NA - Dave Ramsey

[SkyHog]

Maybe he's just playing to his audience, but there is a thing call "good debt."

Not in his program. His intentions are to get you debt free (yes, even your house), and only pay cash going forward. Can't afford it? Save.

No debt.

 

[Tampico Trauma]

I think he's a bit nuts to encourage people to plow money into paying off the mortgage... At 3%, there is little reason to dump a ton of cash into paying it off early.

Once your consumer debt is down and you're investing for retirement, what else should you do with the money? Get a small return on it while paying a mortgage at a higher rate?

Or pay the mortgage off and have ALL of your income to use.

Pretty simple for me.



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[SkyHog]

Paying off the mortgage is way down on his lift. It comes after you pay off other debt, bank for retirement, and fund your children's college tuition.

This is true, but it is part of the plan.


By the way - I don't disagree with his method. I used a similar method to clean up the debt my wife brought to the table when we first wed. I just stacked the debts differently.

 

[SkyHog]

I think he's a bit nuts to encourage people to plow money into paying off the mortgage... At 3%, there is little reason to dump a ton of cash into paying it off early.

No debt. No debt means no debt.

Put that 3% to work instead.

 

[Ted]

Paying off the mortgage is nice. For one, it's a guaranteed ROI (albeit small). With that payment gone (and thus you having zero payments, just bills) you can then decide to throw additional money into savings/investments once that's done.

Another benefit is ease of moving when you need to do so quickly. Our move to Kansas was pretty quick. Because our previous house was paid off, that made it very easy to get the mortgage on the new house, which we then paid down substantially once we sold the old house. This is the only debt, and we'll get it paid off ahead of schedule.

Drive old cars so you don't take out loans on new ones. Maximize your company's 401(k) matching. Plan to stay at a company long enough to get fully vested, otherwise you're leaving money behind. If your company has an ESPP that lets you buy stock at a discounted rate, same thing, maximize your contributions - treat it as part of what you do to get your maximum salary.

Don't get into debt, if you do pay it off as fast as you can.

I like credit cards as you get benefits from them. If you pay them off at the end of the month, no interest. The benefits have added up quite a bit over time.

All pretty simple.

 

[Sac Arrow]

I think he's a bit nuts to encourage people to plow money into paying off the mortgage... At 3%, there is little reason to dump a ton of cash into paying it off early.

If you have an investment opportunity that reliably earns greater than that it doesn't. But good luck finding that right now.

 

[ejensen]

If you have an investment opportunity that reliably earns greater than that it doesn't. But good luck finding that right now.

Isn't no interest better than -3.0%? I agree no hurry but it sure was nice when we paid off the 15yr mortgage. Amazing difference when there are no payments except utilities.

 

[Greg Bockelman]

First rule of his program: don't look at payment amount, or interest rate of your current debt, only look at total amount of the debt.

Then, you organize them smallest to largest, and pay them off in that order, rolling your previous payment into the next largest debt.

You will wind up paying more in interest that way, but you'll get quicker "wins," so it feels better. Its not a bad plan, and it will work, but it isn't the most efficient method.

Yeah, I know how it works. Just wondering what your complaint is.

In the long run, the psychological effect of paying a small loan or credit card with a lower interest rate off is greater than paying off a larger loan with a greater interest rate. And I suspect at the end of the day, the actual monetary difference would not be that great.

Frankly, personally I have a loan on my house that will be paid off before I retire and a loan on the airplane that will be paid off as soon as I can. Yeah, I know. But the enjoyment I get on the airplane at this stage of my financial life is worth more than the interest I pay on the loan. And financially, I can afford it.

 

[SkyHog]

Yeah, I know how it works. Just wondering what your complaint is.

In the long run, the psychological effect of paying a small loan or credit card with a lower interest rate off is greater than paying off a larger loan with a greater interest rate. And I suspect at the end of the day, the actual monetary difference would not be that great.

Frankly, personally I have a loan on my house that will be paid off before I retire and a loan on the airplane that will be paid off as soon as I can. Yeah, I know. But the enjoyment I get on the airplane at this stage of my financial life is worth more than the interest I pay on the loan. And financially, I can afford it.

Agreed. And no specific complaint. I actually like the fact that he makes it as no-nonsense as he can. No Debt. No confusion, just no debt. Pay it off, leave it behind, and stop going into debt.

I'd recommend snowballing debts with an eye on interest, personally, but if quick wins are better for anyone psychologically, they should do that, because most importantly - no debt.

 

[txflyer]

Cars eat everyone's lunch more than anything if you ask me. A car used to not cost $30,000.00 and up. That's a **** load of money when you try to earn it paycheck by paycheck and pay it back with interest. And you've bought a depreciating asset with borrowed money.... major bad money voodoo.

Everyone must pay rent or have a home but cars are discretionary. Never go in debt for a car.

I buy all my cars and trucks used and with cash. Preferrably two years old, low mileage, that's the best bang for your buck.

 

[LDJones]

Hey all,

Wife and I are finding that there's too much month left at the end of our money. On paper, we have a substantial amount of cash left over at the end of the month, but in reality, that's not true. Any pireps on Dave Ramsey's methodologies?

I have a number of friends and acquaintances that swear by his methodology. One captain I flew with came out of college with close to 100K of debt and went to work for a regional. He and his wife followed Ramsey's advice and they were debt-free within a few years and had enough for a down payment on their dream house.

 

[cowman]

Cars eat everyone's lunch more than anything if you ask me. A car used to not cost $30,000.00 and up. That's a **** load of money when you try to earn it paycheck by paycheck and pay it back with interest. And you've bought a depreciating asset with borrowed money.... major bad money voodoo.

Everyone must pay rent or have a home but cars are discretionary. Never go in debt for a car.

I buy all my cars and trucks used and with cash. Preferrably two years old, low mileage, that's the best bang for your buck.

Yeah I agree. I'm kind of a car nut so I spend more on this than I should but it's also a bit of a hobby/entertainment for me. The only time I ever took a loan on one was when Ford offered me a rebate on my truck for having one. So, I just made the minimum number of payments, then payed it off so in that rare case I came out ahead.

If you want just transportation though IDK why anyone buys new. Just buy something basic used for like $5,000 and drive it until the wheels fall off. Repeat as needed.

 

[ejensen]

Yeah I agree. I'm kind of a car nut so I spend more on this than I should but it's also a bit of a hobby/entertainment for me. The only time I ever took a loan on one was when Ford offered me a rebate on my truck for having one. So, I just made the minimum number of payments, then payed it off so in that rare case I came out ahead.

If you want just transportation though IDK why anyone buys new. Just buy something basic used for like $5,000 and drive it until the wheels fall off. Repeat as needed.

It's fun when you sit at the contract/finance desk and when they get to the bottom line you pull out the check book. Most dealers figure on making money from the loan, not the vehicle.

 

[AggieMike88]

you'll get quicker "wins," so it feels better.

And that's a primary item with his method....

Many folk who seek him out are those that have really applied to the canine the object that is attached to another object by an inclined plane, wrapped helically around an axis when it comes to finances and are at the end of a bad emotional rope. And Dave freely admits one of his main "products" that he provides is hope.

So by helping people get these small and quick wins, they get the positive emotions of closing down their initial accounts with the smaller amounts and rejoice that they can now add more money to the next ones, helping to zero them out faster.

Mathematically, you're correct. But it wasn't math that caused them to get into that jam in the first place. It was lack of proper financial management and planning and allowing emotional "I want... but don't need" did it. So fighting back with positive emotions when the first few small accounts are killed helps these folks go the distance.

 

[AggieMike88]

I haven't read the entire thread, so apologies if this has been said....


But one of the other big wins for married people (or committed relationship) with a program such a Dave's is that they get better at communicating about money.

The statistics are there that show that financial infidelity and other money issues create more stress, problems, and divorce in marriages than sexual fidelity.

So if a program helps couples talk about money, and become winners.... what other subjects might become better at communicating about? And if the relationship becomes stronger because of Dave's TMMO plan (or similar), then they become the best winners of all.

 

[txflyer]

Yeah I agree. I'm kind of a car nut so I spend more on this than I should but it's also a bit of a hobby/entertainment for me. The only time I ever took a loan on one was when Ford offered me a rebate on my truck for having one. So, I just made the minimum number of payments, then payed it off so in that rare case I came out ahead.

If you want just transportation though IDK why anyone buys new. Just buy something basic used for like $5,000 and drive it until the wheels fall off. Repeat as needed.

It's the first thing a lot of kids do when they get a license. Run down and sign up for six years of $500.00 month or more thinking $500 ain't so bad ...

I'm guilty of it.

Thank God our neighbor wanted my truck when it was eating my lunch and getting older and just wearing out. The new had worn off and the notes were like Chinese torture every month.

 

[AggieMike88]

No debt. No debt means no debt.

Put that 3% to work instead.

Agree...

Dig a bit deeper on his site, videos, books and more, and somewhere there is a comparison showing the results of paying off the house quickly and then putting that payment into a modest investment versus paying the mortgage for the full 30-year term.

Early payoff wins. And you have the security that your primary shelter is no longer at risk to loss of income.

 

[sourdough44]

I was driving home a bit late last eve, there was Dave Ramsey on the radio. Over the years I listened to him and others, Clark Howard, Bob Brinker etc..


I think a lot of stuff he says can help, but it comes down to the individuals. You really don't have to 'take his course(pay)' or anything. It's simple, but hard too. I do like one of his quotes, "live like no one else, so you can LIVE like no one else".

So many things over the years have drifted from 'wants' to 'needs'. Most don't have a clue about how to tighten the budget.

Yeah, can't go wrong by listening to some of his advice, then you have to act upon it. He has a smooth way of making $$ off his mini dynasty too, though nothing wrong with that.

 

[JCranford]

Dave's plan works. Do it. My wife and I never had a ton of consumer debt, but we had some plus cars. We paid off everything including the house in 4 years.

I'll say the main thing we gained was better overall communication. If you can talk sensibly about money you can talk about everything else too.

It's made it possible for me to cash flow the ppl and join my flying club. It will make it possible for me to buy my own plane for cash in the not too distant future as well. It has definitely given us the ability to give more to some charities we like.

As for the naysayers and those who say it's just common sense, if it was so easy why are most Americans up to their eyebrows in debt?

And as for Mr Don't-pay-off-the-house-at3%---MY 3% is going into investments while YOUR 3% is supporting the bank. I win!

 

[dans2992]

Agree...



Dig a bit deeper on his site, videos, books and more, and somewhere there is a comparison showing the results of paying off the house quickly and then putting that payment into a modest investment versus paying the mortgage for the full 30-year term.



Early payoff wins. And you have the security that your primary shelter is no longer at risk to loss of income.

Totally disagree.

First off, if you can't find an investment that yields > 3% (over the long term), you are way way too risk averse.

Secondly, let's say your mortgage balance is $200,000. You have $205,000 in a savings account.

Person A decides to write the bank a $200,000 check leaving him with $5000 in the savings account.

Person B keeps his mortgage at 3%, and keeps the $205,000 in his savings account.

Tomorrow, they both lose their jobs. You tell me, who will be panicking more?

 

[somorris]

I like his phrase that "Everyone has to pay a little stupid tax!"

All in all, whether you agree with everything he says or not, I think he has done a lot of good for a lot of people. Most of what he advocates is really just common sense. We live in the age of consumerism and are constantly barraged by sales pressure to buy a lot of things we really don't need. It is hard to resist and a lot of people to get in over their heads. Thoreau had it right -- most men lead lives of quite desperation. I rarely listen to his program, but am glad it is there to help those that need it.

 

[Fearless Tower]

Totally disagree.

First off, if you can't find an investment that yields > 3% (over the long term), you are way way too risk averse.

Secondly, let's say your mortgage balance is $200,000. You have $205,000 in a savings account.

Person A decides to write the bank a $200,000 check leaving him with $5000 in the savings account.

Person B keeps his mortgage at 3%, and keeps the $205,000 in his savings account.

Tomorrow, they both lose their jobs. You tell me, who will be panicking more?

Exactly. With mortgage rates as low as they are these days, you really are better off putting the money to work elsewhere than paying off the mortgage.

Plus there is the tax benefit of a mortgage. We went through this drill with our accountant shortly after we bought our home and discussed whether or not to liquidate brokerage assets and pay off the house. Our accountant showed us that we were indeed better off with the mortgage.

I could pay off my mortgage tomorrow.....and then my taxes would go up.

 

[MauleSkinner]

Exactly. With mortgage rates as low as they are these days, you really are better off putting the money to work elsewhere than paying off the mortgage.

Plus there is the tax benefit of a mortgage. We went through this drill with our accountant shortly after we bought our home and discussed whether or not to liquidate brokerage assets and pay off the house. Our accountant showed us that we were indeed better off with the mortgage.

I could pay off my mortgage tomorrow.....and then my taxes would go up.

Ramsey's take on that is not "do you want to pay more taxes", but rather "which tax-deductible investment would you rather make?"

I can pay the bank $1000 in interest for a tax deduction, or I can donate the same $1000 to the charity of my choice for the same tax deduction.

The bank isn't my charity of choice.

Having said that, yes, the bank will get ALMOST $1000 in interest from my wife and me over the life of my mortgage. I'm not making house payments for the tax deduction.

 

[MauleSkinner]

Totally disagree.

.... let's say your mortgage balance is $200,000. You have $205,000 in a savings account.

Person A decides to write the bank a $200,000 check leaving him with $5000 in the savings account.

Person B keeps his mortgage at 3%, and keeps the $205,000 in his savings account.

Tomorrow, they both lose their jobs. You tell me, who will be panicking more?

Is there more than one Dave Ramsey making financial recommendations? Unless these people are living on about $800 a month, you're looking at a different Dave Ramsey's website...

 

[Fearless Tower]

Ramsey's take on that is not "do you want to pay more taxes", but rather "which tax-deductible investment would you rather make?"



I can pay the bank $1000 in interest for a tax deduction, or I can donate the same $1000 to the charity of my choice for the same tax deduction.



The bank isn't my charity of choice.



Having said that, yes, the bank will get ALMOST $1000 in interest from my wife and me over the life of my mortgage. I'm not making house payments for the tax deduction.

Suit yourself. Since buying a home, my after tax income is higher and my brokerage portfolio is averaging a return that is triple what I am paying the bank in interest on the home.

 

[Ted]

Totally disagree.

First off, if you can't find an investment that yields > 3% (over the long term), you are way way too risk averse.

Secondly, let's say your mortgage balance is $200,000. You have $205,000 in a savings account.

Person A decides to write the bank a $200,000 check leaving him with $5000 in the savings account.

Person B keeps his mortgage at 3%, and keeps the $205,000 in his savings account.

Tomorrow, they both lose their jobs. You tell me, who will be panicking more?

You're taking an extreme example, though in that the person has the ability to pay it off, but then has effectively no additional savings beyond that. That wouldn't follow, well, anyone's advice that I'm aware of.

A better example would be someone who has $300k available for whatever purpose and a $200k mortgage. In that case, I'd pay off the $200k mortgage and have $100k left over for investing, and then keep working. Having lived without a mortgage and just having to pay insurance and property taxes for a while, it is extremely nice, and I'd be willing to sacrifice some ROI to go back to that. Simplifying your finances is worth something.

Now yes, properly invested the person who pays the 3% mortgage and invests that full $300k will end up doing better overall. But it's really nice not having a mortgage and just having to pay your insurance and taxes on a yearly basis. That only makes sense if you have other money available, though, and would make no sense in the case you stated.

 

[MooneyDriver78]

The reason to he recommends paying off the mortgage is because the people who listen to him obviously have a spending problem, paying off the mortgage prevents them from being tempted to spend that money.
His advice is not meant for those that have the discipline not to spend money just because they have it.

 

[weilke]

When I retire, I do plan on living in a paid off house. Just the utilities and taxes, whatever is left gets spent on avgas


His program works for those who need it. Some of his apostles believe that it is universally great financial advice and will get quite militant towards anyone who disagrees with them.

Where I disagree with him is his sanctimonious absolutism in regards to student loans. Back when he got his BS in finance, state school tuitions were low enough to work your way through college. With the tuition racket what it is, this has gotten much harder. If you study something that leads to a career, there is considerable opportunity cost in either delaying or extending your years spent on education. Of course, there is no point in racking up 200k in debt for a bachelors in basketweaving and phys-ed, but for something like a hard engineering degree, there is a good payback on the money spent for the undergrad degree. Same with some grad schools. To become a lawyer, you gonna have to go to law school and the cheapest one may not be the one that gives you a shot at career in that field.

 

[Anymouse]

When given a choice of paying $300 to Uncle Sam every month, or paying $1000 in interst to the bank every month, I'd opt for the $300 rather than the interest. Even with the tax deduction, you're still paying more in interest than you're saving in taxes. Although I admit that getting that refund in the spring is an ego booster.

 

[Bill]

Its not a bad plan, and it will work, but it isn't the most efficient method.

True, but I bet the difference isn't all that great. Small loans like CCs and auto loans are not tax deductible, you have to add that factor as well.

 

[Bill]

How much could you do if all you had to pay was your monthly bills? Buy a plane with cash? Get your multi? Fly Alaska? Rent a T-6? P-51? Get a type rating in a 737?

Or, better insulate yourself if you and/or your spouse get laid off. A big factor of being debt free is knowing the world won't end over a setback like a layoff. (or big medical expense, or......)

 

[flyingron]

True, but I bet the difference isn't all that great. Small loans like CCs and auto loans are not tax deductible, you have to add that factor as well.

Size of the loan is immaterial. Used to be all interest paid was deductible (which is fair since interest received was income). Now, for average individuals only mortgage interest on their first or second home (capped at $1MM loan amounts) is deductible.

I've had deductible home loans smaller than most people's car or credit card debts.

 

[jaymark6655]

Totally disagree.

First off, if you can't find an investment that yields > 3% (over the long term), you are way way too risk averse.

Secondly, let's say your mortgage balance is $200,000. You have $205,000 in a savings account.

Person A decides to write the bank a $200,000 check leaving him with $5000 in the savings account.

Person B keeps his mortgage at 3%, and keeps the $205,000 in his savings account.

Tomorrow, they both lose their jobs. You tell me, who will be panicking more?

I don't see the problem unless Person A skipped the first 5 steps. Otherwise they should not have any debt, 3 to 6 months of expenses saved, a good chunk of money invested in retirement and college money for their kids.
I would be able to live for a few years (3 to 6 months guaranteed) without work at that point, unfortunately my kids would have to pay for their own college.

 

[Ted]

Or, better insulate yourself if you and/or your spouse get laid off. A big factor of being debt free is knowing the world won't end over a setback like a layoff. (or big medical expense, or......)

Yep. It's hard to take away what you own free and clear. And then if you need to sell things to generate cash, you can.

In the end, there are lots of ways to skin the cat. You figure out what works for you.

 

[Fearless Tower]

His program works for those who need it. Some of his apostles believe that it is universally great financial advice and will get quite militant towards anyone who disagrees with them.

I think that is a very key point. Just like what is financially advantageous for me isn't the best advice for everybody. It needs to be understood in context.

 

[Everskyward]

Or, better insulate yourself if you and/or your spouse get laid off. A big factor of being debt free is knowing the world won't end over a setback like a layoff. (or big medical expense, or......)

Or know that you could walk away and retire tomorrow...

 

[Somedudeintn]

Suit yourself. Since buying a home, my after tax income is higher and my brokerage portfolio is averaging a return that is triple what I am paying the bank in interest on the home.

Just curious. Would you advise someone who had a paid for house to "refi" to get a cheap loan to get more money out to invest in the stock market?

I see both sides and think people need to do what works for them.

 

[Ted]

Or know that you could walk away and retire tomorrow...

That's another big plus...

 

[JCranford]

You're taking an extreme example, though in that the person has the ability to pay it off, but then has effectively no additional savings beyond that. That wouldn't follow, well, anyone's advice that I'm aware of.

A better example would be someone who has $300k available for whatever purpose and a $200k mortgage. In that case, I'd pay off the $200k mortgage and have $100k left over for investing, and then keep working. Having lived without a mortgage and just having to pay insurance and property taxes for a while, it is extremely nice, and I'd be willing to sacrifice some ROI to go back to that. Simplifying your finances is worth something.

Now yes, properly invested the person who pays the 3% mortgage and invests that full $300k will end up doing better overall. But it's really nice not having a mortgage and just having to pay your insurance and taxes on a yearly basis. That only makes sense if you have other money available, though, and would make no sense in the case you stated.

Problem is, you're both taking the wrong real-world examples. Most people do not have $200K in savings AND a house payment. Hell most people couldn't scrape together $10K if they had to.

So, if youre following Dave's plan and you're at the 'paying off the house' stage, then you have a dedicated Emergency Fund of 3 - 6 months savings and the rest of the money goes to paying off the house. If you lose your job then you fall back on the Emergency Fund, and pay only the house mayment, not more. No one recommends you build up some giant savings and THEN pay off the house with it. Its a process

 

[Fearless Tower]

Just curious. Would you advise someone who had a paid for house to "refi" to get a cheap loan to get more money out to invest in the stock market?

I see both sides and think people need to do what works for them.

That depends on a lot of things: your risk profile, what you want to invest in, market timing, what kind of rate you can get...etc.

Like I said in post #75, this is no blanket advice for this. What works for me may or may not work for you. As some others have pointed out, you really can't use Dave Ramsey's advice universally any more than you can apply mine the same way.

My advice on the home loan thing is that this is something that you would want to talk with your accountant about and decide what is the best scenario for you.