Dave Ramsey, debt, credit cards, retirement, etc

[djkorn1]

down to 1 credit card, $4 G's on the car, The house and student loans...

Should have the car done in 6 months and the card done one year from now...then I have to work on the wife, and that is like starting over....

 

[Speedfreak]

How long's it take to lose one's credit score, going by Dave's plan (no credit cards)?

I like Dave's plan but I use my one credit card as much as possible, for convenience.

How is using a credit card more convenient than a debit card?

And if you have your 6 months emergency fund in place then your debit card balance should be higher than your credit card limit.

Your FICO score can start dropping in the first 4 months or so after being debt free. But it could be years before it goes down.

But if the lending institution uses your actual credit report and sees that your are on a cash only plan then getting a home lone shouldn't be a problem. There is no other reason to get a loan except a home. (if you follow Dave) everything is paid in cash

 

[douglee25]

FWIW, when you or the lender closes a cc account, it hurts your credit rating.

Of course if you're a Dave Ramsey fan you may not care.

Not true. We paid off all our consumer debt and closed a few cards and when we refinanced this year, our credit scores were about 20-30 points higher than when we had $30k in consumer debt.

Actually Darin I don't think that's the case. It's situational dependent, but typically having more open cards is a good thing, not bad.

The biggest driver is the debt to income ratio. Creditors typically like a person to have more available credit if they are a good standing customer who pays their bills on time. Closing cards CAN in fact lower your credit rating because your overall available credit decreases.

My guess is your credit score increased because your debt to income decreased, not because you closed a few cards.

Doug

 

[Mile9c1]

How is using a credit card more convenient than a debit card?

I was comparing my credit card to cash, but since you asked, for one thing, I don't have to use a PIN with my credit card. That's a convenience.

When I use a credit card I don't actually "pay" for 20-50 days.

I have more confidence in my credit card's fraud protection than my debit card's fraud protection.

I get airline miles (or whatever) on my credit card. Dave can call BS on perks like this but I've flown three places now for free so "the proof of the pudding is in the eating" IMO.

 

[dbrutherford]

I agree with you Miles on the debit to credit card debate. I had to do a charge back twice now on my debt card and it was a hassle. I was out the money until the bank finally sided with me. When I did this on a credit card, they instantly gave me the money back. Much better protection.

Citi tried jacking up my interest two months ago. They sent a letter saying they were raising it from 10.2 to 39.99 %. I had to option to keep the card and pay they high interest rate. Or I could close the card and pay off what I owe at my current rate. I had a $600 balance so I paid half of it last month and half this month. The ended up canceling my card. I thought to myself that is smart, screw the customers who pay their bill on time. I originally balance transfered 8k of cc debt to that card two years ago and paid it all off 100% in that time period. They initially gave me a 6% rate for that and no balance transfer fee. then it went ot 10.2% whn I started using it for purchases once the original balance was paid off.

So I had to sign up for a Discover since teh Citi was my one and only cc card... The Discover is 5% for 6 months and then it becomes 18.99% WTF? And to top that my limit is 2k. My credit kind of sucks now because I still have a medical collection that is to come off my report in two years and I have a 215k mortgage now. I had to do an FHA because of the medical collection. So my debt to income ratio is high. And also now having a $1200 balance on a 2k cc card doesn't help either.

But I will get my 8k tax credit for buying a house soon enough and another 4k for my companmy bonus in a few months. I am paying everything else I owe off so I will be free and clear except for my mortgage and 401k loan.

I could have been stupid and went and financed new furniture "counting" omn the 8k tax credit. Instead I am making myself wait until I have the cash in hand. Still I wil put back from that tax credit and company bonus for my emergency fund. Everything I owe now, Discover card, small personal loan to mom, and what is left on my Citi I have in the bank.

I leanerd the debt lesson the hard way a long time ago. While I am a bit of a spot now because of the mortgage, I am way better off than most people. No major cc debt, no major hospital debts, no wife debt, no kids or wife to spend my money, ect... And I own almost 8% of my house already. I pay 100 extra each month to principal too. A guy at work got the same treatment from Citi but he owes over 10k !

 

[SuperJETT]

I was comparing my credit card to cash, but since you asked, for one thing, I don't have to use a PIN with my credit card. That's a convenience.

When I use a credit card I don't actually "pay" for 20-50 days.

I have more confidence in my credit card's fraud protection than my debit card's fraud protection.

I get airline miles (or whatever) on my credit card. Dave can call BS on perks like this but I've flown three places now for free so "the proof of the pudding is in the eating" IMO.

Not using a PIN is a convenience? Don't you have to sign a receipt? You either use a PIN or you sign a receipt except for places where the total is typically under $10 or whatever like fast food joints.

Oh, you have to pay the bill, so that's where it's 'less convenient' yes? None of that with a debit card.

Anyway, good for you that it's worked out. Our Discover card worked out for us too, but we're only talking like $200 worth of rewards over the course of years. Miss a payment just once and $40 worth of that is wiped out. It's nice to not have to remember to make the payment and make sure it went through, etc.

Credit cards are tightening up dramatically nowadays though, so there is less and less reason to use them for perks, plus the consequences of missing a payment or going over your limit have gotten much more harsh.

 

[Speedfreak]

I have more confidence in my credit card's fraud protection than my debit card's fraud protection.

If you use your Visa debit without putting your pin number in it has the EXACT same buyer protection as a visa credit card. I have 2 debit cards and don't know the pin number for either card.

And if you pay any interest at all on your card then your airline miles are not FREE. Also if you play with fire long enough you will get burned. They will loose a payment or charge it to the wrong account and you will have to go through all that hassle to get the late fee refunded "IF" you get it back at all.

At one time or another they WILL loose your payment. Or jack up your interest rates or change your billing cycle date. Anything to get money out of you and they can do what ever they want. It is in that fine print on your contract that you signed.

EDIT: FROM VISA
It’s important to know that Visa debit cards carry the same protections as Visa credit cards. For example, all Visa cardholders are protected by Visa’s Zero Liability policy. This policy means you pay nothing if unauthorized purchases are made on either a credit card or a Visa Check card when you choose to sign for your transactions. Some financial institutions offer Zero Liability protections for certain PIN debit transactions as well, but the best way to ensure you are protected is to sign for your purchases. Visa’s Zero Liability policy also applies to purchases made on the Internet.

 

[Matt_E]

I don't have CC's.....but you have to admit, while a Debit card may have the same protection as a CC, you are initially out the money on the debit card if there is an unauthorized transaction.
That could be a hassle.

 

[SharkB8]

After reading this thread over the last couple days, I listened to Ramsey's total money makeover and I'm pretty pumped about paying off my consumer debt and home mortgage.

I'm not a complete convert yet (I still plan to keep my two cards, with near-zero balances) but there is no tax advantage whatsoever to a home mortgage here in Canada so I will be happy to pay that off ASAP. Most of all it has lit a fire under my a$$ to pay off all cc debt. I guess I will forego the superjet upgrades this winter.

 

[Mile9c1]

Both my DC and CC are Mastercard's.

I've had a CC for at least 11 years now and haven't paid a dime of interest or late fees. I pay the bill online (can't get lost). I get a notice emailed to me when it's due and I have a grace period (which I've never needed, and I check my online statement a few times a month so I'd notice if I were late (if they change the due date on me)).

Signing is easier than entering my PIN, lol :Þ

I like my credit card statement. It's easy to follow. My debit card is attached to my checking account so the statement is more complicated.

I'll probably ditch my CC if I ever get married. I'm not attached to it, but it's the way I've always done things and my system works pretty well, I've never really had any "debt".

 

[Speedfreak]

my system works pretty well, I've never really had any "debt".

I thought the same thing. And never had any debt either... A little bill for a few months and a truck or car but when you get motivated and get completely debt free there is just a feeling that you can't explain. AND the money stacks up faster than you can spend it. I am always looking for something to spend my blow money on. But Shhh don't tell the wife she will want another new car.

 

[SuperJETT]

http://money.cnn.com/2010/03/09/pf/retirement_confidence/index.htm?hpt=T2

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010 from 39% in 2009

Workers who said they had less than $1,000 jumped to 27% from 20% in 2009

 

[WaveDemon]

http://money.cnn.com/2010/03/09/pf/retirement_confidence/index.htm?hpt=T2

that is not at all surprising. I had a nice retirement fund once. It's all gone now.

 

[douglee25]

Especially with the economy in the dumps. Things cost more... companies are paying less... retirement fund accounts/investments are shrinking, etc. Things are not good right now for sure.

Doug

 

[Matt_E]

I'd say a lack of adequate savings prior to chit hitting the fan, over-reliance on debt, and people being house-poor has a lot more to do with that than the "economy".

 

[douglee25]

I'd say a lack of adequate savings prior to chit hitting the fan, over-reliance on debt, and people being house-poor has a lot more to do with that than the "economy".

To a certain degree yes. What about people who lost their jobs and had more than adequate funds for survival during a temporary lay off? The reserve funds don't last forever. The problem is that due to the economy, companies are under hiring freezes. How can people find work if companies aren't hiring. So now your $1500-$2500+ mortgage payment becomes hard to make. So does feeding your kids, paying utilities, etc. It's a nasty spiral from there. You can't blame people for that type of disposition.

Doug

 

[Matt_E]

You're right with that. But realistically, how many people do you think were adequately prepared and didn't have a mortgage payment that was 40-50% of their paycheck?
Add a couple of $30k car loans to that, and you're in deep chit if you lose your job.

 

[douglee25]

You're right with that. But realistically, how many people do you think were adequately prepared and didn't have a mortgage payment that was 40-50% of their paycheck?
Add a couple of $30k car loans to that, and you're in deep chit if you lose your job.

Good points no doubt.

I tend to go on the conservative side of things. I think our mortgage is somewhere around 30% or less of our monthly net income.

Doug

 

[Matt_E]

I think too many families were living right on the edge as it was. Once somebody lost their job or the income was significantly reduced, it pushed them over the edge.
I know I've been there.

 

[WaveDemon]

I think too many families were living right on the edge as it was. Once somebody lost their job or the income was significantly reduced, it pushed them over the edge.
I know I've been there.

that was true with us. I was the bread winner so things went south quick after I was laid off. Live and learn.