The Dave Ramsey Show

Minoosh

Penultimate Amazing
Minoosh
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I find this guy entertaining, even though his Christian emphasis puts me off somewhat. His picture on a billboard seemed so at odds with his voice that I've taken the bait of looking at video from the show.

Formerly, during regular, long, nighttime drives, I listened to a comedy channel. Reception was spotty, while I could usually get evangelists and this particular show. So I get a lot of his "Financial Peace University" promotion with its overweening message of getting out of debt, no matter what. Mortgages are treated differently, but otherwise he almost always recommends using savings to pay off debts as fast as possible.

I'm curious if others have listened and if they have opinions on his priorities.

Mark Levin is another with a popular show but listening to him is too annoying to have entertainment value.
 
Minoosh said:
I'm curious if others have listened and if they have opinions on his priorities.
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No I haven't listened and probably never will (unless you can link to a podcast or something).

However, I agree that keeping debt down to a minimum is a very good thing to do. In good times, servicing debt is a niggling drain on your wallet while in bad times it can be a serious burden that could ultimately end up in bankruptcy.

Obviously there is good debt (borrowing to produce an income or stave off a serious loss) and bad debt (borrowing to consume) and one must take on a certain amount of risk to get ahead in life but you need to decide how much debt you are willing to carry and not just let it pile up.
 
My old bosses used his method to get out of debt. They're big fans.

Not much he says is really that out there. Just a combination of common sense, simple psychology and reinforcement through organization and ritual.
 
His advice is a bit on the conservative side but if you have to err on one side or the other being conservative with your money is probably the better direction.

I also find his show entertaining even though he throws in a lot of jesus stuff. Literally he ends his show with a cheesy line about financial peace and the prince of peace.
 
Listened to him in years past, haven't in a while, though.

I have used his 'Debt Snowball' in the past very successfully. Basic premise is to list all your debts highest to lowest. Ignore interest rates. Pay the minimum on all your debts, and use any extra money to pay down the lowest debt. Once that debt is payed off, move to the next highest debt, using your extra money, and the payment of the payed off debt, to pay down the next one. Repeat until you are debt free.

One caveat, pay off tax debt first, regardless of size. Don't screw around with the Government.

My snowball reached over $1400 a month, that I was slamming my debt with. It works, but it is not a 'magic bullet, and not a gimmick. You have to be disciplined to do it. And you have to stick to it.

Unfortunately, it takes both people in the relationship to pull this off. I got us down to around 20K of debt, before my ex-wife rebelled. 10 years later and me and new wife are starting the Debt Snowball. With the house, we owe roughly 200K. Just started a 2nd job, and she is looking for a second. Every dime we make on those 2nd jobs are going to the snowball. I hope to have all but the house payed off in less then 5 years. Then will start on the house, get it payed down, then refinance, get the payments lower, so the debt snowball will be bigger.

And yes, despite the Christian stuff, very sound advice to get out of debt.

Your mileage may vary.
 
Son of Inigo said:
Listened to him in years past, haven't in a while, though.

I have used his 'Debt Snowball' in the past very successfully. Basic premise is to list all your debts highest to lowest. Ignore interest rates. Pay the minimum on all your debts, and use any extra money to pay down the lowest debt. Once that debt is payed off, move to the next highest debt, using your extra money, and the payment of the payed off debt, to pay down the next one. Repeat until you are debt free.

One caveat, pay off tax debt first, regardless of size. Don't screw around with the Government.

My snowball reached over $1400 a month, that I was slamming my debt with. It works, but it is not a 'magic bullet, and not a gimmick. You have to be disciplined to do it. And you have to stick to it.
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I get why he says to do it this way, psychologically getting a debt paid off helps. But mathematically, you always want to start with your biggest interest rate, to get, quite literally, the most bang for your buck.

I'm a bigger fan of Clark Howard-no relgious stuff and while he's still conservative, he's a little more investment-friendly than Ramsey.
 
Yeah, it is the psychology of the 'Debt Snowball' that is the key to Ramsey's method.

As you pay off the 'little' debts, you use those minimum payments to attack the bigger debts. If you started with a $30K student loan, it will take you quit a long time to see any progress. Knocking out several littler debts, and combining those payments with all your extra money will really make a dent in that big debt fast. Plus, if circumstances call for you to suspend your debt snowball for an emergency, you don't have those little payments hanging around.

So, slightly more paid in interest versus eventually no interest payments at all faster. Attacking $30K with $1400 snowball a month will only take just 21 months. (actually a little sooner, as you would still make your minimum payment, and some of that is principle).

Again, not a magic bullet, just hard work and discipline.

ETF: removed the 'K" after the $1400
 
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DuvalHMFIC said:
I get why he says to do it this way, psychologically getting a debt paid off helps. But mathematically, you always want to start with your biggest interest rate, to get, quite literally, the most bang for your buck.

I'm a bigger fan of Clark Howard-no relgious stuff and while he's still conservative, he's a little more investment-friendly than Ramsey.
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Yes Clark H is good especially about travel deals. Also, a healthy dose of avoiding scams. Dave Ramsey used to tell young people to live on Red beans and rice to pile up savings. I can't agree with that as a regular diet.
 
DuvalHMFIC said:
I get why he says to do it this way, psychologically getting a debt paid off helps. But mathematically, you always want to start with your biggest interest rate, to get, quite literally, the most bang for your buck.
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As a general rule, small debts have a higher interest rate than big debts (you are hardly likely to negotiate a big loan with a high interest rate) so the Ramsey method is probably not far off the mark.
 
psionl0 said:
As a general rule, small debts have a higher interest rate than big debts (you are hardly likely to negotiate a big loan with a high interest rate) so the Ramsey method is probably not far off the mark.
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That's also consistent with the advice offered by "money saving expert" Martin Lewis* here in the UK.

Have some savings to cover exceptional items BUT use savings to pay off debts and pay off the highest interest debts first.



* - Martin Lewis was viewed by many as a tireless campaigner on behalf of the consumer but then sold his website for a lot of money to MoneySupermarket for a lot of money which has blotted his copybook in some people's eyes.
 
The Don said:
That's also consistent with the advice offered by "money saving expert" Martin Lewis* here in the UK.

Have some savings to cover exceptional items BUT use savings to pay off debts and pay off the highest interest debts first.
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You contradicted yourself.

Ramsey says, pay off the smallest debts first (regardless of the interest rate). Smaller debts are more likely to have a higher interest rate but there may be exceptions.
 
psionl0 said:
You contradicted yourself.

Ramsey says, pay off the smallest debts first (regardless of the interest rate). Smaller debts are more likely to have a higher interest rate but there may be exceptions.
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Then I misread and his advice is poor.

IMO pay off debts in reverse interest rate order.
 
The Don said:
Then I misread and his advice is poor.

IMO pay off debts in reverse interest rate order.
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Agreed but then you are more savvy than many who rack up debts. ;)

The Ramsey advice is aimed at those who need visible signs of progress (debts being cleared) and, since most of the time these smaller debts have higher interest rates, the advice is often good.
 
I often forget how bad a lot of people are with percentages and math in general. For me, any debts I have, the first thing I see is what money I'm paying that's going out the window to interest. But I deal with numbers all day at work and school everyday. I have many, many customers though, that when you start talking percentages, they look at you with a blank stare on their face. And I hear many callers call into Clark Howard and not seem to have a clue, either. So it's not difficult to understand that some people need that sense of accomplishment smacking them in the face, ie, paying off a small debt even if the interest rate is less.

It does crack me up, though, when someone asks if they should take some bonus they got, and pay down some of their mortgage that they have at 3.7%, or pay down some of their credit card that is at like 13%. That shouldn't be rocket science....
 
psionl0 said:
Agreed but then you are more savvy than many who rack up debts. ;)

The Ramsey advice is aimed at those who need visible signs of progress (debts being cleared) and, since most of the time these smaller debts have higher interest rates, the advice is often good.
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Agree


DuvalHMFIC said:
I often forget how bad a lot of people are with percentages and math in general. For me, any debts I have, the first thing I see is what money I'm paying that's going out the window to interest. But I deal with numbers all day at work and school everyday. I have many, many customers though, that when you start talking percentages, they look at you with a blank stare on their face. And I hear many callers call into Clark Howard and not seem to have a clue, either. So it's not difficult to understand that some people need that sense of accomplishment smacking them in the face, ie, paying off a small debt even if the interest rate is less.

It does crack me up, though, when someone asks if they should take some bonus they got, and pay down some of their mortgage that they have at 3.7%, or pay down some of their credit card that is at like 13%. That shouldn't be rocket science....
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DuvalHMFIC, the point I think you are missing is Ramsey's method is getting out of debt, completely, and quickly. Hence using the minimum payments of debts your clear, to pay on the debts remaining. Gaining that momentum is a huge deal, as I know from experience. And, like I said up-post, if life happens, and you need extra money for something unforeseen, you can use the debt snowball as a way of mitigating that event.

Of course, staying out of debt should be the best course. And if you are financially comfortable, and live well inside your means, then paying off a higher interest rate debt before a lower one makes sense. But, Ramsey's method is for getting our of debt as quickly as possible, then ultimately, staying out of debt.
 
Son of Inigo said:
Agree




DuvalHMFIC, the point I think you are missing is Ramsey's method is getting out of debt, completely, and quickly. Hence using the minimum payments of debts your clear, to pay on the debts remaining. Gaining that momentum is a huge deal, as I know from experience. And, like I said up-post, if life happens, and you need extra money for something unforeseen, you can use the debt snowball as a way of mitigating that event.

Of course, staying out of debt should be the best course. And if you are financially comfortable, and live well inside your means, then paying off a higher interest rate debt before a lower one makes sense. But, Ramsey's method is for getting our of debt as quickly as possible, then ultimately, staying out of debt.
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There's a reason paying off the highest interest is called "The math method" and Ramsey's is called "The psychology method." Mathematically, you are going to get out of debt fastest by paying off the biggest interest first, in most cases. The trouble is, most people have trouble sticking to that plan, which is the beauty of Ramsey's plan.

At the end of the day, the whole idea is to pick whatever works for you, though. Getting out of debt is a great feeling. I'm happy to hear that even with a recovering economy, people aren't spending like they did before the economy tanked.
 
What I like about Ramsey is his recommendations on food and the like. Set aside your food money in an envelope and only use that money. I have a roommate who just cannot manage her money; she's always broke at the end of the week. And it's pretty obvious where the money is going. She eats out almost every meal. No matter how many times I tell her this, she refuses to believe that's the problem.
 
psionl0 said:
Agreed but then you are more savvy than many who rack up debts. ;)

The Ramsey advice is aimed at those who need visible signs of progress (debts being cleared) and, since most of the time these smaller debts have higher interest rates, the advice is often good.
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Or to restate - Ramsey is (mostly) addressing a fraction of the population with some psychological deficiency that allows them to rack up unproductive debt w/o rational concern. His remedy necessarily must address that psychological deficit by dangling little carrots before their eyes.

Ramsey's methods (I've only heard him a couple times) don't offend me, tho' his advise is rather trite, formulaic; learn to live w/in your means and repay debt is the main dish, with a big side order of Christianity. A Polonius for our age. For the audience it may well be the best approach.

However I think his propensity for debt aversion "debt freedom" come with consequences if ppl use this as an excuse not to take on productive debt (for schools or biz).

And btw - there is more to a rational debt repayment policy than ordering the debt by interest rates. What are the other costs of failure to pay beyond interest ? What are the consequences of default ? Paying off the high interest credit cards by candle light may not be the brightest idea.
 
Tippit said:
How do I get out of my share of the $18.1 trillion national debt ($154k per taxpayer), and the $95.6 trillion in unfunded liability?

http://www.usdebtclock.org/
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You won't get out of your share but if you, and others like you have millions of offspring then at least the per capita share would be lower.

If there were only 1.8 trillion Americans, the debt per person would be a much more manageable $10 :p
 
psionl0 said:
er... emigrate?
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Apparently you are unfamiliar with US tax laws. Even if I emigrate, I'm still liable for Federal Income tax. I could theoretically renounce my citizenship, but I was looking for more constructive solutions.
 
Tippit said:
Apparently you are unfamiliar with US tax laws. Even if I emigrate, I'm still liable for Federal Income tax. I could theoretically renounce my citizenship, but I was looking for more constructive solutions.
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Well yes and no. If you live an a country with a reciprocal agreement and you earn less than the threshold even though you have to complete a Tax Return, no tax is likely to be payable.
 
I have like, $8,000 in the bank, and $6,000 in credit card debt. I'm pretty sure Ramsey would say, keep $2K in the bank and pay off the debt. He might be right, but the $8K is living expenses for 3 months and the minimum payments steer me in the direction of keeping cash on hand.

I enjoy how Ramsey gets into the nitty-gritty of numbers, but am still not convinced his answers are right for me. In my situation, there may soon be cash coming in that eases the credit situation. In the interim, I like having cash in the bank, even if it makes nothing. That may not be rational; I could run the credit card debt back up if I needed cash, so his advice might be correct.
 
Ramsey is just restating what most economic advisers would recommend,though most economic advisors would roll their eyes on his religious angle and disagree with his "don't make contributions to your retirement until you are out of debt" routine.
 
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Minoosh said:
I have like, $8,000 in the bank, and $6,000 in credit card debt. I'm pretty sure Ramsey would say, keep $2K in the bank and pay off the debt. He might be right, but the $8K is living expenses for 3 months and the minimum payments steer me in the direction of keeping cash on hand.

I enjoy how Ramsey gets into the nitty-gritty of numbers, but am still not convinced his answers are right for me. In my situation, there may soon be cash coming in that eases the credit situation. In the interim, I like having cash in the bank, even if it makes nothing. That may not be rational; I could run the credit card debt back up if I needed cash, so his advice might be correct.
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Don't take his advice about cancelling your retirement contributions until you have your debt pay offed.That is something most finiancial advisors strongly disagree with as being short sighted.
 
dudalb said:
Ramsey is just restating what most economic advisers would recommend,though most economic advisors would roll their eyes on his religious angle and disagree with his "don't make contributions to your retirement until you are out of debt" routine.
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This, and he has been dismissive of people who criticize his investment advice which doesn't stress the advantages of low cost index funds like they espouse over at the boggleheads forum. People there seem to think it's because he gets a cut from the "ELPs" he endorses.
 
Tippit said:
Even if I emigrate, I'm still liable for Federal Income tax. I could theoretically renounce my citizenship, but I was looking for more constructive solutions.
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I know a sure-fire way to avoid paying taxes that doesn't involve renouncing citizenship. However it is a rather final solution and comes with a high opportunity cost...

How do I get out of my share of the $18.1 trillion national debt ($154k per taxpayer), and the $95.6 trillion in unfunded liability?
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Get a constructive job that is a net benefit to the country. Pay your share of the tax burden willingly. Vote Democrat.
 
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Minoosh said:
I have like, $8,000 in the bank, and $6,000 in credit card debt. I'm pretty sure Ramsey would say, keep $2K in the bank and pay off the debt. He might be right, but the $8K is living expenses for 3 months and the minimum payments steer me in the direction of keeping cash on hand.
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Why do you need $8k cash on hand? Do you not have any income?

Just making the minimum payment on your credit card is a very expensive option. The payment is probably almost all interest, so the debt just sits there sucking your money away. You should pay off your card as quickly as possible and learn to live within your means. You can still use the card to cover momentary shortfalls, but don't let it accumulate debt!

I like having cash in the bank, even if it makes nothing. That may not be rational; I could run the credit card debt back up if I needed cash, so his advice might be correct.
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He's right and you are being irrational. If you don't feel comfortable with only $2k in the bank then you could keep some debt on the card, but the less you have on it the less it will cost you. Why throw money away when you don't have to?
 
Minoosh said:
I have like, $8,000 in the bank, and $6,000 in credit card debt. I'm pretty sure Ramsey would say, keep $2K in the bank and pay off the debt. He might be right, but the $8K is living expenses for 3 months and the minimum payments steer me in the direction of keeping cash on hand.
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You have access to $8,000 whether you pay your credit card or not. You can always instantly borrow with your credit card (that's what they are for).

The only effect of not paying off your credit card is that you pay interest for no good reason (and $100 per month is nothing to sneeze at) and you are under the illusion that you have a lazy $8,000 to spare.
 
Yeah, I'm with Roger and psion on this one. Why in the world would you throw $100 a month away? The credit card IS your emergency fund. Not only are you losing that $100 plus a month in interest, unless you have a credit limit of about 25 grand, that $8000 is killing your credit score too. Your debt to available credit ratio is about 30% of your score. A couple of years ago I had a card with a $9000 limit, and I was using $8500 of it. I had all on time payments, a car loan, two different credit cards, no charge offs or anything, yet I was still stuck in the mid-600s simply because I was using so much of my available credit. It's pretty crazy. The odd thing was, I got my credit limit increased, which decreased my ratio, increased my score, and allowed me to transfer my balance for no interest for 12 months, which I then in turn was able to pay down MUCH quicker since all of my payments were going to principle.

It's such a weird, convoluted system. Getting my credit score up dropped my car insurance by like 20 bucks a month, too.
 
Paying that credit card off would sure feel good.

A big flaw I have is that I am a terrible procrastinator with paperwork. I'm eligible right now for a $500 monthly pension - I just need to round up the required documentation and apply.

My income is low, but my house is nearly paid off and I have a decent retirement fund. I used to make $65K a year plus benefits and was socking 20 percent of that away for quite a few years. Now I'm working as a substitute teacher, which suits me because I travel every weekend to help care for my mother, who is 90 and has dementia. I want to keep my job commitments short-term while she is living.

Ironically, I'm nominally in charge of her money. In truth she is a better money manager than I am, even with dementia. She keeps telling me to write myself a check if I need anything.

Thank you for your comments - writing this made me realize that there is no reason to keep putting the minimum on the VISA.
 
Minoosh said:
[snip]

Thank you for your comments - writing this made me realize that there is no reason to keep putting the minimum on the VISA.
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Thirty years ago, when my then-wife and I had the problem of too much debt, I realized that (a) if I could afford to make the minimum payment each month on each debt and (b) if I could stop using credit cards at all so that I would not increase the debt, then (c) I could continue to pay the same dollar amount on each debt every month -- and an increasingly larger proportion of the payment would go toward paying off the principal each month.

I used a combination of "pay off smaller debts first" and "pay off higher interest rates first." In one case, the mechanic who worked on my car allowed me to pay off a repair over time. He did not charge interest, but even so, I paid his debt first.

Then I added what I had been paying to him to the payment for the highest interest rate credit card. When that card was paid off, the entire amount was added to the payment for the next-highest-interest debt.

I needed 19 months to clear about $11,000 of debt, not including mortgage or car payment. But after the debt was paid, the entire amount of payment each month went to eliminating the car payment.

I don't have a website, nor do I play a financial advisor on TV, but I have helped several people understand the premise involved in debt reduction. Rather than discuss percentages or interest rates, I would tell them, "If I pay $115 minimum payment in April, and also $115 in May, even if the new minimum payment is $105, then $10 more would go to paying off principal." This they understood.
 
I don't use the VISA unless someone doesn't take American Express, which isn't much of a credit card as I pay off the balance each month.

The VISA does offer something like frequent-flier miles, but only at very off-peak times, so the combination of "Europe" and "summer" doesn't work at all. Actually, tag on May and October, plus anything near winter holidays, and I might not be able to book then either. However, when I first got the card I got a free round-trip ticket to London so BA earned some loyalty there.

No car payments, happily. Ramsey has fits about those.
 
Minoosh said:
I don't use the VISA unless someone doesn't take American Express, which isn't much of a credit card as I pay off the balance each month.
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We have very different attitudes. I've never carried credit card debt from month to month, ever, except for the once every 2-3 decades event when I accidentally pay the bill a few days late. Same was true when I was young and poor. That sort of high cost debt should be reserved for dire emergencies.

Living frugally is really quite an interesting challenge and it should IMO be part of a rational life. It's a matter of making some hard choices, doing some work, and living below your means. Once you get over the 3month, $8k net worth mark you need to consider how to make some income from your money. Read "The millionaire next door" sometime. Folks who actually have some wealth are precisely the ones who don't waste money on frivolous stuff.

The VISA does offer something like frequent-flier miles, but only at very off-peak times, so the combination of "Europe" and "summer" doesn't work at all. Actually, tag on May and October, plus anything near winter holidays, and I might not be able to book then either. However, when I first got the card I got a free round-trip ticket to London so BA earned some loyalty there.
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So you have a $2k net worth, a $2.7k/month burn rate and yet you concern yourself with spending money on leisure travel. I predict bad financial outcomes. There may be high credit req's but there are some Chase Visa's with 1% back + 5% on some select items. You get cash or credit - not some mythical "points" that they direct toward travel. Forget loyalty.


No car payments, happily. Ramsey has fits about those.
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Then Ramsey may be very wrong.

A car should be considered a tool, not a status symbol. So assuming you need a car, don't waste money purchasing more car than you rationally need, can afford it, and that the term of the loan is reasonable compared to the expected life of the car, then I see no problem with auto debt. The question is whether that particular debt has a higher/lower service cost than your other sources of debt. Also you should consider the potential harm from default in light of the probability. In your case an auto loan for $6k would likely be a lot cheaper than the $6k of credit card debt you carried.
 
Minoosh said:
I don't use the VISA unless someone doesn't take American Express, which isn't much of a credit card as I pay off the balance each month. [Rest of post snipped as not relevant here.]
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My point was not about whether to use a credit card.

Many people (I am not saying this applies to you), pay only the minimum they see on the statement. However, if if they don't add debt to the credit card this month, and could pay the higher minimum amount last month, they could pay the same amount this month and the difference would go toward reducing the principal.
 
stevea said:
So you have a $2k net worth, a $2.7k/month burn rate and yet you concern yourself with spending money on leisure travel. I predict bad financial outcomes.
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My net worth is a lot more than $2k. The pinch is in liquidity. This should ease up considerably in about a year.

stevea said:
Then Ramsey may be very wrong....
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He just goes nuts over vehicle debt. His go-to position is "buy a $1,000 car."

stevea said:
The question is whether that particular debt has a higher/lower service cost than your other sources of debt.
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Ramsey's position is always to pay off all debt, excluding mortgage debt, as soon as possible. He says start with the smallest debt regardless of interest rates, which some on this thread disagree with but he sees as a big motivator to stay on track.

stevea said:
In your case an auto loan for $6k would likely be a lot cheaper than the $6k of credit card debt you carried.
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Happily, I have a Honda Civic bought with cash in 2007. It has 91K miles on it but it's had regular maintenance and should last me almost until "retirement."

ETA: I should probably drop collision insurance though.
 
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