Ramsey debt viewpoint explained

[VikingsGuy]

Where's your book?

You started the thread.

I started the thread to explain how Ramsey himself justifies his debt advice. I will leave it to others to write a book with cult-like following and charge $49.95 for it..

 

[Nick87]

Meanwhile, one of the best things I ever did was ignore Ramsey style advice after 2008.

My wife and I took out 100% financing on our first home in 2009. And I had to borrow $850 of the $1,000 I put down. But I knew it might be a once in a generation opportunity to buy after such a drop in the market and the gamble paid off.

I had people tell me it wasn't a great idea. One of those people waited several more years to buy thinking another big crash was a coming and wanting to save up a big down payment. It was a mistake and wasted opportunity.

I paid $157K in 2009 and sold for $511K in 2023. But by Ramsey advice I should never have bought that house.

And my final point I like to make to people about 2008 is that most would have been fine if they would have just kept making their mortgage payments. They would have been about to sell for a profit within 10 years easily. I understand that may have been difficult and job situations changed, but that says a lot more about buying within reasonable DTI constraints than leverage.

Yes that was definitely a OIL opportunity, but if more people were leaning more towards a Ramsey style prior to 08 would 08 have been a thing? Also I'm sure there were a ton of people who would have loved to just keep paying there mortgages of it were that simple. Many of them were out of a job. That housing crash effected way more than just the people who took out shitty loans imo.

 

[rjthehunter]

I think Ramsey is great for some people, especially people who aren't financially smart or just don't know.

Ramsey is really good for the kind of people who take their financial advice from tiktok.

The interest rates I have on my house and truck are so low that I'm much better off investing the money than spending every penny to pay off a loan way early.

There's definitely lots of circumstances I hear about where their best option is to pay that debt off asap.

 

[Treeshark]

There's definitely lots of circumstances I hear about where their best option is to pay that debt off asap.

True. I think a lot of people fool themselves by saying “I could pay down this debt, but it’s so cheap…” and then spend that money rather than invest it.

 

[TOGIE]

But enough is enough - I am tapping out. Folks who care to take the tiniest amount of effort to understand Ramsey's shortcomings can readily do so, those who prefer to blindly follow may do so to. Apparently, it's like arguing Ford vs Chevy - it is loyalty rather than facts that drive it. To each their own.

it's interesting... i think quite a few of the folks who you are arguing with don't follow or fully agree with ramsey at all. makes ya wonder if it's the subject of the debate or...

 

[The_Jim]

I've somehow brought myself to read through all the posts on this thread. I still don't understand why guys get so upset over Ramsey's advice. It's not far off from what the OP suggests minus the leverage.

My only comment is that if I lose my paycheck for a couple months the bank isn't going to be putting foreclosure signs in my yard and isn't coming to repo my truck. I invest a significant portion of my income, but when I had a 11K hospital bill for our 3rd child, Charles Schwab didn't send me nasty letters because I missed a Roth Contribution. My wife has been able to stay home and raise our kids for the last 9 years. Now instead of getting some crap corporate job, she started a bookkeeping business with some of her old clients. When you don't have debt, you have freedom and I don't think you can put a price tag on that.

 

[rjthehunter]

True. I think a lot of people fool themselves by saying “I could pay down this debt, but it’s so cheap…” and then spend that money rather than invest it.

Yes, if the alternative is to waste it, then definitely pay off the debt first.

 

[Bam Bam]

This has been an excellent and lively conversation- thank you to VikingsGuy for starting it.

 

[Deleted member 28227]

True. I think a lot of people fool themselves by saying “I could pay down this debt, but it’s so cheap…” and then spend that money rather than invest it.

I think best practice to avoid this is to set up your paycheck to ACH to your investment account so that money never hits your checking.

 

[Wind Gypsy]

I currently have 0% loans on two vehicles and a tractor. All 3 of which I intended to pay cash for. The cash that was meant to pay for them instead has earned enough interest to buy the type of vehicle a Dave Ramsey absolutist would have advised having..

 

[brymoore]

Ramsey is really good for the kind of people who take their financial advice from tiktok.

Ha!

 

[Steiny77]

True. I think a lot of people fool themselves by saying “I could pay down this debt, but it’s so cheap…” and then spend that money rather than invest it.

This is generally the case, lifestyle creep eats up the money they tell themselves they will be investing and getting higher returns on; nicer cars, more toys, nicer vacations, dining out, etc.

 

[TN2shot07]

I currently have 0% loans on two vehicles and a tractor. All 3 of which I intended to pay cash for. The cash that was meant to pay for them instead has earned enough interest to buy the type of vehicle a Dave Ramsey absolutist would have advised having..

You do have to be fair when quoting those numbers on vehicles, or any other depreciating asset.

You are making payments on an item that depreciates fairly rapidly in value. Zero percent typically means brand new which means you also took the massive “pull of the lot” hit and typically the incentives manufacturers offer are not applied to zero percent loans so you also pay more for the vehicle.

 

[BigHornRam]

I think best practice to avoid this is to set up your paycheck to ACH to your investment account so that money never hits your checking.

And for those of us that are self employed, just be self disciplined enough to have enough money in the checking account, when the time comes to fund this year's IRA.

 

[mevertsen]

You do have to be fair when quoting those numbers on vehicles, or any other depreciating asset.

You are making payments on an item that depreciates fairly rapidly in value. Zero percent typically means brand new which means you also took the massive “pull of the lot” hit and typically the incentives manufacturers offer are not applied to zero percent loans so you also pay more for the vehicle.

Question / observation on that point.

The zero percent dealer loans seem to have the catch on the front end, so 5 percent or more on the purchase price?

We had our last loan at the credit union and it seemed a lot "cleaner" in terms than what the typical dealer incentives, loan programs offer.

Interest rate was a bit higher but the extra dealer stuff wasn't there.

 

[BigHornRam]

You do have to be fair when quoting those numbers on vehicles, or any other depreciating asset.

You are making payments on an item that depreciates fairly rapidly in value. Zero percent typically means brand new which means you also took the massive “pull of the lot” hit and typically the incentives manufacturers offer are not applied to zero percent loans so you also pay more for the vehicle.

No "free" lunch....

 

[TN2shot07]

Question / observation on that point.

The zero percent dealer loans seem to have the catch on the front end, so 5 percent or more on the purchase price?

We had our last loan at the credit union and it seemed a lot "cleaner" in terms than what the typical dealer incentives, loan programs offer.

Interest rate was a bit higher but the extra dealer stuff wasn't there.

Yes, it would definitely be driven by dealer financing.

If you can secure a zero percent loan through your cu and take advantage of the incentives that makes it much more attractive.

It doesn’t do away with the depreciation issue but it would be worth running the numbers, assuming you are comfortable with the debt.

 

[brymoore]

You do have to be fair when quoting those numbers on vehicles, or any other depreciating asset.

You are making payments on an item that depreciates fairly rapidly in value. Zero percent typically means brand new which means you also took the massive “pull of the lot” hit and typically the incentives manufacturers offer are not applied to zero percent loans so you also pay more for the vehicle.

The pull of the lot hit has shrunk quite a bit recently with the appreciation seen in used vehicles the past few years.

I’ve paid cash for my vehicles for the past 20+ years. Wife needed a replacement vehicle this year. With the appreciation in used vehicle values, what we could get for our normal cash price was junk. I happen to get employee pricing discount from my first job out of college for Big Blue. I started doing the math and my out the door price new was the same as a three year old vehicle with 30-50k miles. We wrote a fat check for a down and have a 2.9% loan. New vehicle is under warranty and we don’t have any of the annoying fixes each year that eat up budget cash.

My thoughts going forward is to keep rotating new vehicles for her about every three years depending on the used vehicle pricing situation. Wife’s happy and we’re avoiding older used vehicle maintenance costs.

Ramsey wouldn’t approve of what I did and he is wrong. The math works.

 

[TN2shot07]

The pull of the lot hit has shrunk quite a bit recently with the appreciation seen in used vehicles the past few years.

I’ve paid cash for my vehicles for the past 20+ years. Wife needed a replacement vehicle this year. With the appreciation in used vehicle values, what we could get for our normal cash price was junk. I happen to get employee pricing discount from my first job out of college for Big Blue. I started doing the math and my out the door price new was the same as a three year old vehicle with 30-50k miles. We wrote a fat check for a down and have a 2.9% loan. New vehicle is under warranty and we don’t have any of the annoying fixes each year that eat up budget cash.

My thoughts going forward is to keep rotating new vehicles for her about every three years depending on the used vehicle pricing situation. Wife’s happy and we’re avoiding older used vehicle maintenance costs.

Ramsey wouldn’t approve of what I did and he is wrong. The math works.

It’ll be interesting to see how the used market continues to play out. There has been a swing back to the norm as new inventory is more available but it’s still not back to what it has traditionally been.

I also have access to employee pricing and still can’t pull the trigger on something new. I also put a ton of miles on vehicles which really adds to losing value.

 

[Nick87]

Wife’s happy and we’re avoiding older used vehicle maintenance costs.

Whole other topic but there's a fine line there sometimes where you either need to keep it or trade up. I don't have the formula for it figured out yet.