Ramsey debt viewpoint explained

[BigHornRam]

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.

I think the car industry is in heap big doo doo in the years to come, and will be interesting seeing how it all shakes out.

 

[brymoore]

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.

Yes. I’m normally a buy and drive into the ground type of vehicle purchaser but that might change. I’ll see what the vehicle market values are in three years and make a decision.

 

[TOGIE]

What are the exact quoted words, videos or paragraphs from his books on student debt that doesn’t have anything to do paying it off? I’ve heard him talk about mortgages plenty and I wouldn’t call it harmful at all.

I would agree, 15 is probably way too strict for first timers on mortgages and if followed to the letter will keep people out of the game that otherwise could’ve gotten in. But the key is that 15 years 20 down is “preferred” I don’t think he’s ever said it’s the only allowable way to buy a house

still curious about this

i might be very wrong, but i also think the anti ramsey folks might be taking sharply critical views on ramseys opinions that have been potentially taken out of context or are not as strict as they claim to be.

 

[Wind Gypsy]

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.

To the contrary. I tried to negotiate based on a cash purchase in all cases. Ford and Kubota both offered $1k rebate if you used their 0% financing that wasn't available to cash purchase. After I'd negotiated a cash purchase price in both cases they came at me with the discount to use their financing. The dealership's bottom line seems to not be impacted by these financial incentives or maybe even benefitted by them even though it doesn't pencil out that way simply. It's possible there was some gamesmanship there that I lost at but it's hard to know.

Besides the interest i'm earning on that cash - take into account what my $450 monthly car payment was actually worth in 2020 vs what the final $450 payments in 2025 will be worth due to inflation.

For the hit when you pull it off the lot comment - I think anyone looking to buy a lightly used Kubota, Subaru, or Pickup in 2020-2022 likely saw the same thing: you pay basically new price for lightly used. The F150 actually was lightly used as a dealership courtesy vehicle and discounted appropriately.

Paying cash in these 3 instances would have been a poor financial choice for anybody with the discipline to not spend that $ elsewhere.

 

[SAJ-99]

How is the average Joe American supposed to identify a complete suite of real experts on various financial subjects while avoiding the remaining 90% of bobble heads out there who dispense mediocre or poor advice?

The internet. Don't search for an expert. instead search for information on the topic; Read, learn, and make the decision that best suits you and your situation. Save yourself the $49.99 and make Ramsey get a real job

I don't listen to Ramsey per se and only casually see his advice since his name popped up on HT years ago. I may not agree with all the advice, but the one thing I like about him is he tells people to take personal responsibility for their situation. I have never heard him let people blame the "Banks" or the "Government" for the financial mess they were in. Wish we could all carry that concept over to other things.

 

[Wind Gypsy]

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.

I've not shopped around, especially recently, but of the 0% loans i've referred to here (ford, Kubota, subaru) none required a down payment (my trade-in might have covered it if so with the ford). Kubota was limited to a 5 year vs 6 or 7 year terms with interest. Ford was limited to a 36 month payment term. Subaru was in 2020 when money was cheap..

 

[Pucky Freak]

The internet. Don't search for an expert. instead search for information on the topic; Read, learn, and make the decision that best suits you and your situation. Save yourself the $49.99 and make Ramsey get a real job

I don't listen to Ramsey per se and only casually see his advice since his name popped up on HT years ago. I may not agree with all the advice, but the one thing I like about him is he tells people to take personal responsibility for their situation. I have never heard him let people blame the "Banks" or the "Government" for the financial mess they were in. Wish we could all carry that concept over to other things.

Ignorance begets ignorance. There are barely more charlatans in televangelism than in financial services.

Which auto loan should I get?
Best uses for tapping home equity?
How to navigate student loans?
What credit score should I get to?
Best credit cards to get?

The vast majority of information on the interwebs on these subjects does not point people in a helpful direction. Advice nearly always rests on conventional wisdom, and if you’ve never dug into the underpinnings of such, there’s no understanding of how conventional wisdom is flawed.

Few people wake up one day and ask:

Should I finance a car? Should I finance college? Should I use credit cards? Does a credit score even matter?

 

[brymoore]

Ignorance begets ignorance. There are barely more charlatans in televangelism than in financial services.

Which auto loan should I get?
Best uses for tapping home equity?
How to navigate student loans?
What credit score should I get to?
Best credit cards to get?

The vast majority of information on the interwebs on these subjects does not point people in a helpful direction. Advice nearly always rests on conventional wisdom, and if you’ve never dug into the underpinnings of such, there’s no understanding of how conventional wisdom is flawed.

Few people wake up one day and ask:

Should I finance a car? Should I finance college? Should I use credit cards? Does a credit score even matter?

I disagree.

A few minutes of google you can find the amount of vehicle/house and monthly payment you can afford at your income level, investment strategies for 401k/roths, why credit cards are bad and emergency fund amounts. College loans is a bigger topic due to cost versus potential salary from the degree that most people ignore. Alternatives to student loans exist but most college age people don’t want to work that hard or don’t have parents who can pay for college.

My other thought is these topics should have been discussed with people’s parents and or family. I got some really sage advice from my grandfather and his experiences in the Great Depression. I’ve had the same conversations with my kids.

 

[Pucky Freak]

I am not saying I am the only one that has all the answers, thousands and thousands of folks get how this works. And demanding I provide such a book is not that useful and certainly isn't some kind of "gotcha" defense to Ramsey's shortcomings. The book you are looking for is on the shelf right next to the book that answers definitively every elk hunting question - habitat, firearms, ballistics, tag strategy, CDW, field dressing, shoulder seasons, etc etc etc. It is right below the book that answers every question on how to find a mate and make a marriage and familiy work for 50 years. These topics are complex, but some basic tips/hints can generally applied, but that doesn't excuse botching something important like mortgages or SLs. If somebody had useful elk hunting tips but then pedantically said you could only use 300 RUM to hunt elk it would be fair for folks to point out a 270 Win would work just as well in most situations and even better for some users.

And I agree sometimes a simplified version helps some folks, but then why not make some tweaks to the simplified version so it is more accurate? In the interview I referenced he admitted his advice goes against math and finance and his only defense was that his reading of the bible was his reason. The bible is a guidepost for many things in my life but understanding the time value of money or rate of return on an investment is not an area it offers much.

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 appears that the “experts” don’t exist, and that most people are capable of becoming their own expert.

Bernie Madoff was more than a financial expert. He was a financial wizard, and a pioneer in pairing a lucrative financial market with a budding technology. It’s harder than we think to discern among these folks.

Ramsey through a math lens never comes out on top. He frequently references on his show that his system is build around human behavior and not math. Everyone thinks they can beat their own irrational brain and win with math, and then the overwhelming majority go on to lose. We are overconfident, and we overestimate our abilities.

The core of Ramsey’s success as a financial guru is that he understands that the human brain is wired to survive prehistorical challenges, and is woefully equipped to navigate complex, abstract, and long-term challenges such as personal finance over a human lifetime. His system taps the reward and pain centers of our brain and empowers us overcome our hardwired flaws.

You’re far from the first person to point out the math flaws in Ramsey economics. The flaws are so obvious it is comical. But precious few among us have the capacity to overcome our own brains in this arena. I’d say at most, 10% of the population, and I am certainly not among them. The fallacy is assuming that you yourself being exceptionally gifted at sticking to the math of finances that most everyone else should be able to as well.

 

[Pucky Freak]

The elk hunting comparison - humans are hardwired hunters. A huge portion of the population is well-equipped to become our own expert in elk hunting, and everyone has their own unique stripe of what expertise looks like.

 

[SAJ-99]

The elk hunting comparison - humans are hardwired hunters. A huge portion of the population is well-equipped to become our own expert in elk hunting, and everyone has their own unique stripe of what expertise looks like.

To quote someone close to you

We are overconfident, and we overestimate our abilities.

 

[longbow51]

I suppose if I had to pick a financial expert it would be William Devane; he's been President at least 3 times, and I hear he's an expert on precious metals

 

[gouch]

I had some next-door neighbors. There was just the two of them with two dogs, no children. They had a big mortgage on the house that was much bigger than they needed, two car loans and a lot of credit card debt. They were unhappy with the feeling that they were both working full time to do nothing but pay on their debts. I don't know if they listened to this Ramsey fellow or what, but they decided that they should get out of debt and just use cash. This was right after the real estate bubble burst, so they were under water on their home so selling the house was out of the question. They didn't want to get rid of their nice cars and credit card debt wasn't going away. But they had a plan.

First, they took out more debt by buying a used mobile home to live in. Payments were much, much lower than the house. Then they rented out the house for $1800 a month. The mortgage was $2700 a month. The trick was, they just stopped paying the mortgage. It took four years for the bank to foreclose so for four years they used the savings on the mortgage and the $1800 rent money to pay off their other debts. Sure, their credit rating went down the toilet, but they didn't want to use credit ever again anyway.

Some might say it was unethical, but it worked, and they didn't lose the equity in the house because they didn't have any equity.

 

[Wind Gypsy]

Ignorance begets ignorance. There are barely more charlatans in televangelism than in financial services.

Which auto loan should I get?
Best uses for tapping home equity?
How to navigate student loans?
What credit score should I get to?
Best credit cards to get?

The vast majority of information on the interwebs on these subjects does not point people in a helpful direction. Advice nearly always rests on conventional wisdom, and if you’ve never dug into the underpinnings of such, there’s no understanding of how conventional wisdom is flawed.

Few people wake up one day and ask:

Should I finance a car? Should I finance college? Should I use credit cards? Does a credit score even matter?

Disagree that helpful information to answer those questions is not readily available online.

 

[Nick87]

I had some next-door neighbors. There was just the two of them with two dogs, no children. They had a big mortgage on the house that was much bigger than they needed, two car loans and a lot of credit card debt. They were unhappy with the feeling that they were both working full time to do nothing but pay on their debts. I don't know if they listened to this Ramsey fellow or what, but they decided that they should get out of debt and just use cash. This was right after the real estate bubble burst, so they were under water on their home so selling the house was out of the question. They didn't want to get rid of their nice cars and credit card debt wasn't going away. But they had a plan.

First, they took out more debt by buying a used mobile home to live in. Payments were much, much lower than the house. Then they rented out the house for $1800 a month. The mortgage was $2700 a month. The trick was, they just stopped paying the mortgage. It took four years for the bank to foreclose so for four years they used the savings on the mortgage and the $1800 rent money to pay off their other debts. Sure, their credit rating went down the toilet, but they didn't want to use credit ever again anyway.

Some might say it was unethical, but it worked, and they didn't lose the equity in the house because they didn't have any equity.

From what I've heard those people build there credit back up relatively fast anyway. I'm not sure what there definition of fast was though either.

 

[gouch]

From what I've heard those people build there credit back up relatively fast anyway. I'm not sure what there definition of fast was though either.

They kept their credit cards so buy using them and paying the balance every month I am sure they could build credit fairly fast.

 

[brymoore]

I had some next-door neighbors. There was just the two of them with two dogs, no children. They had a big mortgage on the house that was much bigger than they needed, two car loans and a lot of credit card debt. They were unhappy with the feeling that they were both working full time to do nothing but pay on their debts. I don't know if they listened to this Ramsey fellow or what, but they decided that they should get out of debt and just use cash. This was right after the real estate bubble burst, so they were under water on their home so selling the house was out of the question. They didn't want to get rid of their nice cars and credit card debt wasn't going away. But they had a plan.

First, they took out more debt by buying a used mobile home to live in. Payments were much, much lower than the house. Then they rented out the house for $1800 a month. The mortgage was $2700 a month. The trick was, they just stopped paying the mortgage. It took four years for the bank to foreclose so for four years they used the savings on the mortgage and the $1800 rent money to pay off their other debts. Sure, their credit rating went down the toilet, but they didn't want to use credit ever again anyway.

Some might say it was unethical, but it worked, and they didn't lose the equity in the house because they didn't have any equity.

I have some moral issues with this plan. I know a couple people who did this. They became snakes in my mind. Stay away from them.

They can build back credit eventually. The foreclosure will stay on their credit for 7 years.

 

[thomas89]

Who the hell cares what other people do with their money?

 

[Nick87]

have some moral issues with this plan

I think it's fair to say all of us would. Then again the system allows it.

 

[gouch]

I think it's fair to say all of us would. Then again the system allows it.

It feels dirty, but who got hurt? The whole idea of secured loans like mortgages is that the lender is taking on almost no risk. The county lost four years of tax revenue but recouped it with a lean on the sale of the property. In this case the bank may have lost money if they didn't insure the place because it burned down the same time my house burned but they sold the bare lot for over half of what the mortgage was.

The people who really got screwed were the renters who knew nothing about what was going on until the bank evicted them.