Dave Ramsey, debt, credit cards, retirement, etc

[Mile9c1]

Just follow the baby steps in order. When you have more money than Dave Ramsey, then you can make up your own baby step program!

Here's why a $1,000 emergency fund while paying off debt works - because worst case, you just go back into debt! Duh! You have nothing to gain by keeping debt just to potentially avoid going into more debt.

I also believe that when someone only has $1,000 in the bank, that they'll work harder to pay down the existing debt and/or make more money. Fear is a good motivator.

 

[Mile9c1]

SuperJETT,
What does DR say about financing capital improvements to your home?

He will 100% say save up and pay cash for it.

The only times he says to borrow money is 1) on a fixed rate 15 year mortgage when you are debt free. 2) To borrow money to sell a car car you can't afford if you are upside down on it.

 

[Mile9c1]

Debt snowballing....yes, the logic behind his debt snowballing falls apart a little bit once you look at different types of debt (i.e. low interest student loans, different interest rate CCs, etc)...but again, keep in mind that he's wanting to make it simple and not confuse people.

The idea is to build momentum. Pay of the smallest debt because to have one less monkey off your back will feel good and it'll excite you to pay the next one off. It works! If it didn't work, Dave wouldn't recommend it!

He says most people become debt free in something like 12-18 months. So for the most part, even if you paid the highest interst rates first and kept the same intensity as you would had you done the snowball correclty, you wouldn't come out much ahead.

 

[AtomicPunk]

He will 100% say save up and pay cash for it.

The only times he says to borrow money is 1) on a fixed rate 15 year mortgage when you are debt free. 2) To borrow money to sell a car car you can't afford if you are upside down on it.

Thanks for the reply, luckily I am pretty much debt free (a few payments left on my truck). If I weren't at a crossroads with my house I would just wait it out and save the cash.

Believe it or not I have never followed (or even heard of) Dave Ramsey up until this thread. I am impressed with a lot of things he is "preaching". I am pretty lucky that I have always lived within my means. Lessons learned from my cheap ass family...
But, I really like some of DR's philosophies and will begin to use them myself.
Thanks for the advice.

 

[Matt_E]

The idea is to build momentum. Pay of the smallest debt because to have one less monkey off your back will feel good and it'll excite you to pay the next one off. It works! If it didn't work, Dave wouldn't recommend it!

He says most people become debt free in something like 12-18 months. So for the most part, even if you paid the highest interst rates first and kept the same intensity as you would had you done the snowball correclty, you wouldn't come out much ahead.

So it makes more sense to pay off a 10k student loan @ 3.2% before a 20k cc debt @ 19.9%?

:dunno:
The concept is great, but interest rates and the time to pay off (realistically) should be taken into account.

 

[vitaly]

So it makes more sense to pay off a 10k student loan @ 3.2% before a 20k cc debt @ 19.9%?

:dunno:
The concept is great, but interest rates and the time to pay off (realistically) should be taken into account.

Matt, relax. You are dealing with the Dave Ramsey cult. Common sense has no place here.

 

[Matt_E]

I've read Dave's book and done a work book (and a few others), and think he's got great approaches for lots of people in there.
I liked Dave Bach's "The Automatic Millionaire" a little better, but DR has valid & working concepts.

But not all of his ideas apply 100% to all situations.

 

[vitaly]

I've read Dave's book and done a work book (and a few others), and think he's got great approaches for lots of people in there.
I liked Dave Bach's "The Automatic Millionaire" a little better, but DR has valid & working concepts.

But not all of his ideas apply 100% to all situations.

No ideas applies 100% to all situations.
I'm more of a Kiyosaki kind of guy.
Dave just annoys me, seriously.
He want's you try to pay off your house on a 15-year mortgage working your ass off only to walk away from it when your job job does not pay enough anymore and the house is worth half what you bought it for?
He wants you to buy a car for cash only, so the only car you can afford is the 1984 Corolla instead of financing a 2006 Infinity for nothing and spending your money on a nice vacation?
Dave's preachings are great for the average lower middle class guy who wants to spend his life working 8 hours a day and have a 6-pack of Bud for dinner.
Give me a break.

 

[Snackem]

So it makes more sense to pay off a 10k student loan @ 3.2% before a 20k cc debt @ 19.9%?

:dunno:
The concept is great, but interest rates and the time to pay off (realistically) should be taken into account.

That is only partially true.
First of all if you are paying 19.9% on your cards you are getting the shaft, I would try and surf the balance to a different card or to get a personal loan and pay off the card.

Secondly if you listen to his radio show he is always talking about "Personal Finance" and how it is as much personal as it is finance. So paying off the smallest one first gives you 'instant' gratification and keeps you motivated.

Thirdly if you are committed to paying these debts off in a hurry then the difference in interest rates is not that significant.

 

[vitaly]

So paying off the smallest one first gives you 'instant' gratification and keeps you motivated.

That's one of the biggest problem with this guy. He's a motivational speaker. He does not teach you how to get financially comfortable, he motivates you to get motivated.

 

[Snackem]

No ideas applies 100% to all situations.
I'm more of a Kiyosaki kind of guy.
Dave just annoys me, seriously.
He want's you try to pay off your house on a 15-year mortgage working your ass off only to walk away from it when your job job does not pay enough anymore and the house is worth half what you bought it for?
He wants you to buy a car for cash only, so the only car you can afford is the 1984 Corolla instead of financing a 2006 Infinity for nothing and spending your money on a nice vacation?
Dave's preachings are great for the average lower middle class guy who wants to spend his life working 8 hours a day and have a 6-pack of Bud for dinner.
Give me a break.

So what about someone who wants to buy a 2002 Chevy Silverado quad cab? and a 2002 Civic? We seemed to be able to pay cash for them.

He never tells people to walk away from a house for 1/2 of what they paid for it. He tells them to sell it for what it is worth AND to make sure that you know what it is worth when you buy it. He tells people to look into the neighborhood and make sure that the house is a good deal and not likely to go down in value.

Tell me how is financing a 2006 Infinity a better idea than buying a 2006 Infinity outright? If I buy it outright I own it, I do not pay interest on it, I don't even have to make payments on it.

 

[Snackem]

That's one of the biggest problem with this guy. He's a motivational speaker. He does not teach you how to get financially comfortable, he motivates you to get motivated.

He actually does a lot of teaching. Monday we watched a 1 hour dvd and Dave did about 40 min of teaching.

 

[Matt_E]

Personal Finance" and how it is as much personal as it is finance.

Thanks, I'll buy that. That makes some sense.

So paying off the smallest one first gives you 'instant' gratification and keeps you motivated

Meh....people with CC debt need to get instant gratification out of their heads. It is the source of their problems
(yes, that included me at one time)

And I am with you on car payments.
If you cannot afford to pay cash, wait until you can.
I will never again have another car payment.
Note: I personally consider cars as a tool, a way to get around. Not a sign of lifestyle or any of that. For people who do, I can see why they'd want to finance. I will not.
I just bought an 05 Sienna with cash.
It's possible. (Though I was able to pay for mine because I sold my house at a profit)

 

[Snackem]

We just bought an 02 Silverado with cash and we could have afforded to buy something MUCH nicer had we wanted to. However we did not need anything bigger/better.

 

[vitaly]

me how is financing a 2006 Infinity a better idea than buying a 2006 Infinity outright? If I buy it outright I own it, I do not pay interest on it, I don't even have to make payments on it.

Easy. If you have the cash, invest it into a business, partnership, anything that will return you more than those 8% APR.
Those 20-30 grand allow you to borrow 200-300 grand from a bank for your business. Oh, and then some other things... many other things... like you are paying about 50% of you salary in taxes right now for instance, don't you?
Money should make money. For those who has it, it does.

 

[Snackem]

Easy. If you have the cash, invest it into a business, partnership, anything that will return you more than those 8% APR.
Those 20-30 grand allow you to borrow 200-300 grand from a bank for your business. Oh, and then some other things... many other things... like you are paying about 50% of you salary in taxes right now for instance, don't you?
Money should make money. For those who has it, it does.

So what can you expect to get on an investment? 12% +/-? So you are making 4 %? What happens when you adjust for risk? With my plan if something goes wrong I still own my car, home. . .

Oh and the taxes, I'm a long way under the 50% tax bracket.

 

[vitaly]

Note: I personally consider cars as a tool, a way to get around. Not a sign of lifestyle or any of that.

So do we. My wife commutes 50 miles to work each way. My commute is 46 miles each way. Our jobs require us to be there no matter what. We live in NJ and have to drive in any conditions, an excuse like "my Corolla did not make it" will get you fired. We also need at least one SUV and a safe baby hauler, did I mention my wife has a bad back? So, it's a 2004 G35x financed at 3.8% for her and a 2006 Xterra at 4.0% for me, both bought new. The only two vehicles I've bought new from a dealership in my life out of about 20 I've owned.

 

[vitaly]

So what can you expect to get on an investment? 12% +/-? So you are making 4 %? What happens when you adjust for risk? With my plan if something goes wrong I still own my car, home. . .

Oh and the taxes, I'm a long way under the 50% tax bracket.

The risk always exists. I have more chances to lose my job than an average small business going out of business with losses. If I lose my paycheck, my family and I are screwed.
I would expect a biz to pay off in 2 to 5 years, while giving you at least a 30% return. JUST BE CAREFUL THERE!!!

 

[Fro Diesel]

The only two vehicles I've bought new from a dealership in my life out of about 20 I've owned.

probably because now you have the stability and finances necessary to facilitate those types of lifestyle decisions.

Personally i would never buy a new car. You lose half the VALUE of the vehicle just driving it off the lot. While you may have a nice APR it will never be as good as owning something a few years older that has actually MORE value then a new car. I have seen new cars have just as many problems...or be LESS reliable then a car built 20yr prior.

I don't understand the correlation between your wife's bad back and the car she drives. My mom has a bad back and when it bothers her she drives the odessey since she can slide right in and out on the leather.

 

[Fro Diesel]

The risk always exists. I have more chances to lose my job than an average small business going out of business with losses. If I lose my paycheck, my family and I are screwed.
I would expect a biz to pay off in 2 to 5 years, while giving you at least a 30% return. JUST BE CAREFUL THERE!!!

And there is no such thing as risk. EVERY problem is an opportunity. Well, for someone at least. :nutkick:

I wouldn't expect investing in a business would pay off unless managers had a vested interest in the well being of the company...and unless YOU are running it or directly involved...STAY AWAY!