Ramsey debt viewpoint explained

[TheGrayRider]

If people actually paid their bills, I would be unemployed.

A large part of my practice is debtor-creditor law and collections. I have been to court over the years trying to collect from, among others,

- First-round NFL draft picks who can't pay for the carpet in their house,
- Retired full military colonels who can't pay the minimum on their credit cards,
- Convicted murderers, out on parole, whose family members or friends ran up crecit card debt during their incarceration,
- Medical doctors and chiropractors,
- Unlicensed former law students with exhorbitant student loan debts,
- Single mothers with 9 children, and on and on...

The big banks make so much profit off the unsecured credit cards that they can easily just write off a large portion of their bad debt. I won't even write about the balances I see due in Court weekly over the unpaid student loans.

Happy hunting, TheGrayRider a/k/a Tom.

 

[TOGIE]

everybody thinks they have the right answer. which really means nobody does.

daves advice, if followed, will get people to the finish line in good shape barring extreme uncontrollable circumstances. and that's all that really matters. any squabbling beyond that is just more dick measuring.

 

[VikingsGuy]

everybody thinks they have the right answer. which really means nobody does.

daves advice, if followed, will get people to the finish line in good shape barring extreme uncontrollable circumstances. and that's all that really matters. any squabbling beyond that is just more dick measuring.

Nope - his advice materially hurts many folks in real-world situations. No need to gloss over that. If the premise is save more, spend less, then yes - that is universally useful, but he takes it way way past that. He is a brand, he is an internet influencer, and as such, even if there is some good in what he says, like them all it takes to an unhelpful extreme. We don't fix financial literacy by teaching an opposite but also inaccurate approach.

 

[David658]

I have a family member that wanted to buy a house in 2018 but her husband wouldn’t agree to it because they did not have the 20% down payment that Ramsey says you must have.
They could’ve paid $120/mo of PMI, but instead they bought a house last year for twice as much money at 7% interest. But, at least they had saved the 20%

I don’t think I need to explain why buying a house in 2018 at 5% interest for $220,000, paying a little PMI and then refinancing it in 2021 for 2.75 is a better idea than having 20% down for a $525,000 house at 7% 8 years later

There is always risk. But the approach of waiting until you are ready is usually better than jumping in so as not to miss out. Understand that neither Mr. Ramsey nor you nor I can predict the stock market and interest rates.

I would say that for folks digging out, Dave's advice is about as solid as it can get. For staying out of debt, still very, very solid.

As to student loans, I have a son with well over $100K (undergrad and grad), and my wife and I have paid $70K (thankfully that's gone). He has a solid job as an occupational therapist, but his return on investment will result in loan payments into middle age at his current payoff plan. Student loans should only be taken out if there is a reasonable payoff, and no, the "college experience" is not worth one loan payment.

David
NM

 

[TN2shot07]

Nope - his advice materially hurts many folks in real-world situations. No need to gloss over that. If the premise is save more, spend less, then yes - that is universally useful, but he takes it way way past that. He is a brand, he is an internet influencer, and as such, even if there is some good in what he says, like them all it takes to an unhelpful extreme. We don't fix financial literacy by teaching an opposite but also inaccurate approach.

There’s an opportunity cost to all decisions. Right now people are retiring every single day to try and eke out a living on social security. If we can get the average person to that point in life as a millionaire but they could have had a couple more million by increasing their risk I think it’s a net positive. I think @TOGIE has it right, at some point winning is winning then at some point it’s just a dick swinging contest

 

[TOGIE]

Nope - his advice materially hurts many folks in real-world situations. No need to gloss over that. If the premise is save more, spend less, then yes - that is universally useful, but he takes it way way past that. He is a brand, he is an internet influencer, and as such, even if there is some good in what he says, like them all it takes to an unhelpful extreme. We don't fix financial literacy by teaching an opposite but also inaccurate approach.

meh. dick measuring.

dave ramsey's advice will do you just fine in life and will probably get you to finish line in better shape than even the majority of americans.

 

[SAJ-99]

There are a few differences that have to be weighed into "fair". For example, the average Polaris borrower at time of insolvency is on average older and likely has other assets at stake so is less reluctant to gleefully declare bankruptcy. In the early days of student loans it was a stated life strategy to plan to declare bankruptcy the minute you graduated - there was no reason not to. If we want to go to a Student Gift program as a policy choice, fine. But if 22 yos can all clear $100k iin debt with the flick of the pen as a part of the plan, it is not a Loan. Also, lets remember who bears the loss of default, in the snowmobile example it is Polaris. In the case of Student Loans it falls on many tax payers who didn't have the chance to go to college in the first place - a really bad policy construct and super anti-progressive.

The solution to fix our higher ed system is not to take the market pressure of studen loan debt off the table - that just hides the real problems. We need to drive systematic change about how this nation spends finite resources to develop our 18 yos for their future lives. Blowing $75k a year to get an art history degree is not a great value proposition for the student or society. We need to discount the phony market premium (unnecessary minimum job requirements) placed on bachelors degrees with no actual connection to the job at hand. We need to discout the real but stupid premium placed on the most expensive school's diplomas. We need to hack back the escalation of administrators and amenities and instead invest in professors and circiculum. We need drop the cost of higher ed and then we have to offer better financial options for those that do attend. I am pro higher ed. I am pro active govt support to develop the workforce of the future. I hate what the system is today.

Agree. I don't think student debt should revert back to like it was in the 60's and 70's which was as you described. I also don't think the government should have a blanket forgiveness on debt (don't like that it equates to buying votes, but there is a lot of that these days). But the system is broken and not working efficiently for society as a whole. Any time we see Dave Ramsey we have a large % of people that act like student debt is like leprosy. For many, not being able to take on debt for an education keeps them stuck in the economic class of their parents. If the parents can't save to pay for college or trade school, the kid loses a lot of opportunity for betterment. It's is that simple. Also fair that the person can certainly take it too far and borrow money for a useless degree or skill. I just find it odd that the American system is set up to encourage risk taking but not all risk is treated equally or even rationally.

You and I could probably fix the problem in 3 beers. I would even be open to low rate student loans for law degees. We have a shortage of public defenders.

 

[brymoore]

There’s an opportunity cost to all decisions. Right now people are retiring every single day to try and eke out a living on social security. If we can get the average person to that point in life as a millionaire but they could have had a couple more million by increasing their risk I think it’s a net positive. I think @TOGIE has it right, at some point winning is winning then at some point it’s just a dick swinging contest

Exponential growth is your friend.

One of my smartest decisions of my life, and what I preach to my kids, is to start saving as soon as possible. I contributed to my 401k, with match, starting at 21 while I had a truck payment.

Dave Ramsey would have advised me to wait to start investing in a 401k until I had my truck paid off and 20% saved for the house I bought a few years later. I would have delayed my retirement savings by another 5+ years, probably longer.

 

[Toofdoc]

To the OP

I was for years a hardcore Dave apologists. I grew up in rural white trash meth farm country and watched debt ruin lives and lose farms. For years I was cash only, carrying around envelopes, and putting stuff back in the checkout line. This sort of living really taught my wife and I how to live without and adopt good principles.

However, I also read Rich Dad Poor Dad a few times and started understand leverage. Dave LOVES to talk about that time that his 100% leveraged debt was recalled. Find me anyone else who that’s happened to. Then show me where I am leveraged anywhere close to 100% on any of my debt.

My mortgage is locked at 3.175% and has appreciated on average 10% each of the last four years and has created legit wealth. Dave says to pay off my 0% truck loan, but doing so would have cost me the option of buying government bonds paying 9%. Not remotely a good idea.

Dave is good if you don’t understand why you shouldn’t have a new diesel, camper, motorcycle, and UTV financed at near 100%. And there are a LOT of people who do stuff like that.

Dave will 100% keep you out of debt and you will retire a millionaire. But you will also leave millions on the table.

Agreed. He once on his showed told somebody who called in not to purchase a business ,which happened to be in my industry, because the person couldn’t buy it in cash. Knowing what I know specifically about my field I knew what poor advice he was giving but he had to keep the mantra of zero debt to his audience. I don’t know if the caller took his advice but if so this person left time and hundreds of thousands of dollars on the table in the form of opportunity cost.

 

[Treeshark]

Dave Ramsey would have advised me to wait to start investing in a 401k until I had my truck paid off

I’m not sure that’s what he would have advised.

He probably would have advised you to not have a truck payment to begin with at age 21 (he’s probably right). You could have used that money instead towards your down payment, and once achieved towards your 401k (I personally think these should be in reverse order).

Not saying it’s right, wrong or otherwise but a lot of what is being put forth in this thread isn’t an entirely accurate portrayal of what Dave Ramsey’s program would actually recommend.

 

[VikingsGuy]

There’s an opportunity cost to all decisions. Right now people are retiring every single day to try and eke out a living on social security. If we can get the average person to that point in life as a millionaire but they could have had a couple more million by increasing their risk I think it’s a net positive. I think @TOGIE has it right, at some point winning is winning then at some point it’s just a dick swinging contest

My concern is not who can use debt to hyper success. I agree, winning is winning. But my concern is that if taken too literally Ramsey's advice can snatch defeat from the jaws of victory for many families. So why not agree that the simple premise of save more, spend less, clear financial goals, cautious use of debt and general discipline articulated by Dave or others is good, but proper use of debt makes a big difference in getting to "win" for many people. And let's clearly throw in the waste bin his student loan advice. Why must we require that any good thought must be taken to 11? That is part of the problem -- easy credit - buy buy buy to 11. Don't collect cash back on credit cards, don't take lowest pay down on SLs, pay only cash for everything, -- to 11. I reject both.

 

[TN2shot07]

Exponential growth is your friend.

One of my smartest decisions of my life, and what I preach to my kids, is to start saving as soon as possible. I contributed to my 401k, with match, starting at 21 while I had a truck payment.

Dave Ramsey would have advised me to wait to start investing in a 401k until I had my truck paid off and 20% saved for the house I bought a few years later. I would have delayed my retirement savings by another 5+ years, probably longer.

That’s not really relevant to the post that I made but it’s fine.

First, I would tend to agree that people should take advantage of their match as soon as possible. I’d be more concerned that people get used to that money and don’t go back to contributing, even if it is being used to pay off debt at the time. The exception being if you are drowning in consumer debt and need every penny to dig out, in which case you are probably also in need of a second job anyway.

If you had been working that plan you probably would’ve sold the truck to get something that was in line with your income at the time and didn’t require the debt. That plan also recommends 20% just to avoid pmi, not as a hard and fast rule. The point is to have a good down payment, which would definitely be a requirement if you went the zero credit score route.

I don’t think there’s anybody throwing out advice that you should blindly follow and I definitely don’t agree with everything he teaches. The point remains that if someone did follow it to a “t” it leaves some money on the table you would still come out way past average and be just fine.

 

[Treeshark]

this person left time and hundreds of thousands of dollars on the table in the form of opportunity cost.

Potentially. Or they could have ran it into the ground.

Again- Dave Ramsey isn’t about maximizing net worth. It’s about minimizing risk and avoiding financial catastrophes.

 

[Treeshark]

but proper use of debt makes a big difference in getting to "win" for many people.

I agree with everything you say for people who even remotely have their s$&@ together.

I also think you’re probably way overestimating the intelligence and/or self discipline of a whole lot of the country.

 

[Nick87]

Disclaimer im not a Dave Ramsey follower or hater either way. I think we could all agree that his style is much better than the average american with no plan whatsoever. The people who NEED Ramsey's advice will be better served by it than not. Those who don't need it, we'll why the hell would they worry about if it doesn't work for them. I'm surprised none of the "experts" here don't have there own podcast or app etc. They could run him right out of town.

 

[VikingsGuy]

I also think you’re probably way overestimating the intelligence and/or self discipline of a whole lot of the country.

If you knew me you would know that is not the case My wife gets mad at me for calling everyone morons.

 

[npaden]

Exponential growth is your friend.

One of my smartest decisions of my life, and what I preach to my kids, is to start saving as soon as possible. I contributed to my 401k, with match, starting at 21 while I had a truck payment.

Dave Ramsey would have advised me to wait to start investing in a 401k until I had my truck paid off and 20% saved for the house I bought a few years later. I would have delayed my retirement savings by another 5+ years, probably longer.

That is probably the fundamental flaw in the Ramsey teaching.

Historically (100+ years of data) investing in reasonable investments is going to yield a higher return than historical mortgage rates.

It all comes down to numbers. Pretty basic stuff. You look at the expected rate of return on your investments vs. your cost of capital. If you have credit card debt which has now skyrocketed up into the 20% range, you need to get that paid off ASAP at all costs. Ramsey's program is good for that.

If you have a locked in long term mortgage at sub 4%, don't be paying extra on that right now, you can invest in about anything to earn a higher return than that.

Every financial decision is simply a decision between risk and return.

Borrowing to purchase consumable goods (RV's, ATV's, etc.) should never been done on credit in my opinion. You can wait and pay cash for that stuff.

 

[VikingsGuy]

If you knew me you would know that is not the case My wife gets mad at me for calling everyone morons.

I have been a curmudgeon in training since I was 14 . Just a few more years and I will be there

 

[williaada]

The Dave Ramsey plan will work for the vast majority of people.

As for student loans, I would say the majority of them are ill advised due to the fact most of the people do not understand what the actual hourly or salary range will be. My professor in accounting told me the average wage is around 100k. What was left out is it took 10-15yrs to make that much.

 

[Treeshark]

This is admittedly a ham-handed analogy, but I kind of think of Dave Ramsey’s program like AA.

For most of us, it’s not something we need- we can have a few here and there and stay out of trouble. But for some, rigid guard-rails are the only thing that is going to work for them.