Dave Says - October 26, 2010 (Dave Ramsey)

I was wondering if I should save up three to six months of expenses, Baby Step Three, before I pay off my debt with the debt snowball – Baby Step Two. I’m self-employed and work on a contract basis. My current contract will be up in a few months, and I’ll have to find another contract.

In a sense, you’re going to be laid off in a few months. I think it would be wise to prepare for that in advance.

Just paying the minimum payments on your debt for now, and saving up three to six months of expenses, would be one way to plan for that event. However, the day you get your next contract, I want you to take that emergency fund back down to $1,000, because you’ll have gotten your stability back at that point. The good news is that you have a little while to be looking for another contract. That’s a luxury not many people have when they lose a job.

After you bring your emergency fund back down, I want you in attack mode on the debt snowball. Every extra dime you can find needs to go to paying off debt. Sell some things if you have to, but get out from under that debt as soon as you can!

I requested a copy of my credit report, and noticed there have been several instances where companies have asked for a copy of my report. I was under the impression that this could only be done if you were applying for credit.

Under the Federal Fair Credit Reporting Act anyone with a valid business reason can check your report with, or without, your permission. Some employment applications even state they will be pulling a copy of your report as part of their screening process.

It sounds to me like you’ve gotten a bunch of marketing inquiries. That's why your mailbox – like most – is full of unsolicited credit card and home equity loan offers.

But here’s the good news. You can put a block on your bureau for unsolicited marketing inquiries. This prevents companies from searching your bureau for the sole purpose of offering credit you didn’t request!

My fiancé and I are looking to buy a house a couple of months after we’re married. We’ve saved about $50,000 toward the down payment, and the payments on the house we like would only be $202 a month on a 15-year mortgage. Does this sound like a good idea?

You guys have done a great job saving up all that money. But I think newly-married couples should wait at least a year before buying a house. In that first year of marriage you’ll get to know each other even better than you do now. It will also give you time to figure out just how far away from your in-laws you want to live!

Spend the first year loving on each other, and mapping out a plan for your lives together. You can save even more money in the meantime, and if you’re lucky, you might be able to pay cash for that first home when time rolls around.

Don’t fall into the trap of thinking you have to run straight to the real estate office right after you slip the rings on each other’s fingers. That’s a mistake lots of young couples make, and end up regretting it later!

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In normal times I’d agree with Dave about the house buying.

But these are not normal times. The question is which “abnormal” are we in now.

Housing prices are very low. And it seems likely they are about to move, one way or another. I wouldn’t expect them to stay where they are.

If they are going to move lower, then it’s great to wait.

But if they are starting to move higher, it is likely they will move a lot faster than a new couple can save up money; also, the interest rates could shoot way up, making it much more expensive even for the same priced-property. Interest rates right now are at historic lows.

So I’m not sure I’d wait to buy a house, if I had the money to do so now, and was relatively certain of staying in an area. I would expect that within 5 years you will be able to unload a house for what you pay for it today, and with a payment of 202 a month, they’d be spending a lot less than they will to rent a home.

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