Carrying $74,000 in consumer debt at rates well above 7% while contributing to a 529 account produces a guaranteed loss in real purchasing power.

Personal finance expert Dave Ramsey makes the case for paying off debt before contributing to a college-savings fund.

Children who observe parents navigating financial adversity with discipline hopefully internalize those habits.

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A 30-year-old single mother carrying $74,000 in debt wants to know whether she should open a 529 college-savings account  for her 4-year-old son. Dave Ramsey had a quick answer for the caller on his popular personal finance show: Stop saving for the child entirely, and get out of debt first.

The caller earns $58,000 as a construction administrative assistant and receives $400 monthly in child support. She owes $54,000 in student loans, $15,000 on her car, and $5,000 on a personal loan. She already DoorDashes on her off-weekends and applies that income to debt.

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But she worries about not saving for her son's education. "I'm feeling so much anxiety because I feel like my student loans are so big," she said. "It makes me feel so guilty that I'm not ... able to save like more for him."

Ramsey advised that she buckle down and clear all her debt in five years. Then she can start investing 15% of her income at age 35. Under favorable market conditions, she could reach $2.3 million by age 65, Ramsey said. "When you are at his wedding, you will be a millionaire. That's where you're headed. And that's the best gift you can give him."

The underlying concept is opportunity cost sequencing. Every dollar sent to a 529 while carrying debt at consumer interest rates is a dollar that stops working against the higher-cost liability. A 529 invested in index funds might earn around 7% annually over time. A personal loan or car loan likely carries an interest rate well above that.

Ramsey's five-year debt payoff window is admittedly aggressive, but doable. If she eliminates the $5,000 personal loan quickly using DoorDash income and then rolls that payment into the car and student loans, the debt stack shrinks faster than most people expect. This is the snowball method in practice: retire your lowest balance first, then redirect that freed cash flow to the next.

Ramsey sees an important life lesson here: "As he watches you scrap and claw to get out of debt, he's gonna learn to stay out of debt when he's older because he'll remember what we went through." Children who observe parents navigating financial adversity with discipline hopefully internalize those habits. "You are investing for your son by getting yourself squared away, because as you get yourself ... out of debt and build wealth, it's going to benefit him," Ramsey said.

A 529 balance of a few hundred dollars at age 9 is far less valuable to that child than a debt-free parent who can help with college costs directly at age 18. Pausing 529 contributions for five years when the child is 4 costs almost nothing in compounding terms. And starting contributions at age 9 still leaves nine years of growth before college.

Ramsey gave the mom a pep talk: "He has a mom who is a warrior princess who knows how to fight and scrape and cause things to happen. That's going to help more than $10 a month being stuck in a savings account."

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