How Dave Ramsey Drives Us Crazy

Bills.com likes Dave Ramsey’s advice, for the most part. But, there are a few things about Dave Ramsey’s teachings that drive us crazy.

First, we applaud Dave Ramsey’s success in opening up the national conversation on personal finance. Ramsey is a highly successful radio personality. His syndicated radio show is broadcast on about 500 radio stations every weekday.

His dedication to taking on a potentially boring subject in an era when shock jocks and entertainers disguised as political pundits rule the airwaves was a brave move when Ramsey took to the air 20 years ago.

Second, we think Dave Ramsey is insightful in making the connection between emotions and money. Most personal finance self-help books ignore the connection between spending, saving, and self-worth, in favor of an impersonal accounting-based approach to money. Some people can look at their personal spending the same way that company accountants look at the corporate books, but most of us are more complicated than that. Ramsey's book, Financial Peace: Restoring Financial Hope to You and Your Family, emphasized the emotional link to personal finance.

Third, we like how Dave Ramsey puts his money where his mouth is when it comes to charitable giving. Ramsey’s books stress money is a tool people can use to benefit others in need. To that end, Ramsey’s Share-It foundation works with other non-profits to help promote financial literacy, among other worthy causes.

Fourth, most of Dave Ramsey’s advice is sound. We agree with many themes in Ramsey’s books and radio programs:

• Start by saving money in small steps.
• Validate any debt a collection agent asks you to pay.
• Create and follow a household budget.
• We can plan our way to becoming debt-free.
• Avoid nonsensical and possibly illegal get-out-of-debt-quick schemes.
• Create a savings and investment plan and start with conservative investments.

No One’s Perfect

Dave Ramsey, for all his common sense and insights, plays four notes we think sound a bit off key.

Avoid Debt Consolidation

Dave Ramsey advises against consolidating high-interest debt into a lower-interest loan. His concern is that you will consolidate debt and then run up new debt, increasing your overall debt load. We agree with him that a risk exists, but we trust you to make the right and smart choice. If you consolidate debt you need to avoid incurring new debt. Paying off a credit card debt through a consolidation loan is not an excuse to run up your credit card bill.

However, don’t pass by the savings you can realize by consolidating debt. If you have the opportunity to lower your cost of borrowing, by paying off high-interest debt at a lower rate, take advantage of it. Put the money you save towards paying down your debt faster or building up a stronger emergency fund.

Dave Ramsey Has a Bias Against Debt

We should strive to live debt free or at least retire debt free. However, debt is a tool that when used wisely, helps us reach important goals. At some times in our lives, it is a smart choice to go into debt.

Dave Ramsey has a bias against debt in almost any form, which is perhaps a reflection of speaking with so many people whose lives were overwhelmed with debt.

We think there are good debts. For example, a mortgage is usually considered good debt, which Ramsey acknowledges. There are other good debts, too. In moderation and with a full understanding of the cost, a student loan can propel you into a career with a decent salary. A credit card can be the best choice for an emergency expense. Is it better to have an emergency fund? Of course it is. In the real world, however, there are times we make less than ideal choices. If you have to pay for car repairs, for the car you that you need to get to work, using a credit card is better than losing your job.

Avoid a 30-Year Mortgage

Dave Ramsey strongly likes 15-year mortgages. However, it’s not the best choice for every borrower. Not everyone can afford the payments on a 15-year mortgage. If you can’t, but can for a 30-year mortgage, buying a home with the 30-year loan could be a much better choice than continuing to rent. Even if you have enough income to qualify for a 15-year loan, it is not always the wisest choice. It may be smarter to get a 30-year loan, and make extra payments on your loan to pay-down your principal in 15 to 20 years.

Paying your 30-year loan off faster won’t save you as much money as taking out a 15-year loan at a lower rate, but a 30-year loan gives you the flexibility to scale-back your payments when money’s tight and lowers you risk of not being able to make your payment. Families relying on two incomes to qualify for a 15-year loan should be especially cautious.

Debt Settlement Companies Are a Scam

When companies first began offering debt settlement programs, the industry was not well-regulated. Some debt settlement companies promised much, took consumers’ money, and under-delivered.  That changed in late 2010, when the FTC put new rules into effect that made it illegal for settlement companies to charge up-front fees. This weeded out many of the bad players. It also gave you a clear way to differentiate good companies from bad. You should steer clear of any firm that charges fees in advance. While the industry has changed, Dave Ramsey's outlook has not. We view debt settlement as the best option for a limited number of people who are unable to make their minimum payments and wish to avoid bankruptcy.

Now What?

Continue to enjoy Dave Ramsey’s radio program and books. Dave Ramsey tries to help the average person make smart money choices. Your situation may be different from the average one. Making the right financial choices is not always easy. Take the time to research all your options and weigh their pros and cons. What's right for you is more important than what Dave Ramsey says is right.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com