Dave Ramsey says FICO is "Stupid" ????

[sarge12]

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@jmw1 wrote:

On houses:

Spending extra time to save for a bigger down payment has been a very poor decision over the past three years. Even in Dave's home state of Tennessee, the secret of Tennessee as a nice and cheap place to live is no longer a secret at all and house prices are jumping just like in Texas and California. A mortgage payment less than 25% of net wages which must be 15yr (Dave's guideline, not mine) is admirable, but it's not realistic for most. Wage increases get harder to get when you move up in your career and taxes for non-business owners are a big drag as wage income goes north of $100k. Get the house today. I would even stretch housing to an uncomfortable percentage of income make sure it's in a nicer neighborhood and better public schools. Pay extra on your mortgage when you can so you can remove PMI faster on a conventional. Refinance as the mortgage balance and rates go down in the long run.

On cars:

Thank goodness I have an extra car in the driveway for an emergency. I do pay a bit extra for registration and insurance, but cars are a necessity at all times. If I needed to buy a $30k car, it would be a 2005 for $8k and it needs to include $22k cash in the glove box. I agree with Dave that anyone who has not won the game and can afford to pay cash on a new car has no business buying a new car.  Don't forget that a $750 car payment is like over $150k in buying power for a 30 year mortgage. A house is an appreciating asset. A car is not. Car loans are a financial weapon of destruction even at 0%. New cars are now at ridiculous MSRP prices and above.

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Hold the bus....not all situations where someone chooses to finance a car, are the same. I just financed one, a fairly loaded 2022 Toyota Camry LE. I also just paid off my house. The car is now my only real debt that is being charged 1.99% interest. I recieve 2300 a month in SSDI, and have access to 340,000 dollars in 401K funds. The interest on the 60 month term of the loan is a little over 1500 bucks. Now I could have simply withdrawn enough to pay cash for the car, but would have required about 36000 withdrawal. That would have not only put me in a higher tax bracket, but would result in 50% of my SSDI being taxed. This would have cost me way more in extra taxes than the 1500 in interest. Clearly, I can easily afford the car, and I could have paid cash, but it would be stupid to do so. The secret to withdrawing 401K funds is to do so slowly over time. Any withdrawals from 401K have 20% witholding for taxes, most of which I get back. Now I might actually agree that if it is impossible to pay cash, perhaps you should find a less expensive car. For others, it is just less expensive to fanance it at a low rate. One further note, that 36000 in the 401K is drawing interest. The combined loss of interest on the 401K, along with paying less in taxes, makes financing much cheaper than withdrawing such a large amount. Dave Ramsey is an idiot if he thinks I should deny myself buying the car until it does not require paying an exreme tax bill. I can choose to pay it off anytime I want to. I also checked on used cars, but the cost of used cars has exploded, and a 3 year old certified used Toyota Camry LE was less than a thousand dollars cheaper with 30,000 miles. Being disabled my 2003 Cheverolet Impala was sufficient, until my 93yo Mother fell and broke her hip. Now she is staying at my Sisters house, and I go there every other day to help her. There are also some circumstances where getting a good job requires reliable transportation.

[Anonymous]

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@sarge12 wrote:

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@jmw1 wrote:

On houses:

Spending extra time to save for a bigger down payment has been a very poor decision over the past three years. Even in Dave's home state of Tennessee, the secret of Tennessee as a nice and cheap place to live is no longer a secret at all and house prices are jumping just like in Texas and California. A mortgage payment less than 25% of net wages which must be 15yr (Dave's guideline, not mine) is admirable, but it's not realistic for most. Wage increases get harder to get when you move up in your career and taxes for non-business owners are a big drag as wage income goes north of $100k. Get the house today. I would even stretch housing to an uncomfortable percentage of income make sure it's in a nicer neighborhood and better public schools. Pay extra on your mortgage when you can so you can remove PMI faster on a conventional. Refinance as the mortgage balance and rates go down in the long run.

On cars:

Thank goodness I have an extra car in the driveway for an emergency. I do pay a bit extra for registration and insurance, but cars are a necessity at all times. If I needed to buy a $30k car, it would be a 2005 for $8k and it needs to include $22k cash in the glove box. I agree with Dave that anyone who has not won the game and can afford to pay cash on a new car has no business buying a new car.  Don't forget that a $750 car payment is like over $150k in buying power for a 30 year mortgage. A house is an appreciating asset. A car is not. Car loans are a financial weapon of destruction even at 0%. New cars are now at ridiculous MSRP prices and above.

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Hold the bus....not all situations where someone chooses to finance a car, are the same. I just financed one, a fairly loaded 2022 Toyota Camry LE. I also just paid off my house. The car is now my only real debt that is being charged 1.99% interest. I recieve 2300 a month in SSDI, and have access to 340,000 dollars in 401K funds. The interest on the 60 month term of the loan is a little over 1500 bucks. Now I could have simply withdrawn enough to pay cash for the car, but would have required about 36000 withdrawal. That would have not only put me in a higher tax bracket, but would result in 50% of my SSDI being taxed. This would have cost me way more in extra taxes than the 1500 in interest. Clearly, I can easily afford the car, and I could have paid cash, but it would be stupid to do so. The secret to withdrawing 401K funds is to do so slowly over time. Any withdrawals from 401K have 20% witholding for taxes, most of which I get back. Now I might actually agree that if it is impossible to pay cash, perhaps you should find a less expensive car. For others, it is just less expensive to fanance it at a low rate. One further note, that 36000 in the 401K is drawing interest. The combined loss of interest on the 401K, along with paying less in taxes, makes financing much cheaper than withdrawing such a large amount. Dave Ramsey is an idiot if he thinks I should deny myself buying the car until it does not require paying an exreme tax bill. I can choose to pay it off anytime I want to. I also checked on used cars, but the cost of used cars has exploded, and a 3 year old certified used Toyota Camry LE was less than a thousand dollars cheaper with 30,000 miles. Being disabled my 2003 Cheverolet Impala was sufficient, until my 93yo Mother fell and broke her hip. Now she is staying at my Sisters house, and I go there every other day to help her. There are also some circumstances where getting a good job requires reliable transportation.

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I always have an open car loan due to mix of credit on my FICO scores. I do not have a mortgage on my house, I never did so other then CC's I need something open to keep my scores up. My car has a 0.9% loan so for that rate it really does not make sense not to have it but I need it for my scores

Thanks

Mark

[longtimelurker]

David Ramsey isn't against mortgages!  You just have to use the lender he suggests and I am absolutely sure that there is no financial incentives in that relationship at all, no siree!

Mortgage Loans | RamseySolutions.com

This company doesn't require a credit score, and as @Anonymous suggests, it's the credit score that Ramsey is really against.   (Now if FICO established a "relationship" with RamseySolutions, that might change!)   So just go with Churchill Mortgage, it's RAMSEY TRUSTED, so what sort of small-minded creep would you be to go elsewhere.

Full disclosure: Since my moral compass is far more broken that DRs, I shouldn't be poking fun.   But that's what us degenerates do.

[tnhomestead]

I have never heard Dave Ramsey ever say not to get a mortgage and pay cash for a house. What I would say personally, get the cheapest house she can, fix it up n flip it in a few years. Buddy of mine is now retired and very well off from doing that. I didn't do that, I bought land and cash flowed a house instead. So get a mortgage, but be smart.

But fico is stupid. I get penalized for owning my house and cars outright instead of paying interest to someone else. 

[Junejer]

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@tnhomestead wrote:

I have never heard Dave Ramsey ever say not to get a mortgage and pay cash for a house. What I would say personally, get the cheapest house she can, fix it up n flip it in a few years. Buddy of mine is now retired and very well off from doing that. I didn't do that, I bought land and cash flowed a house instead. So get a mortgage, but be smart.

But fico is stupid. I get penalized for owning my house and cars outright instead of paying interest to someone else. 

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Finance over FICO. I realize that I will never have a maxed out FICO score, because of the credit mix thing. My house will be paid off in a couple of years and that piece will go away. As long as my file is clean and my util is under control, I don't care what the algorithms do to my score. I don't collect credit cards, though that does seem like an interesting hobby, but I do want the ones that will work best for my lifestyle and spending habits. I am 99.9999999% of the time going to fall on the side of what's best for my financial house vs. what's best for my FICO score.

[SoCalGardener]

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@jmw1 wrote:

On houses:

Spending extra time to save for a bigger down payment has been a very poor decision over the past three years. Even in Dave's home state of Tennessee, the secret of Tennessee as a nice and cheap place to live is no longer a secret at all and house prices are jumping just like in Texas and California.

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Mentioning Texas and California in the same sentence when it comes to housing prices (or anything else) is silly! Housing prices in Texas today are lower than they were in California 50 years ago. I should know! I'm a native Californian who lived in Dallas for a number of years. I owned a beautiful, 4-bedroom house in an upscale North Dallas suburb. When I sold it, I LOST $50,000. My current 2-bedroom house in an upscale LA suburb could easily be sold for 20 times the house in Dallas. I get unsolicited offers all the time from cash buyers--who want it so they can tear it down, and replace it with a mega-McMansion. Anyway, my point is that the housing markets in California and Texas are not even similar. The ONLY states that can compare with California are New York and Hawaii.

[jmw1]

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@SoCalGardener wrote:

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@jmw1 wrote:

On houses:

Spending extra time to save for a bigger down payment has been a very poor decision over the past three years. Even in Dave's home state of Tennessee, the secret of Tennessee as a nice and cheap place to live is no longer a secret at all and house prices are jumping just like in Texas and California.

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Mentioning Texas and California in the same sentence when it comes to housing prices (or anything else) is silly! Housing prices in Texas today are lower than they were in California 50 years ago. I should know! I'm a native Californian who lived in Dallas for a number of years. I owned a beautiful, 4-bedroom house in an upscale North Dallas suburb. When I sold it, I LOST $50,000. My current 2-bedroom house in an upscale LA suburb could easily be sold for 20 times the house in Dallas. I get unsolicited offers all the time from cash buyers--who want it so they can tear it down, and replace it with a mega-McMansion. Anyway, my point is that the housing markets in California and Texas are not even similar. The ONLY states that can compare with California are New York and Hawaii.

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Can you get a house for $50k in Dallas?  Not possible according to Zillow unless it's a lot of land with no house. That's early to mid 1970s price for California in the suburbs of SoCal.  It's 400K in Dallas which to me is pricey because it's in Texas and not California.

Have you seen the prices in Austin, TX lately? It is similar to Sacramento area and I don't consider that part of California to be cheap given it's in the San Joaquin Valley. Another 50K more and it will be in the ballpark of the Inland Empire, where it gets very hot and smoggy. If Elon's vision comes true, Austin prices may someday catch up to Cupertino or Mountain View.  

[jmw1]

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@tnhomestead wrote:

But fico is stupid. I get penalized for owning my house and cars outright instead of paying interest to someone else. 

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Yup. You should be congratulated for owning your house and cars outright. A lot of people on this forum think they got a great deal on a car 0% APR but financed it for 72 or 84 months. I rather have no car payments. It's FICO that also causes stupidity like the SSL personal loan just to get a few dozen points. Yeah I'd do SSL if it made a difference on the mortgage to reduce interest/discount points, but otherwise it's just completely dumb to waste time doing SSL.

[disdreamin]

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@jmw1 wrote:

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@tnhomestead wrote:

But fico is stupid. I get penalized for owning my house and cars outright instead of paying interest to someone else. 

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Yup. You should be congratulated for owning your house and cars outright. A lot of people on this forum think they got a great deal on a car 0% APR but financed it for 72 or 84 months. I rather have no car payments. <snip>

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That's your personal choice on car payments, but no need to make negative implications about others who make different decisions. I got a great deal on my 6-month-old vehicle and went with 72 months because of the 0% interest. I did a 36 month 0% loan on another new car that same month. Different choices for different people, neither is right or wrong and no need to judge each other.

[increasingmyfico]

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@jmw1 wrote:

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@tnhomestead wrote:

But fico is stupid. I get penalized for owning my house and cars outright instead of paying interest to someone else. 

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Yup. You should be congratulated for owning your house and cars outright. A lot of people on this forum think they got a great deal on a car 0% APR but financed it for 72 or 84 months. I rather have no car payments. It's FICO that also causes stupidity like the SSL personal loan just to get a few dozen points. Yeah I'd do SSL if it made a difference on the mortgage to reduce interest/discount points, but otherwise it's just completely dumb to waste time doing SSL.

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  0% for 72 is a great deal. That gives you 6 years to make money with the cash you'd use to buy the car at no cost. If payments bother you that much you could park the money and setup auto draft and still make a little money. That profit on the money could be seen as lowering the effective cost of the car. Don't knock the savvy people who do it differently than you.