Debt Elimination Question

[Treeshark]

paying off debt is a high level idea

Yes. To many people, it is.

Bring this full circle to the thread creator- he is about to retire and asking for advice on which to pay off: a student loan or a camper that he’s admittedly under water on. This is not a great financial place to be. No disrespect to the OP intended at all, Im thankful he posted- but it does illustrate why Dave Ramsey (the brand) exists and has the following that he does.

 

[VikingsGuy]

- 20% down is a goal to avoid PMI, not necessary just saves you from paying insurance for the bank. Keeping the payment at a reasonable % of your income is way higher on the list when I’m talking to people

If you have 20% cash down on day one then I agree. But if a person defers homeownership for years trying to save up to 20% the lost leverage growth and wasted rent will typically cost a person far more than mortgage insurance (which you can drop when you get to 20% equity). But I agree - the real message is to not become "house poor". But in my view, large down payments are not a great way for new families to achieve the goal.

 

[Deleted member 28227]

i think that may be out of context.

basically when some 26 year old making to 50 grand a year comes to dave ramsey and is like "i'm drowning in hundreds of thousands of dollars in student loans and credit card debt and a new truck loan and i'm not sure how to fix my situation because i'm on the road to bankruptcy" dave ramsey is like "okay dumbass we need to practice extreme discipline."

that's not his blanket advice for every person of every persuasion.

a lot of his advice is how to teach discipline and get out of debt you probably shouldn't be in. not necessarily how to live for the rest of your life.

Point I'm making, those people don't necessarily realize that... and then use that 'approach' as a paradigm for everything.

@TN2shot07 here's my point, well disciplined use of credit cards is a great way to save money. Understanding and using rewards to your benefit can literally save you thousands a year. Ramsey's argument is that you over spend and get into debt. That's akin to saying you shouldn't buy a gun because you might shoot yourself. Sure thousands of people do kill themselves with guns, but do you think we should stop having firearm conversations on Hunt talk? Does that mean that people with discipline shouldn't use them?

Also Ramsey literally has a envelopes of money plan, there is a whole website for it.

All financial advice needs to be tailored to a specific persons situation, I agree with the high level ideas like I said but his mechanism do not account for the realities of life. His student loan section for instance makes zero sense except for a small subset of folks.

 

[Lilhowie83]

I'm always amazed at the hate *Hitler* gets. You nitpick the details but it'd be hard to argue that it...

Yeah the details are the entire point, that's what makes it's bat shit crazy and unreasonable. How you get from not having piles of credit card debit to envelopes of cash under your mattress is beyond reason.

No credit cards
No debit cards
No debt
Paying in cash
Having envelopes of money all over your house
20% down on a house in the current market

again...


paying off debt is a high level idea

Advocating, no convincing people, that using the banking methods of a drug dealer is so stupid it's beyond belief.

I usually like about everything you say @wllm13, but I think you are the one who has gone bat shit crazy on this. Never once have I heard Dave Ramsey say to keep piles of money under your mattress. And he doesn't say to not use debit cards.

What is wrong with using a debit card instead of a credit card. And don't tell me reward points on your credit card.

Also what is wrong with paying 20% down on a house?

 

[VikingsGuy]

That's akin to saying you shouldn't buy a gun because you might shoot yourself. Sure thousands of people do kill themselves with guns, but do you think we should stop having firearm conversations on Hunt talk? Does that mean that people with discipline shouldn't use them?

OK - in the last 11 posts you have invoked both Hitler and gun control. Just so I can plan ahead, which will you draw parallel to next? Mask mandate? Roe vs Wade? or White Privilege?

 

[Deleted member 28227]

If you have 20% cash down on day one then I agree. But if a person defers homeownership for years trying to save up to 20% the lost leverage growth and wasted rent will typically cost a person far more than mortgage insurance (which you can drop when you get to 20% equity). But I agree - the real message is to not become "house poor". But in my view, large down payments are not a great way for new families to achieve the goal.

Exactly.

So scenario, newlywed couple, they each make 75K, they live in an expensive area (is what it is). Rent is $3000, a 30 year mortgage on the same place is $2200 with 2% down.

What's the play?

 

[TN2shot07]

If you have 20% cash down on day one then I agree. But if a person defers homeownership for years trying to save up to 20% the lost leverage growth and wasted rent will typically cost a person far more than mortgage insurance (which you can drop when you get to 20% equity). But I agree - the real message is to not become "house poor". But in my view, large down payments are not a great way for new families to achieve the goal.

100% agree - don’t put off a house more than a year or two to save a down payment if the rest of your financial picture is in order

Point I'm making, those people don't necessarily realize that... and then use that 'approach' as a paradigm for everything.

@TN2shot07 here's my point, well disciplined use of credit cards is a great way to save money. Understanding and using rewards to your benefit can literally save you thousands a year. Ramsey's argument is that you over spend and get into debt. That's akin to saying you shouldn't buy a gun because you might shoot yourself. Sure thousands of people do kill themselves with guns, but do you think we should stop having firearm conversations on Hunt talk? Does that mean that people with discipline shouldn't use them?

Also Ramsey literally has a envelopes of money plan, there is a whole website for it.

All financial advice needs to be tailored to a specific persons situation, I agree with the high level ideas like I said but his mechanism do not account for the realities of life. His student loan section for instance makes zero sense except for a small subset of folks.

If I’m trying to help somebody get out of debt and they use a credit card I would highly recommend removing the temptation. The same way if somebody was trying to lose weight, clean the snacks out of the cabinet. Anything can be used in moderation and with discipline for the benefit. Comparing it to a gun argument is ass backwards, the ratio of people who accidentally shoot themselves is closer to the people who responsibly use credit cards.

The envelopes are designed to help with certain areas of a budget where people struggle, not for every dollar you spend. (I.e. budget $100 cash for restaurants and when it’s gone you’re done eating out that month)

 

[ignorethefringes]

Exactly.

So scenario, newlywed couple, they each make 75K, they live in an expensive area (is what it is). Rent is $3000, a 30 year mortgage on the same place is $2200 with 2% down.

What's the play?

Pay off any debt with an interest rate above 5%, save your new monthly excess to get 2% again, buy the house, save money, refinance in 3 - 6 years (depending on appreciation) at a lower LTV, rent the house out , buy another house with 2% down, save money, refinance in 4 - 6 years, rent the house out, so on and so forth.

Edited to add: stay away from credit card debt that lasts more than 1 month the whole time. But use a CC to wrack up rewards points while paying it off every month. Use a budget to track spending and be diligent.

 

[TOGIE]

Exactly.

So scenario, newlywed couple, they each make 75K, they live in an expensive area (is what it is). Rent is $3000, a 30 year mortgage on the same place is $2200 with 2% down.

What's the play?

i'm not arguing one way or another, but in my wife and i's experience trying to buy a house this year we were faced with pretty much any single family home, from dumpy to new, and about 2000 to 2300 square feet was going to be anywhere from like 900 to 1500 more per month compared to our rent, with 20% down.

we have the down payment, but so many of my friends were like "bro with rates right now you'd be better off doing 10% and putting the rest in the market or something"

i'm like bro, spending 3200 a month on a mortgage makes you house poor, i don't care who you are, unless your combined income is like 250K plus.

each one's definition of house poor may be different too. depends on your lifestyle.

i'd rather have less cash after closing and a more manageable mortgage. extra cash month to month in the budget is invaluable if you can manage it. having a mortgage that practically makes you live paycheck to paycheck is categorically irresponsible.

 

[TN2shot07]

Exactly.

So scenario, newlywed couple, they each make 75K, they live in an expensive area (is what it is). Rent is $3000, a 30 year mortgage on the same place is $2200 with 2% down.

What's the play?

If you can afford the $3k rent anyway then look at a 15 year mortgage. Better rate and build equity way faster

 

[Deleted member 28227]

I usually like about everything you say @wllm13, but I think you are the one who has gone bat shit crazy on this. Never once have I heard Dave Ramsey say to keep piles of money under your mattress. And he doesn't say to not use debit cards.

What is wrong with using a debit card instead of a credit card. And don't tell me reward points on your credit card.

Also what is wrong with paying 20% down on a house?

1.
a. Fraud is high, credit cards will refund 100% of fraudulent purchase. Debit cards it depends on your institution, I've seen 100% and as low as first 1,000. Credit cards will also automatically refund you and then just issue a new card and look into the incident. Debit cards won't reimburse you until the case is settled, (this was my banks policy in CO and why I stopped using the card)
-Bottom line someone stole their money not yours-
b. cashflow, just makes it easier if you get paid once a month instead of every two weeks or whatever.
c. rewards, I don't know about you but I have fixed expenses every month and it's equivalent to a 2% reduction on my bills
d. credit score, this has a real impact on interest rates you get to buy a home
e. various card perks, plane tickets, extra travel insurance, etc.

2.
Envelopes, I'm being hyperbolic, but yes it's real it's literally keeping your budgeted money in cash in your house.

How to Budget With the Cash Envelope System

How to Budget by Cash Stuffing Envelopes

www.ramseysolutions.com

3.
20%, nothing is wrong with it. But like the example above waiting to hit 20% is not always a good call. Also I'm not sure if 20% is realistic for folks in many housing markets.

 

[ignorethefringes]

If you can afford the $3k rent anyway then look at a 15 year mortgage. Better rate and build equity way faster

I'll throw out there that I disagree with this for one reason, excess monthly cash flow. If you're the kind of person seriously considering a 15 year mortgage, take the 30 year and sock away cash/investments and let it appreciate. Then make extra principal payments once or twice a year and you can still pay off your mortgage in 15 - 25 years (depending on the extra principal paid). But you have access to extra cash if needed for emergencies or a good opportunity.

 

[Deleted member 28227]

Comparing it to a gun argument is ass backwards, the ratio of people who accidentally shoot themselves is closer to the people who responsibly use credit cards.

It doesn't matter, it's the same principle. You can couch it as credit cards can lend to over spending, but that's a separate conversation.

Just like guns you aren't arguing the efficacy of the device you are arguing about human psychology.

 

[TN2shot07]

It doesn't matter, it's the same principle. You can couch it as credit cards can lend to over spending, but that's a separate conversation.

Just like guns you aren't arguing the efficacy of the device you are arguing about human psychology.

I think we’ll just have to agree that we disagree on finances, no hard feelings.

As someone posted above I also generally respect your posts but we are headed down different paths on this one.

 

[Deleted member 28227]

I think we’ll just have to agree that we disagree on finances, no hard feelings.

As someone posted above I also generally respect your posts but we are headed down different paths on this one.

Honestly, I don't think we disagree on finances. I'm very fiscally conservative.

What we are disagreeing on is the idea that I don't think one should conflate what's best for any particular individual and what's the most accretive if used properly.

There are several individuals in my life who I would take a very David Ramsey approach with, there are other people in my life who I have conversations about investing in cryto with... they have VERY different circumstances and therefore what makes sense for one doesn't make sense for the other.

 

[TN2shot07]

Honestly, I don't think we disagree on finances. I'm very fiscally conservative.

What we are disagreeing on is the idea that I don't think one should conflate what's best for any particular individual and what's the most accretive if used properly.

There are several individuals in my life who I would take a very David Ramsey approach with, there are other people in my life who I have conversations about investing in cryto with... they have VERY different circumstances and therefore what makes sense for one doesn't make sense for the other.

Fair enough - any true financial discussion with someone should be aimed toward that particular situation and circumstance.

That didn’t come across in most of your argument. It was more you degrading pieces of a plan you don’t necessarily believe in…

 

[Deleted member 28227]

Fair enough - any true financial discussion with someone should be aimed toward that particular situation and circumstance.

That didn’t come across in most of your argument. It was more you degrading pieces of a plan you don’t necessarily believe in…

I do hate cash

 

[TN2shot07]

I do hate cash

I’m a redneck and always have a pocket full

 

[Deleted member 28227]

I’m a redneck and always have a pocket full

I don't think I've had more than $20 in pocket more than a couple of days since 2008.

* I did go 2 full years without a single dollar.

 

[VikingsGuy]

If I’m trying to help somebody get out of debt and they use a credit card I would highly recommend removing the temptation. The same way if somebody was trying to lose weight, clean the snacks out of the cabinet. A

Actually, studies show that artificial "denial" doesn't work for long-term weight loss - there is a huge rebound effect. I would guess the same is true for stark financial approaches.