Ramsey debt viewpoint explained

[VikingsGuy]

A while back I participated in a thread about whether Dave Ramsey was irrational in his approach to debt. I couldn't find that thread, so started this one.

I just saw an interview with him about this very point. He acknowledged that as a trained finance guy debt is a reasonable part of finance considerations but folks forget about the added risk of it. He then said his viewpoint on the topic came after his 100% leveraged real estate speculation business failed due to the debt being called in. So, from this, he questioned if anyone should ever have debt. He then acknowledged that he struggled with this because zero use of debt and leverage has a downside too. But the conflict in his mind was resolved when he read the bible and found no evidence supporting the goodness and bounty of debt.

So, my take away. Don't run a 100% leveraged speculative real estate investment business. Don't overreact to that extreme lesson and lose the power of reasonable, limited, and productive use of debt. As a Christian, I will continue to use the bible to tell me how to love my neighbors and not how to plan for retirement savings.

I acknowledge alcohol is dangerous for some people. It doesn't mean we are all best served by being absolutist teetotalers. In the same way, some folks probably are incapable of reasonable use of debt. But for those who are capable, they will be more successful in their finances if they know when/how to use it.

Let the slings and arrows fly.


edit added: I do think Dave does a good job with basic literacy development for a society where few get even the basics, I just wish he didn't go full monty influencer on every point - especially a few like this one that actually hurts a lot of middle Americans if taken literally.

 

[geewhiz]

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

 

[JM77]

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

Fireside- A "GATHERING" of friends. Talk hunting or other "gossip"!!

 

[VikingsGuy]

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

And that's why I didn't put it in one of the hunting folders/forums and stuck it here in the "fireside". Folks talk about music, football, share humor, talk reloading for non-hunting, recommendations for personal defense firearms, we talk a lot about cheese. etc etc etc. My favorite campfire chats cover the gambit. But with hindsight, this probably should have been posted in the "money and finance" folder.

 

[Treeshark]

In a perfect world, Dave’s advice would apply to no one.

In the real world, there are a whole lot of people that would be much better off if they followed his program.

 

[Irrelevant]

I personally love all strategies that allow me to get a leg up over others, so I love dave's plan. I would never follow it, but I wholeheartedly give it my approval

 

[TN2shot07]

I absolutely have not seen a system that works better than Dave’s to get people out of debt.

Im not sure that anyone could realistically argue that debt can’t be responsibly used but it’s also misused every single day. There is definitely a segment of society that should not utilize debt, period. We have made that bankruptcy option a little bit too easy of a lever to pull in my opinion

 

[AvidIndoorsman]

@VikingsGuy totally agree.

My 2 cents is that if you’re going to make a business of giving financial advice like Dave, you have a moral duty to act as a fiduciary for folks, that is give the best financial advice not give advice that to further a political agenda.

Dave’s advice on student loans is totally irresponsible.

If a CPA didn’t believe that it was right that people can deduct mortgage interest, it would still be his obligation to deduct that interest on their return to get them the best refund possible.

 

[brymoore]

I absolutely have not seen a system that works better than Dave’s to get people out of debt.

The best way to get out of debt is to work hard and make more money.

 

[TN2shot07]

The best way to get out of debt is to work hard and make more money.

If you know anything about that plan then you know that’s a key to it. You do that without a plan and all you end up with is a deeper hole.

 

[TN2shot07]

Dave’s advice on student loans is totally irresponsible.

I’d say that’s pretty debatable. Avoiding student loans like the plague isn’t bad advice, ask somebody with six figures for a degree that pays $40k begging for forgiveness (aka let your neighbors pay for it).

If you have a career plan that validates that kind of expense then go for it. There are a lot of those that don’t work out, too. There are definitely career choices where you will not have an option. We just need some people in place that do a better job painting that picture. Not many 18 year olds are that capable

Student loans can be looked at like any other kind of debt, if you have a low interest rate and want to leverage that against a higher return that’s fine.

 

[AvidIndoorsman]

I’d say that’s pretty debatable.

It’s not he tells people who have student loans to manage them incorrectly.

It’s the exact same as my tax example, telling people to pick a repayment plan that costs them ten if not hundreds of thousands of dollars more is borderline criminal.

I don’t care what someone believes, if plan A. Means someone pays 150k and plan B. Means they will pay 15k you can’t reasonably tell them to select A. just because of your political views.

 

[VikingsGuy]

It’s not he tells people who have student loans to manage them incorrectly.

It’s the exact same as my tax example, telling people to pick a repayment plan that costs them ten if not hundreds of thousands of dollars more is borderline criminal.

I don’t care what someone believes, if plan A. Means someone pays 150k and plan B. Means they will pay 15k you can’t reasonably tell them to select A. just because of your political views.

We had this discussion a few weeks ago on a thread, there is a lot of really crappy ill-informed student loan advice floating around.

 

[Carl]

Agreed on all you wrote here VG. I think Dave has very helpful advice for the average person, if imperfect. But, as in many other fields, if you go all in on advocacy, you at some point leave the science and numbers behind.

 

[CiK]

Check out The Money Guy. I find their roadmap to be much better than Ramsey's.

 

[shrapnel]

Dave Ramsey is to finances, what AA is to drinking. There would be no need for either if people had any discipline and just lived within the boundaries of common sense…

 

[Desk Pop]

I like a lot of what he says, but it is on the more basic side.

I have several acquaintances who crawled out of shitty positions they put themselves in using the principles he preaches.

As far as the student loan stuff, I don't agree with everything he says, but I also don't think enough high schoolers do a true cost/benefit analysis of what they want to pursue in college. As someone in the education field, it is hard for me to say, but I think college (and associated debt) is a great choice for some, even many, but not a good choice for a lot of people.

 

[shannerdrake]

To the OP

I was for years a hardcore Dave apologists. I grew up in rural white trash meth farm country and watched debt ruin lives and lose farms. For years I was cash only, carrying around envelopes, and putting stuff back in the checkout line. This sort of living really taught my wife and I how to live without and adopt good principles.

However, I also read Rich Dad Poor Dad a few times and started understand leverage. Dave LOVES to talk about that time that his 100% leveraged debt was recalled. Find me anyone else who that’s happened to. Then show me where I am leveraged anywhere close to 100% on any of my debt.

My mortgage is locked at 3.175% and has appreciated on average 10% each of the last four years and has created legit wealth. Dave says to pay off my 0% truck loan, but doing so would have cost me the option of buying government bonds paying 9%. Not remotely a good idea.

Dave is good if you don’t understand why you shouldn’t have a new diesel, camper, motorcycle, and UTV financed at near 100%. And there are a LOT of people who do stuff like that.

Dave will 100% keep you out of debt and you will retire a millionaire. But you will also leave millions on the table.

 

[ismith]

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

Oh you poor sweet spring child………..

 

[Treeshark]

However, I also read Rich Dad Poor Dad a few times and started understand leverage.

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.