ramit: How do you make that decision? Should you do it now, or should you wait?

[00:31:07] Ron: Obviously, I want to get the most for it. We’re in the Midwest. It’s coming down to that time where the weather is just starting to turn.

[00:31:17] Ramit: How do you make the decision?

[00:31:20] Ron: Shoot or get off the pot.

[00:31:22] Ramit: I say take the money immediately. That would be my approach. I would be like, there’s a fire. We’re going to move fast. Even if we’re not getting a 100% perfect, we’re just moving. We’re executing. What do you think about that?

[00:31:40] Ron: I guess some money is better than no money. 

[00:31:41] Ramit: Bingo. Bingo. Whether you are making 6k, 8k, 10k, in the grand scheme of your overall income, how much does a 2k difference matter to you?

[00:31:55] Ron: True.

[00:31:56] Ramit: It’s 1%. 

[00:31:57] Ron: Okay.

[00:31:59] Ramit: Don’t agonize, and don’t think small. Cristina, any comments or questions on that? 

[00:32:03] Cristina: Uh-uh.

[00:32:04] Ramit: All right. What’s next? How else? Oh, you’re going to take that– let’s just say you end up netting 6k. What are you going to do with it?

[00:32:11] Cristina: Pay off the credit card.

[00:32:14] Ramit: Yeah. Put that towards the credit card immediately. What else do you want to do? Got to cut this fixed cost down.

[00:32:24] Cristina: I don’t know. You already said we’re going to get rid of the life insurance and the vacation club membership.

[00:32:30] Ramit: Yeah.

[00:32:32] Cristina: Yeah. There’s nothing else.

[00:32:35] Ramit: Okay. All right, so that actually will make a pretty big difference, honestly. You throw the $6,000 right at the credit card debt. Amazing. You get rid of this 430 a month of whole life insurance. Where does that go?

[00:32:53] Ron: Investments or savings.

[00:32:56] Ramit: All right. This is where it’s like a chef. It’s like, how much salt do I want to put in my dish? How much do I want to put towards these high-interest student loans? How much do I want to make sure that I’m contributing jointly to our investments? There’s no perfect answer. Over time, you’re going to start to see certain things. For example, when you pay off your cars, which is going to free up a ton of money every month, remember this. Don’t get a new car for a long time. Drive that for as long as you can because can you imagine having an extra $1,000 a month right now?

[00:33:31] Cristina: Yeah. 

[00:33:33] Ramit: So imagine, when you have these costs that just stop, wow, you get the chance to redirect it to something you care about, like investments, or savings, or debt payments.

[00:33:43] Cristina: Yeah.

[00:33:44] Ramit: But let me just give you an example, Ron. In the stock market, we can safely assume that over time you make about 7 to 8 % per year, roughly. When your credit cards start charging you interest, they’re going to charge 26.99%. So where do you want to put more money?

[00:34:00] Ron: Credit card.

[00:34:01] Ramit: Exactly.

[00:34:02] Ron: Pay that off before we start investing more.

[00:34:05] Ramit: Exactly. And the good news is with your income, you can actually do it. You can actually get really aggressive, but what you can’t do is only pay the minimum.

[00:34:13] Cristina: No.

[00:34:16] Ramit: All right. So you got 430 a month going now towards 24,000. That’s good. Plus the 450 you’re already paying. Your vacation club membership, let’s see if you can even get out of that. I hope you can. Maybe that frees up an extra a 100 bucks a month. If you were able to get the credit card debt, done. If you get rid of your time shares, and whole life insurance, and financial advisor, all those need to go, you can invest on your own. You have a very simple need. Or if you need to get a financial advisor, pay an hourly rate. That’s the way to do it. I’ve even done that myself when I’ve had a financial advisor look over my investments.

[00:34:59] Ron: Okay.

[00:35:00] Ramit: Really, what it is beneath all the numbers is the two of you working as a team and learning how money works so that you don’t get taken advantage of again and again and again. The craziest thing about getting taken advantage of in America by financial companies is you don’t even know you got taken advantage of. Do you realize it? The way you described it, you go whole life insurance. It’s a gift. Timeshare, VIP. We have a concierge. It all actually is sold to you as sounding good. Meanwhile, they are just taking your money for things that you could get for a 10th of the price somewhere else.

[00:35:43] Cristina: Yeah.

[00:35:44] Ramit: Leaving the two of you to fight over a dinner out.

[00:35:50] Cristina: Yeah.

[00:35:52] Ron: Sad to hear.

[Narration]

[00:35:54] Ramit: Notice what’s happened so far. We’ve gotten all their expenses out on the table. We’ve established they’re spending way more than they ever realized, and that candidly, they make poor financial decisions. Now they are starting to realize the seriousness of the changes they have to make. And I will say, it’s not enough to leave people like this.

[00:36:14] Okay. Yeah, right now, it’s catastrophic. Things are bad. I want to give them a vision of why they are making these changes. Remember, people aren’t logical. They’re not rational. They rarely make big changes with their money simply because it’s the right thing to do. People need a vivid reason to make a change. And specifically, I’m going to get Ron involved in that vision.

[Interview]

[00:36:36] Ramit: The good news is that you can change it, but it’s going to require the two of you together. Let’s play a game of another couple, dual income, no kids. They earn the same as you two. They live in a similar city. What do they do with their money differently than what you two do?

[00:37:03] Ron: Wow, they’re probably having a lot more fun. They’re probably traveling, probably happy, enjoying life together.

[00:37:15] Ramit: Tell me more. Are they talking about it?

[00:37:22] Ron: If they’re smart, they are.

[00:37:24] Ramit: Okay.

[00:37:24] Ron: Just budgeting how they’re going to plan a couple of vacations, two vacations for the year. If the wife wants to go get a bag a new purse or something like that, whatever her thing that she’s into, she goes and does that without any worry on what the husband’s going to say, and vice versa. He can go do what he wants without–

[00:37:48] Ramit: I like it. How often are they talking about money?

[00:37:53] Ron: Probably twice a month. Once in the middle of the month. Once at the end of the month.

[00:37:57] Ramit: Nice. What’s the tenor of those conversations?

[00:38:01] Ron: Just going over what they have in their accounts and just saying, oh, this was a good month. This is how much we earned. We had a really good month.

[00:38:10] Ramit: Good means what?

[00:38:13] Ron: Good means that they’re able to enjoy that month. They’re able to just not stress and worry about going out to dinners and going away for a weekend.

[00:38:27] Ramit: Okay, this couple earns a similar amount as you two. Do you think that a couple who earns the amount you do should have to worry about a dinner out?

[00:38:38] Ron: No.

[00:38:39] Ramit: Let’s say, in those conversations, that not everything goes right. They overspend on something. How do they handle that? 

[00:38:48] Ron: I would say that they say, okay, we spent a little bit too much last month. This month, we should really just watch it if we’re planning on taking a trip later on the year. No shopping sprees, or maybe just one dinner this month, or something like that.

[00:39:03] Ramit: I really like that. There’s a sense of ease I’m getting from you right now, Ron. It just feels very calm. Yeah, something happened. Okay. We noted it, write a little note to ourselves, and we’ll fix it next month. And we’re partners. High five. You hear that?

[00:39:22] Ron: Yeah. That’s the way that I want to be.

[00:39:25] Ramit: Okay. Cristina, what do you notice about Ron’s example as he went through each of those scenarios?

[00:39:32] Cristina: He sounded calmer. To me, hearing him talk like that, it sounded like I can approach him.

[00:39:42] Ramit: Approachable.

[00:39:44] Cristina: Yes.

[00:39:47] Ramit: I like that. I think we can work with that. What do you notice about that example, Ron?

[00:39:57] Ron: That they’re probably happy.

[00:40:03] Ramit: I think so. What else?

[00:40:08] Ron: Comfortable. They’re synced.

[00:40:14] Ramit: They’re synced. They’re connected. They’re connected. Yeah, I love that. And you know what’s interesting? The two of you can be connected about money, even though you see it totally differently. You can be. Culturally, the two of you are totally different. You’re still connected, right? 

[00:40:33] Ron: Mm-hmm.

[00:40:33] Ramit: You grew up in different countries, different family structure, but you’re married, and you’re connected. That’s even more extreme than money. Yeah, you see money differently. That’s probably not going to change for some of the big things. That’s okay. But you can still connect, and you can actually still have fun, still spend a little bit on the things you love, still save. All those things are possible.

[Narration]

[00:40:58] Ramit: Let’s check out Cristina and Ron’s follow up video.

[00:41:00] Cristina: What surprised me from our conversation was how open Ronnie and I were, and how we were able to quickly work together and figure out our next steps.

[00:41:14] Ron: I guess what surprised me was seeing or hearing how much money we actually make.

[00:41:24] Cristina: The best thing I learned was maybe the idea of working together as opposed to working against each other, and honestly, getting that call of, yeah, we’re not savvy with our money, and we need to learn together and make these decisions together. 

[00:41:45] Ron: Yeah. I learned that I need to be more hands-on with making the big decisions of how we’re going to spend our money, how we’re going to save our money for the future.

[00:41:59] Cristina: So the few changes we’ve made is we definitely canceled the life insurance. That’s gone. We’ve also lowered some of our fixed cost. Like our phone bill, we actually were able to lower, so we’re able to save some money, and now we’re going to use that to invest and pay some of our credit cards.

[00:42:19] Ron: I put the motorcycle up for sale, so now we’re just waiting to get a couple of bites on it so I can sell it and use that money to pay off some of the debt. 

[00:42:29] Cristina: We appreciate all your help, and we want to thank you for having us and talking to us. 

[00:42:35] Ramit: Cristina and Ron, I want to thank you for coming on this podcast and having these conversations with me for all of us who are watching and listening. It is so rare that we get a chance to listen in on real couples, including their real numbers and how they think about money, and talk about money, and even disagree about money.

[00:42:53] So thank you, Cristina and Ron. Thank you, every guest that’s come on this podcast. If you are interested in learning more about money psychology, every Saturday, I release a newsletter where I share material you will not find anywhere else. You can get it at iwt.com/podcastnewsletter.