dave says2 300KENTUCKY (7/27/14) — This week Dave discusses hands off the 529 and finding 12 percent.

Dear Dave,

My wife and I have $25,000 in credit card debt, $2,500 in medical bills and $89,000 each in student loan debt from when we each got our masters’ degrees. We make about $100,000 combined. Our son is 6 years old, and we have $18,000 in a 529 plan for him. Should we use that money to pay off debt instead?

Sean

Dear Sean,

I wouldn’t do that if I were you. You’ll get destroyed with penalties, because if you take money out of a 529 for anything other than college, you’ll be taxed at your current tax rate and hit with a 20 percent penalty. The other thing is you’ll have this weird feeling that you took money away from your kid.

Technically, it’s your money. You put it there. But when you did, it was in your child’s name. Plus, that doesn’t really solve your problem. You’ve got a ridiculous amount of debt, and that little bit won’t move the needle very much. Having more money in your hands isn’t the big answer here. What you both need is a behavior change when it comes to money.

My advice is to leave the 529 alone. Stop adding to it for the time being. Put any retirement saving you’re currently doing on hold, too. You guys need to start living on a budget, working a debt snowball plan and looking for extra income. Even tutoring would bring in some additional cash. I’ve got a feeling, too, that those masters’ degrees can provide you with more money than you’re currently making.

It can be done, Sean, but it’s going to take a lot of hard work and discipline. It may even take four or five years to get this mess cleaned up, but you can’t keep living without a plan!

—Dave

Dear Dave,

Where can I find mutual funds with a 12 percent rate of return?

Jason

Dear Jason,

There aren’t a lot of them, but they are out there. Currently, there are about 8,000 different mutual funds floating around. You have to get online and do some serious research, or talk with an investing professional with the heart of a teacher, but I own several mutual funds that have an average annual return in excess of 12 percent over the lifetime of the fund.

Now, do they make that every single year? Of course not. The figure I’m talking about is an average. I own one in particular that has done that for about 70 years. But the stock market in general has averaged just under 12 percent a year since its inception. So yes, with solid research and due diligence on the part of the investor, it is possible to get that as an average annual rate of return!

—Dave

Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: "Financial Peace, More Than Enough," "The Total Money Makeover," "EntreLeadership and Smart Money Smart Kids." His newest best-seller, "Smart Money Smart Kids," was written with his daughter Rachel Cruze and recently debuted at No. 1 on the New York Times best-seller list. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

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