I opened a business and am suddenly making over $400k in profit – should I pay off my cars and mortgage? Dave Ramsey weighs in

When Chris from Hendersonville, Tennessee, called into The Dave Ramsey Show, he had what he described as a “good problem.” Newly married with a young daughter, Chris found himself making over $400,000 annually in his self-owned concrete business.

Despite this, he was “rich poor.” Chris and his wife had nearly $500,000 in combined debts, including their car loans and mortgage.

Let’s take a quick look at Ramsey’s recommendations for Chris’s situation, as well as some of our suggestions:

1. Start with the Cars: Pay Off Consumer Debt Immediately

Chris admitted to being “redneck rich” in his first year of success, spending freely while accumulating two car loans totaling $98,000. Ramsey suggests that Chris uses his $60,000 in savings to pay off one of the car loans and then pay off the other within the month.

Eliminating consumer debt is foundational in Ramsey’s philosophy, freeing up cash flow and reducing financial stress.

2. Focus on the Mortgage but Prioritize Stability

Chris’s $405,000 home was financed with a 5/1 adjustable-rate mortgage (ARM) at 4.25%. Ramsey urged Chris to shift his mindset:

• Treat your income like a business: Ramsey suggested living off of $100,000 annually instead of spending all $400,000.
• Prepare for uncertainty: Chris expected his income to remain high. However, he acknowledged that a recession could halve it. It isn’t completely protected. Ramsey recommended that Chris pay down his mortgage as quickly as possible to keep some financial flexibility.

3. Build Long-Term Wealth Intentionally

Ramsey didn’t just focus on debt elimination; he also painted a bigger picture. By living below his means and investing wisely, Chris could accumulate significant wealth over time. Ramsey said that he could easily have millions by the end of the story.

However, that requires financial discipline and a clear financial plan.

4. Avoid Lifestyle Inflation

Lifestyle inflation is the end of the road for many with a high income. Chris admitted that he had spent money on just about everything. Ramsey highlighted this as a pivotal moment: instead of indulging in unnecessary purchases, Chris and his wife should redirect their income toward financial freedom.

You should live far below your means, especially when you have a high income and live in a low-cost area. Keeping your expenses low ensures stability and allows you to reduce debt quickly. Many of the most successful people aggressively avoid lifestyle inflation.

Things to Learn

Having a high income doesn’t guarantee financial income; Chris’s story reminds us of that. Ramsey’s advice boils down to a few principles:

1. Attack debt with urgency, especially high-interest loans
2. Live below your means, even during times of prosperity
3. Build wealth on purpose