Ramsey debt viewpoint explained

[shannerdrake]

I thought this was a hunting forum........?

Dave thinks you are “bad” if you ever purchased a gun on a credit card, drove a financed truck hunting, or hung mounts or stored meat in a house that didn’t first have a 20% down payment and a 15 year mortgage.

Feel better?

 

[shannerdrake]

I’ve read that one a few times too, and I’m still not cant tell if Robert Kiyosaki has a better or worse grasp of leverage than Dave Ramsey!

The original principle was good, but if you follow him he has really seemed to go off the deep end. I think once these guys make a career out of dispensing advice (ie getting attention and selling books/advertising), they need to keep getting more extreme. Kind of like a shock jock, “what can I say next?” type of thing.

“Don’t go to college!” “Sell everything and buy silver!” These types of things have me searching for the off button.

Valid. Once folks achieve success for a thing, that thing tends to become their schtick and they ride that a bit too long. I had a professor in college that would says “the first book is easy; the second book is BS.”

 

[brymoore]

I’ve read that one a few times too, and I’m still not cant tell if Robert Kiyosaki has a better or worse grasp of leverage than Dave Ramsey!

Both Dave and Robert have been bankrupt.

If I needed a financial advisor, I’d probably start with No Bankruptcy as a key indicator in my search.

 

[np307]

I've known some people who have made it out of some very serious financial messes and stabilized their life by following Ramsey's advice. I've also known some people who can't buy a house because they have no credit and some people who can't build up savings because they're spending more on fixing their crappy cars than a payment would have been on a decent used car.

Advocating that you have to use cash because plastic will make you spend more due to some pseudo-psychology is laughable. Especially when you're so committed to the bit you can't even acknowledge that using a credit card to buy things like gas, groceries, and bills that don't charge a CC fee, then paying that balance off every month and cashing the rewards, is not even remotely the same as maxing out cards and being leveraged to your eyeballs in the real estate market.

Is there a subset of the population who can't have a CC without overspending? Sure. But not owning a CC is a temporary fix. What they really need is self-discipline. And going full Ramsey mode can be a necessary first step in establishing that discipline, but it doesn't have to be a permanent way of life and if the underlying issues aren't fixed, it won't drastically alter that person's outcome.

 

[longbow51]

The book I'm waiting for is @shrapnel's. "How to Live Debt Free and Buy a Zillion Guns with Exhibition Grade Walnut".

Take that, Dave Ramsey.

 

[MTGomer]

I have a family member that wanted to buy a house in 2018 but her husband wouldn’t agree to it because they did not have the 20% down payment that Ramsey says you must have.
They could’ve paid $120/mo of PMI, but instead they bought a house last year for twice as much money at 7% interest. But, at least they had saved the 20%

I don’t think I need to explain why buying a house in 2018 at 5% interest for $220,000, paying a little PMI and then refinancing it in 2021 for 2.75 is a better idea than having 20% down for a $525,000 house at 7% 8 years later

 

[geetar]

I respect the fact that Dave created a plan to get himself out of debt and never end up bankrupt again. Where he gets confused is thinking his plan is one size fits all. I have a family member who is trying to get a mortgage loan right now to build a home. He has always paid cash and never had one single credit card. They won't let him have the loan even though he has a big chunk of cash saved up.

 

[Cammy]

I know a guy that jokingly says "I taught Dave Ramsey everything he knows". The guy is a self made millionaire by not allowing debt to over run him and paying attention to the little things. Watch the pennies and the dollars take care of themselves kind of mentality. He has spent his whole life looking for ways to make extra money on the side using his acquired job skills, garage sale reselling on Ebay and various other techniques. He has all the money he could ever need but continues to look for ways to accumulate more.

Congratulations to him for being disciplined all these years and for working so hard to accumulate financial security. While he may know how to generate wealth, he has no idea how to enjoy it. EVERYTHING in his life revolves around preserving wealth or making more. Drives me crazy to watch the guy evaluate everything against its production or preservation of money. He talks about hunting out West but he never will because if he applies in a draw state they keep his money each year as he accumulates points.

My point of this is: There needs to be a balance in your life. You only get one shot at this and none of us will make it out alive. Enjoy the ride and be thankful everyday for what you have. Manage your money wisely but don't forget to live your life (I apply to draw States that have preference points LOL!). I could have more than I have but how much do you really need to be happy?

 

[woods89]

I have a family member that wanted to buy a house in 2018 but her husband wouldn’t agree to it because they did not have the 20% down payment that Ramsey says you must have.
They could’ve paid $120/mo of PMI, but instead they bought a house last year for twice as much money at 7% interest. But, at least they had saved the 20%

I don’t think I need to explain why buying a house in 2018 at 5% interest for $220,000, paying a little PMI and then refinancing it in 2021 for 2.75 is a better idea than having 20% down for a $525,000 house at 7% 8 years later

We bought an old house on 10 acres in 2018. I've been so incredibly glad we bought when we did.

Our home and land value appears to be up over 50% over the 6 years since.

 

[npaden]

As several have said. Dave Ramsey's advice is good for people that have gotten themselves into a mess and need help getting out.

There are so many ways that you can make money relatively risk free with "good debt".

It would be an interesting rabbit hole to go down to look at how leveraged people are vs. how much net worth compared to their income they have.

I think there are some people with high incomes living at the edge of their means and leveraged to the hilt. I think there are some people with lower income living well within their means and investing that have a much higher net worth even though they make way less.

My personal belief is that is the key ingredient. Living below your means and building a cushion of savings, investments, etc. One other ingredient that really solves financial difficulties is earning more money. Whether that is a side gig or a career with good earnings growth, that solves a lot of problems before they even start.

Working at a CPA firm and seeing people who make the same salary and one is living in a very nice home and driving very nice vehicles and complaining about not making enough to pay off their credit card debt and the other is living in a modest home and driving decent dependable vehicles and asking me for advice on investments is pretty noticeable.

Longer trip to get there than I was planning but to me debt can be used as a tool. It can be very useful if you are using it correctly. It can get you in a very deep hole if not used correctly.

 

[SAJ-99]

Both Dave and Robert have been bankrupt.

Good post @VikingsGuy. A lot of great responses. This above can't be pointed out enough. Dave either didn't understand the callability structure of the debt or he didn't make a payment. Even a "trained finance professional" can make a bad call.

Some general thoughts/questions
1) The American system is set up to incentivize risk taking and debt is a key (if not necessary?) ingredient. Bankruptcy isn't supposed to be so punitive that simply its possibility suppresses the entrepreneurial spirit. It has changed greatly over the years, particularly in the 1930's to protect farmers. Generally speaking, it's a good system. The results show it works at a high-level.
2) College debt generally can't be cleared through bankruptcy. This makes it unique and punitive.
3) the rate you pay on debt is supposed to compensate the lender for the chance of bankruptcy. Lending money to the average American is a very risky proposition. The price of that risk has been too cheap for a loooong time, but again, this is a function of the American system. We encourage home ownership and buying stuff (the American Dream). Going against this is a career death sentence for any politician.

4) Dave Ramsey found out that giving people financial advice is far more profitable and less risky than the real estate business. I don't believe he has any licenses or is registered in any state. He is not a financial advisor, he is a celebrity. This allows him to give generic advice and not have to worry about Fiduciary Duty and other professional obligations. That little regulatory stuff that is needed to give advice that should be tailored to each person is kind of important.

Side note- Some people feel better paying someone to guide them. I guess it helps with motivation? It doesn't matter if it is a hunting trip, exercise programs (Richard Simmons in 1980's or even a local trainer), dieting control (Weight Watchers/Jenny Craig), Financial advice (Dave Ramsey), or whatever. For some people this is very helpful. The comparison I have is if Dave Ramsey had a heart attack at age 30 would all these people be taking medical advice from him - take a statin, daily vitamins, zero red meat, exercise 6x/wk, etc? The self-help, and financial help industry seems to be increasing lucrative.

5) Robert Kiyosaki dove into a shallow end of the pool a long time ago. Not all the advice is bad, but he is not with it.

I made this point on another post. I think the majority of people understand exactly what they are doing when they sign the paper work. They prefer getting gratification today in exchange for payment later. Not sure that will ever change.

 

[TN2shot07]

I respect the fact that Dave created a plan to get himself out of debt and never end up bankrupt again. Where he gets confused is thinking his plan is one size fits all. I have a family member who is trying to get a mortgage loan right now to build a home. He has always paid cash and never had one single credit card. They won't let him have the loan even though he has a big chunk of cash saved up.

Getting a mortgage with no credit isn’t difficult with a strong down payment (bad credit is another issue) but you can’t go to one of the big commercial banks. It requires manual underwriting (how loans used to be made, when they analyzed your whole situation and not just a number that is generated by debt). Mine was through a local credit union, Dave has a recommended mortgage company that specializes in it too.

 

[np307]

Getting a mortgage with no credit isn’t difficult with a strong down payment (bad credit is another issue) but you can’t go to one of the big commercial banks. It requires manual underwriting (how loans used to be made, when they analyzed your whole situation and not just a number that is generated by debt). Mine was through a local credit union, Dave has a recommended mortgage company that specializes in it too.

Lol I bet he does

 

[TN2shot07]

Lol I bet he does

Hell if you’re going to recommend a plan that doesn’t go along with the norm it’s a good idea to make sure there’s a realistic option to support it.

 

[np307]

Hell if you’re going to recommend a plan that doesn’t go along with the norm it’s a good idea to make sure there’s a realistic option to support it.

That's one way to look at it

 

[VikingsGuy]

I made this point on another post. I think the majority of people understand exactly what they are doing when they sign the paper work. They prefer getting gratification today in exchange for payment later. Not sure that will ever change.

THIS

A very small percentage of people (especially student loan holders) don’t understand there is a repayment obligation that could hurt - it is they just hope it won’t come to that and act surprised when it does.

 

[Pucky Freak]

 

[SAJ-99]

THIS

A very small percentage of people (especially student loan holders) don’t understand there is a repayment obligation that could hurt - it is they just hope it won’t come to that and act surprised when it does.

Agreed. But student debt is a little different. We have to agree that there is a difference between cousin Eddie taking on debt to buy that new Polaris and him taking on debt to get and education to become a nurse. One helps society vastly more than another. Also it doesn’t seem right that bankruptcy would clear the debt on the Polaris but not the debt taken to get an education, yet in both cases Eddie has wrecked his credit rating for a decade or more at least. If we had politicians that were interested in solving problems this could be adjusted for the benefit of us all.

 

[VikingsGuy]

Agreed. But student debt is a little different. We have to agree that there is a difference between cousin Eddie taking on debt to buy that new Polaris and him taking on debt to get and education to become a nurse. One helps society vastly more than another. Also it doesn’t seem right that bankruptcy would clear the debt on the Polaris but not the debt taken to get an education, yet in both cases Eddie has wrecked his credit rating for a decade or more at least. If we had politicians that were interested in solving problems this could be adjusted for the benefit of us all.

We agree. My point was not to judge the merit of various debt types, but was sticking to the quoted part of your post about "feined ignorance" about debt by most. Since at least the late 1980s students getting student loans have to sit in a room and receive a 30-minute lecture describing the consequences of the debt they are about to undertake and actually have to sign a little "worksheet" that gives real-world examples of how that plays into future budgets.

(Something I doubt the Polaris dealership is doing.)

 

[VikingsGuy]

Agreed. But student debt is a little different. We have to agree that there is a difference between cousin Eddie taking on debt to buy that new Polaris and him taking on debt to get and education to become a nurse. One helps society vastly more than another. Also it doesn’t seem right that bankruptcy would clear the debt on the Polaris but not the debt taken to get an education, yet in both cases Eddie has wrecked his credit rating for a decade or more at least. If we had politicians that were interested in solving problems this could be adjusted for the benefit of us all.

There are a few differences that have to be weighed into "fair". For example, the average Polaris borrower at time of insolvency is on average older and likely has other assets at stake so is less reluctant to gleefully declare bankruptcy. In the early days of student loans it was a stated life strategy to plan to declare bankruptcy the minute you graduated - there was no reason not to. If we want to go to a Student Gift program as a policy choice, fine. But if 22 yos can all clear $100k iin debt with the flick of the pen as a part of the plan, it is not a Loan. Also, lets remember who bears the loss of default, in the snowmobile example it is Polaris. In the case of Student Loans it falls on many tax payers who didn't have the chance to go to college in the first place - a really bad policy construct and super anti-progressive.

The solution to fix our higher ed system is not to take the market pressure of studen loan debt off the table - that just hides the real problems. We need to drive systematic change about how this nation spends finite resources to develop our 18 yos for their future lives. Blowing $75k a year to get an art history degree is not a great value proposition for the student or society. We need to discount the phony market premium (unnecessary minimum job requirements) placed on bachelors degrees with no actual connection to the job at hand. We need to discout the real but stupid premium placed on the most expensive school's diplomas. We need to hack back the escalation of administrators and amenities and instead invest in professors and circiculum. We need drop the cost of higher ed and then we have to offer better financial options for those that do attend. I am pro higher ed. I am pro active govt support to develop the workforce of the future. I hate what the system is today.