Dave Ramsey

[core]

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@Anonymous wrote:
People just need to be presented the option of paying down debt in the fastest AND cheapest way possible.  You want to talk about attacking?  You're attacking it in the fastest and cheapest manner possible. 

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Not necessarily.  This is only true when the same dollar exact amount is applied to the debt in both cases, which you are taking for granted.  If you're a non-robot human it's probably not going to work out that way, especially if you have a spouse who isn't on board as much as you are.

Consider this hypothetical conversation with a spouse:

"Honey, I've come up with a plan for our debt.  We're going to cancel cable and sell the TV.  We won't see the inside of a restaurant again unless we're working there.  We'll both have to take a 2nd job.  We should have that first Citi $20k card with the nasty 15% APR paid off in 3 years.  Isn't that exciting?  Are you with me!?!?"

How long do you think that arrangement is going to last?  Do you truly think the exact same sacrifices will be made?  Same dollars applied to the debt as the case below?  Of course not.  What will almost always happen is the couple will soon revert to their normal ways and just pay down the debt when they have "extra" money because there's no end in sight.  They might even start rationalizing having the debt to avoid having to make the sacrifices.  "Debt is good and smart".  "Cash in checking is too risky", etc. 

Contrast that with this one:

"Let's do all of these things until we get this little $1k card paid off.  By my math it should only take us a couple weeks.  Let's try it and see how it goes."

At the end of those weeks, spouse sees the result.  You see the result.  Spouse may even get more excited than you are and come up with even more ways to save/earn money.  Odds are much better you'll stick with the plan and be an active part of it rather than simply writing an extra check once a month if the bank balance happens to be high, or "waiting" for that raise.  The dollars are not the same, even if you've got a ton of discipline.  Most folks don't.

[Anonymous]

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@Anonymous wrote:

Going to echo a lot of what has already been said. 

What I think Ramsey gets right: 

*  Being in debt is not a good thing and people should work to limit the amount of debt they take on and attempt to pay it off (in most instances) as fast as possible. 

*  Making a budget lets you know where your money goes and is step one in taking control of finances. 

*  For a lot of people out of debt quickly will lead to more wealth in the long run. 

What I think Ramsey gets wrong: 

*  Credit cards can be used as tools and can provide via rewards good savings on purchases you are going to make anyways.  Credit cards offer protection that cash does not.  Credit cards allow us to increase our credit scores.  Credit cards are snakes like he says for those who can't use them wisely.  I have never paid a cent of interest and will never on them.   

*  Debt is not always a bad thing.  The opportunity cost in waiting say 5 years to not go to college so you can work and not take on debt is usually a poor move.  Paying in cash doesn't offer benefits when 0% financing is available on things like cars, etc.  The vast majority of us will need debt at some point to buy houses, buy cars, go to college. 

*  The debt snowball is a very flawed method for paying off debt.  No doubt the snowball method works, but you are costing yourself money often by using it.  I have student loans with 1.9% interest and as high as 6.8 %.  Paying off the lower interest rates ones first and then applying that money to the higher interest rate ones is mathematically moronic.  Plain and simple this is the biggest thing he gets wrong.  You will pay more to get out of debt and pay longer to get out of debt when you use his method.  The psychology of small wins is fine, but that is only if someone cannot make payments that make more mathematical sense.  People in 99% of scenarios should focus on paying the highest interest rate debt first and working down from there. 

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Some people don't have the behavior in them to logically pay down the highest APR to lowest APR. Most of what is preached by personal finance gurus is behavioral changes. Debt snowball, while being a mathematically illogical decision, is mentally positive reinforcement that in turn creates positive financial habits in other avenues.

Good on you that you have the funds and general understanding of your own behavior. Everyone else might not be as forward thinking as you are. That's who Dave preaches to IMO, those who don't see the bigger picture and understand the cycle of debt, which is a not so small percentage of the US population. People who can't see past their nose and visualize a debt free existance.

I can't say enough how pulling bank statements for the past year or 2 and going through the charges helps people understand their spending habits much more. Understanding triggers and habits, good and bad, is the biggest key to managing finances.

[core]

By the way, what exactly is a "bedroom suit"?  (No, that's not a typo.)  I hear Dave Ramsey talking about people buying them all the time.  It sure sounds adult in nature, but I don't think Ramsey of all people would go there on-air.  Is this a case of standard hillbilly pronunciation, simply one guy's ignorance, or is it something spicy?

[Anonymous]

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@core wrote:

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@Anonymous wrote:
People just need to be presented the option of paying down debt in the fastest AND cheapest way possible.  You want to talk about attacking?  You're attacking it in the fastest and cheapest manner possible. 

---

Not necessarily.  This is only true when the same dollar exact amount is applied to the debt in both cases, which you are taking for granted.  If you're a non-robot human it's probably not going to work out that way, especially if you have a spouse who isn't on board as much as you are.

Consider this hypothetical conversation with a spouse:

"Honey, I've come up with a plan for our debt.  We're going to cancel cable and sell the TV.  We won't see the inside of a restaurant again unless we're working there.  We'll both have to take a 2nd job.  We should have that first Citi $20k card with the nasty 15% APR paid off in 3 years.  Isn't that exciting?  Are you with me!?!?"

How long do you think that arrangement is going to last?  Do you truly think the exact same sacrifices will be made?  Same dollars applied to the debt as the case below?  Of course not.  What will almost always happen is the couple will soon revert to their normal ways and just pay down the debt when they have "extra" money because there's no end in sight.  They might even start rationalizing having the debt to avoid having to make the sacrifices.  "Debt is good and smart".  "Cash in checking is too risky", etc. 

Contrast that with this one:

"Let's do all of these things until we get this little $1k card paid off.  By my math it should only take us a couple weeks.  Let's try it and see how it goes."

At the end of those weeks, spouse sees the result.  You see the result.  Spouse may even get more excited than you are and come up with even more ways to save/earn money.  Odds are much better you'll stick with the plan and be an active part of it rather than simply writing an extra check once a month if the bank balance happens to be high, or "waiting" for that raise.  The dollars are not the same, even if you've got a ton of discipline.  Most folks don't.

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I get the concept behind it and the behavioral psychology.  However the financial world is a math game and Ramsey should do a better job of explaining the math and presenting the option that is the fastest and cheapest way to get out of debt.  He does not provide that option.  If you've got three student loans at 1,500, 2,000, and 15,000 it may make sense behaviorally to tackle the lower ones and then go towards the biggest debt.  If the interest rate on the 2,000 is 6.8 and the 1,500 is 1.9 you should probably knock that 2,000 out first.  Ramsey does a poor job (he doesn't even attempt it) of showing the negatives of the snowball.  If you have lots of "small debt" that can be wiped out and you'll feel better great.  If you have debts near the same amount with vastly different interest rates it is beyond stupid to not tackle the highest ones first.  Here's a wife scenario for you:  Honey do you want to pay off the debt in 2 years at 1100 dollars of 3 years spending 1600 dollars?   

My biggest issue with Ramsey is how incomplete his advice can be.  He doesn't provide options.  He pushes towards mutual funds (and you can find Dave trusted advisors on his web which probably come with a nice kickback to him) and doesn't explore options like low fee index fund investments which often outperform and certainly have cheaper costs.  

The vast majority of Ramsey advice is great, I just think following everything he says blindly limits your ability to greater understand the financial world and some of the areas where it is very easy to argue he gets things wrong.   

[All4One]

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@QUAILMAN wrote:

I had to tune him out completely when I heard him suggesting to avoid credit cards and promoting the "snowball" method for paying down debt.  Those two pieces of advice are complete nonsense.

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He's admitted that his snowball method is backwards (advocates paying off the smallest balance instead of the biggest interest rate).  They used to try the other way, but the people he's working with we're giving up before paying off the high interest loan first.  They found that "mental momentum" was a bigger factor when someone finally crossed a debt off their list, even if it was a small sum of money.  

[Anonymous]

I have met a lot of people who are their own worst enemies in at least some aspects of their lives. I know I am in some ways. Dave Ramsey's priority on overcoming the psychology of debt, which at times takes precedence over the mathematically best ways to do things, addresses the larger issue that many people in debt regularly spend more than they make. Without changing the underlying perception that over-spending is okay, many will go right back to overspending once they're out of debt. 

If living within your means is something that you do regularly, then adhering to the best mathematical principles when paying off debt will undoubtedly save you lots of money. But you also don't need a financial advisor to tell you how to get out of debt - you already know! Dave Ramsey is for people that don't know, and who commonly have beliefs that cause them to overspend. And for those people, I believe his advice is effective at ensuring they not only get out of debt but stay out of debt. 

[Anonymous]

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@Anonymous wrote:

I have met a lot of people who are their own worst enemies in at least some aspects of their lives. I know I am in some ways. Dave Ramsey's priority on overcoming the psychology of debt, which at times takes precedence over the mathematically best ways to do things, addresses the larger issue that many people in debt regularly spend more than they make. Without changing the underlying perception that over-spending is okay, many will go right back to overspending once they're out of debt. 

If living within your means is something that you do regularly, then adhering to the best mathematical principles when paying off debt will undoubtedly save you lots of money. But you also don't need a financial advisor to tell you how to get out of debt - you already know! Dave Ramsey is for people that don't know, and who commonly have beliefs that cause them to overspend. And for those people, I believe his advice is effective at ensuring they not only get out of debt but stay out of debt. 

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I agree with all of this I just think Ramsey misses out by not at least explaining to people the absolute most effecient way to get out of debt.  It's kinda like losing weight.  You can do it through diet changes alone, but diet and exercise is a more effecient way.  By explaining the differences and making small tweaks to the snowball idea Ramsey could come up with an even more effective way to reduce debt. 

It certainly needs to be explained that when two debt sizes are close to equal attacking the highest interest rate is 100% of the time the right move.  I'll allow some wiggle room if we are talking small loans to knock out payments. 

[Anonymous]

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@Anonymous wrote:

I agree with all of this I just think Ramsey misses out by not at least explaining to people the absolute most effecient way to get out of debt.  It's kinda like losing weight.  You can do it through diet changes alone, but diet and exercise is a more effecient way.  By explaining the differences and making small tweaks to the snowball idea Ramsey could come up with an even more effective way to reduce debt. 

It certainly needs to be explained that when two debt sizes are close to equal attacking the highest interest rate is 100% of the time the right move.  I'll allow some wiggle room if we are talking small loans to knock out payments. 

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I don't think he has much of an incentive to change or examine what he feels is the most optimal debt management if he strongly believes it is mind over matter. After all, he's not the only one who pushed the Debt Snowball method hard (Suze Orman was also very big on this). His opinion holds as much weight as the next financial guru in his industry. What people should always remember and not forget about people like Suze Orman, Robert Kiyosaki, Jim Cramer, Tony Robbins, Dave Ramsey, etc. is that they built their wealth on managing their "brand" and not necessarily on their advice or format of their advice alone.

Their advice might be out of date, impractical, or just unapplicable to your financial situation. To me, they're brand salesmen, not that much different from what Donald Trump is/was, and thus they should all be scrutinized with a careful eye, but I also gain insight as to certain concepts and methods I would lose if I had to glance into a finance textbook instead.Anyway, I would hopefully expect people to do their own independent research, compare and constrast guru advice, and not rely on the word/fancies of one "guru" to determine how to fix their personal finances.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

I agree with all of this I just think Ramsey misses out by not at least explaining to people the absolute most effecient way to get out of debt.  It's kinda like losing weight.  You can do it through diet changes alone, but diet and exercise is a more effecient way.  By explaining the differences and making small tweaks to the snowball idea Ramsey could come up with an even more effective way to reduce debt. 

It certainly needs to be explained that when two debt sizes are close to equal attacking the highest interest rate is 100% of the time the right move.  I'll allow some wiggle room if we are talking small loans to knock out payments. 

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I don't think he has much of an incentive to change or examine what he feels is the most optimal debt management if he strongly believes it is mind over matter. After all, he's not the only one who pushed the Debt Snowball method hard (Suze Orman was also very big on this). His opinion holds as much weight as the next financial guru in his industry. What people should always remember and not forget about people like Suze Orman, Robert Kiyosaki, Jim Cramer, Tony Robbins, Dave Ramsey, etc. is that they built their wealth on managing their "brand" and not necessarily on their advice or format of their advice alone.

Their advice might be out of date, impractical, or just unapplicable to your financial situation. To me, they're brand salesmen, not that much different from what Donald Trump is/was, and thus they should all be scrutinized with a careful eye, but I also gain insight as to certain concepts and methods I would lose if I had to glance into a finance textbook instead.Anyway, I would hopefully expect people to do their own independent research, compare and constrast guru advice, and not rely on the word/fancies of one "guru" to determine how to fix their personal finances.

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Excellent point (which is why I also brought up his pushing mutual funds from his "trusted advisors."  And I'm definitely not anti-Ramsey.  I've learned from him and I think his advice in many situations is awesome and what people need to hear.  The problem with not analyzing the snowball method for someone's particular case is the large amount of money you could be essentially wasting.  If debt is bad because you're paying interest on it then staying in debt LONGER and paying more interest is doubly bad!  The thing is depending on the situation we aren't talking a couple of bucks.  People could cost themselves thousands of dollars by paying down their debts in order from smallest to largest. 

In a lot of cases the difference may be minimal, and I definitely think the psychology aspect is important.  ONLY talking about a method that can potentially cost people months or years of time and thousands of dollars is borderline criminal for a financial "guru" imo.  And it just seems like such an EASY fix for him.  Point out both methods.  Weigh the pros and cons of both methods.  Explain to people when one situation works out better than others.  If the difference was like 50 bucks I'd be all for the snowball.  But the difference (depending on the situation) may be thousands and more time in debt.   

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

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@Anonymous wrote:

I agree with all of this I just think Ramsey misses out by not at least explaining to people the absolute most effecient way to get out of debt.  It's kinda like losing weight.  You can do it through diet changes alone, but diet and exercise is a more effecient way.  By explaining the differences and making small tweaks to the snowball idea Ramsey could come up with an even more effective way to reduce debt. 

It certainly needs to be explained that when two debt sizes are close to equal attacking the highest interest rate is 100% of the time the right move.  I'll allow some wiggle room if we are talking small loans to knock out payments. 

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I don't think he has much of an incentive to change or examine what he feels is the most optimal debt management if he strongly believes it is mind over matter. After all, he's not the only one who pushed the Debt Snowball method hard (Suze Orman was also very big on this). His opinion holds as much weight as the next financial guru in his industry. What people should always remember and not forget about people like Suze Orman, Robert Kiyosaki, Jim Cramer, Tony Robbins, Dave Ramsey, etc. is that they built their wealth on managing their "brand" and not necessarily on their advice or format of their advice alone.

Their advice might be out of date, impractical, or just unapplicable to your financial situation. To me, they're brand salesmen, not that much different from what Donald Trump is/was, and thus they should all be scrutinized with a careful eye, but I also gain insight as to certain concepts and methods I would lose if I had to glance into a finance textbook instead.Anyway, I would hopefully expect people to do their own independent research, compare and constrast guru advice, and not rely on the word/fancies of one "guru" to determine how to fix their personal finances.

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Excellent point (which is why I also brought up his pushing mutual funds from his "trusted advisors."  And I'm definitely not anti-Ramsey.  I've learned from him and I think his advice in many situations is awesome and what people need to hear.  The problem with not analyzing the snowball method for someone's particular case is the large amount of money you could be essentially wasting.  If debt is bad because you're paying interest on it then staying in debt LONGER and paying more interest is doubly bad!  The thing is depending on the situation we aren't talking a couple of bucks.  People could cost themselves thousands of dollars by paying down their debts in order from smallest to largest. 

In a lot of cases the difference may be minimal, and I definitely think the psychology aspect is important.  ONLY talking about a method that can potentially cost people months or years of time and thousands of dollars is borderline criminal for a financial "guru" imo.  And it just seems like such an EASY fix for him.  Point out both methods.  Weigh the pros and cons of both methods.  Explain to people when one situation works out better than others.  If the difference was like 50 bucks I'd be all for the snowball.  But the difference (depending on the situation) may be thousands and more time in debt.   

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Doing what you're saying would confuse more than help IMO.

I just finished reading the Total Money Makeover last night. I now understand his logic a bit more than I did before.

He's an all-or-nothing kind of guy. You get that feeling from listening to him speak publicly and across in his writing. Notice that he quotes Bible scripture very often in his talks in order to get his points across. He's very clearly appealing to a specific kind of debtor(s), the one who would accept using Bible scripture as an example of good money management. Someone who needs simple and easy to follow debt management.

That appeals to a not-so-small percentage of the US population.