Dave Ramsey

[Seri]

I know zero about Dave Ramsey, but not using credit cards at all is a terrible idea.

 

- Debit cards and cash offer zero kickbacks at the vast majority of money spending opportunities

- Building good credit makes life much easier in the future. Want to buy a house? Good luck getting a loan from a bank if you have been super diligent and spent years budgeting and have no been using credit cards. It won't be easy.

- Credit cards lead to temptation? There is a whole portion of these forums, and countless other places both on the internet and in real life dedicated to helping work on financial goals. Be honest with yourself, be honest with your fellow contributors and take some personal responsibility about spending like many of you did with your health. 

- Misinformation is hurting you. I.E. Oogiem from the first page, and several years ago, "Be careful with that, any security breach can wipe out your account and they are not protected like credit cards are. If a charge is made on a debit card you cannot claim it as fraud." Fraud is fraud and no bank in the US is going to ever steal your money. They make plenty of money overcharging you for everything under the sun, not refunding a 20 or 200 or $2,000 fraud charge is millions in bad press.

 

Credit card companies are there as a convenience and credit building platform. They will certainly crush you the more irresponsible you are, but if you are good at maintaining a budget and spending responsibly, you are actually hurting yourself by not using a credit card and then paying it off in full monthly.

 

See, this is interesting because in Uni we were required to attend financial counseling seminars. One of the major lessons that the financial educator - who worked for a credit company - stressed was to never pay your credit cards off in full every month. 

 

The way he explained it, paying off in full hurts your credit worse than if you had no credit at all. The point of building credit, again as he explained it, is to show that you can have a balance that you can pay over a period of several months - aka, that you reliably can bring in money every month. By paying off your card in full every time you used it you aren't showing that you have the ability to carry a balance - just that you have the ability to get a ton of money at once and use it all at once. 

 

Then the financial counselor that they hooked me up with through my new work explained that the more you take out - student loans, credit cards, all of it - the more that gets counted against you when applying for loans. The full extent of your student loans are counted against you, the FULL *possible* amount of your credit cards (not how much balance you actually have, but how much you could take out per card) are counted against you, all as "potential debt." So the more your cards have the possibility to take out, the more of a risk you are viewed as being. 

 

Right now, I don't have any credit cards. I live in a way that is far too desperate money-wise to be able to have them. There are "emergencies" almost every month - real, legit ones - and I just would get bogged down deep with a credit card. 

 

I know for some people they are also just too risky to have around - like keeping sugar in the house. You just know your limits and sometimes you just can't have them in your life. 

[msuroo]

See, this is interesting because in Uni we were required to attend financial counseling seminars. One of the major lessons that the financial educator - who worked for a credit company - stressed was to never pay your credit cards off in full every month.

This is such nonsense. I can assure you my credit is plenty good having never paid a penny in credit card interest. Whatever bump my score may or may not get from carrying a balance, it certainly isn't worth paying 20% interest for.

 

Right now, I don't have any credit cards. I live in a way that is far too desperate money-wise to be able to have them. There are "emergencies" almost every month - real, legit ones - and I just would get bogged down deep with a credit card.

 

I know for some people they are also just too risky to have around - like keeping sugar in the house. You just know your limits and sometimes you just can't have them in your life.

This is very smart. I'm one of those people who thinks it's crazy not to use a credit card (I mean, why not earn rewards on money I'm spending anyway), but no rewards are worth sacking yourself under CC debt for.  I didn't get my first CC until I was out of college, and I'm very grateful for that.  Every one of my friends who had one before me had debt to deal with once they graduated.

 

[Damaramu]

So I'm attempting to get the Snowballing debt method going.

 

My debt looks like this (rounded):

Best Buy Credit Card: $350

Bank of America Credit Card: $3900 (yikes)

Student Loans: $10,000

 

So obviously I would start with the Best Buy Card and start snowballing from there.

 

As far as money I probably bring home about $2500 a month (my paychecks are $1282 usually).

My total monthly bills (utilities, debt, mortgage) add up to $1280 a month. However, I have a roommate that gives me $500 a month that I put towards the mortgage payment. If I didn't have a roommate it'd jump to $1780 a month.

 

The leftover I use for food, gas, clothing, etc. I have a savings account, but need to get better about sticking money in it. I only have like $80 in it right now. It was up to $315 but I cleaned it out to give my son a great birthday.

 

So I definitely have enough extra to start snowballing if I just cut back on having fun and such. That shouldn't be a big deal though because I have plenty of stuff at my house I already own that keep me occupied, plus it's close to bed time when I get done at the gym anyway!

 

How does Dave recommend handling a mortgage? Obviously that's the biggest expense and debt you can have. However, I heard he does not recommend rolling the mortgage into the snowball.

 

Is it recommended I completely close those credit cards when I pay them off?

[TiberiusNightrise]

Dave would actually recommend that before you start debt snowballing, that you first get $1000 into savings for small emergencies. Basically just paying minimum on all your bills and debts until you get this money in the bank. Then, according to his plan, you would start eliminating debt according to the way you have it in your post, but not including your mortgage. He actually has several steps in between getting rid of your other debt and paying off your mortgage, including finishing your emergency fund (3-6 months of living expenses), putting a percentage of your income towards retirement, putting money in an account for your kids' college, and THEN paying off your house early. His "baby steps" are listed here: http://www.daveramsey.com/new/baby-steps/

 

As far as credit cards go, Dave is fairly ruthless when it comes to them, and I think would recommend closing them out and then cutting them up after you've paid them off.

 

Way to go with working on paying off your debt! I just became debt free in mid-August and it is wonderful! Such a huge load off your shoulders when you get there. I look forward to hearing when you reach that point. And you will get there.

[Damaramu]

I think it will be a long time until I'm debt free but I look forward to it.

I contribute 3% of my paycheck to profit sharing.

At least $1000 until I snowball?

[TiberiusNightrise]

$1000 is what he recommends, but you are free to do it how you think it will work best for you. I think the rationale behind the initial $1000 is so that when/if emergencies come up, you use the emergency money to take care of the emergency, rather than putting it on credit and losing some or all of your progress on paying off your debt.

[Damaramu]

I see. Well with snowballing debt, putting money in a college fund, contributing more to retirment and saving for a rainy day it doesn't seem like there is much left for "fun" out of your money.

[Elastigirl]

I see. Well with snowballing debt, putting money in a college fund, contributing more to retirment and saving for a rainy day it doesn't seem like there is much left for "fun" out of your money.

You do most of it a step at a time. While you are paying off debt, you have the $1000 Rainy day, but aren't saving more,. Then when you pay off the debt you work on the next step. I think some steps are combined. When we were paying off the debt, we really didn't have much extra cash. But there are lots of things to do free or cheap. We love hiking and geocaching and that is free. Buy some used tennis racquets and learn to play tennis. Make a picnic dinner and go to a park.

 

Staying focus and paying off the debt was hard. But now we have money to put into retirement (the step we are on) and for entertainment and even some to set aside for a travel budget.

[Damaramu]

I wonder, does Dave ever talk about saving for vacations and such?

What does he say about tax returns? I usually use that to make a large payment on my debt.

I'm excited. I'm almost 30 and feel like with my salary I should have more to show for it and not be living paycheck to paycheck.

[Kevin Mack]

I pay off my card every month, always have. I'm debt free, 30 and my FICO score is 770. Don't ever let anyone tell you that you have to carry a balance to build your credit. Do you pay your cellphone bill on time? You're building credit. Plus if you live debt free then who cares what your score is? 

[smurray]

I wonder, does Dave ever talk about saving for vacations and such?

What does he say about tax returns? I usually use that to make a large payment on my debt.

I'm excited. I'm almost 30 and feel like with my salary I should have more to show for it and not be living paycheck to paycheck.

Dave talks about anything you want to accomplish after becoming debt free is to put in the budget.  So a vacation would be a part of you monthly budget until you save up enough for the trip.  Also dave's opinion on taxes is to have the government pull out only enough to where you have very little coming back to you.  His reasoning is that if you go status quo and have a large tax return, you just let the government hold your money for a year and you gained no interest on it.  If you haven't read his book, Total Money Makeover, go get it.  It is a good read.

[Damaramu]

Well I'm going to follow the baby-steps and start kicking back money into savings. I only have $100 in my savings, so $900 more to go before I can begin snowballing my debt!

I only owe $300 on my smallest debt, so who knows, it may be gone by the time my snowball begins.

That would leave only two pieces of debt ($4000 on a credit card and $10,000 on a student loan). So that snowball may start big. I'll probably keep track of the minimum payment on my small debt and add that to the snowball.

 

I read on the baby steps that Dave is talking about putting 15% of your income into a Roth IRA. Does he not suggest putting money into your 401k or profit sharing at work instead?

I've been putting 3% into the profit sharing plan at work since I started at my job (company matches at least that and can match up to 3x). Plus they have a separate retirement account they provide for you.

[smurray]

Well I'm going to follow the baby-steps and start kicking back money into savings. I only have $100 in my savings, so $900 more to go before I can begin snowballing my debt!

I only owe $300 on my smallest debt, so who knows, it may be gone by the time my snowball begins.

That would leave only two pieces of debt ($4000 on a credit card and $10,000 on a student loan). So that snowball may start big. I'll probably keep track of the minimum payment on my small debt and add that to the snowball.

 

I read on the baby steps that Dave is talking about putting 15% of your income into a Roth IRA. Does he not suggest putting money into your 401k or profit sharing at work instead?

I've been putting 3% into the profit sharing plan at work since I started at my job (company matches at least that and can match up to 3x). Plus they have a separate retirement account they provide for you.

Dave agrees on the work 401k up to the match since the match is money your employeer is giving to you.  But going above that depends on how well the portfolio performs.  All of those decisions are made after you are out of debt.  When I knocked out mine, I took out a legal pad and just mapped out each month and reducing the debt with the payments on paper.  Then I hung it on the fridge for motivation to stay with the plan.  We were able to stay on task and watch as we marked through each month's successful payments till the balance hit zero.

[Damaramu]

Ah, but while in debt I should still be contributing the minimum to my profit sharing right? That's what I'm doing now. Seems silly to not contribute anything.

[Kevin Mack]

If you do the baby steps in order then you should build the $1000 starter fund first. Then pay off your debt. Then build your 3-6 month emergency fund. Then start contributing to retirement.

[Elastigirl]

Dave Ramsey's steps are more about the psychology of what works and goal setting, not just the math numbers. On paper it looks as if it might be smarter to pay toward debt and saving and retirement all at the same time. But reality is that most people then just lose focus and get defeated and give up. He says you need to be gazelle focused on getting out of debt. That is why you don't pay toward retirement. You put all your focus on getting out of debt. Plus, you know you are losing out on money not going to retirement, so it is a bigger incentive to pay off debt fast. It seemed weird to me at the time, but it really helped me keep the focus on paying off debt. And now we have more money available to put into retirement.

[smurray]

If you do the baby steps in order then you should build the $1000 starter fund first. Then pay off your debt. Then build your 3-6 month emergency fund. Then start contributing to retirement.

Correct.  You don't want your 401k to be your emergency fund because of the huge penalties you get for pulling out early.  Dave wants you to be self sufficient.  If stopping your investments right now and putting that money to your debt will make a difference of 2 to 3 months, i personally don't think it will make that big of a difference in the grand scheme of things.  Just as long as you get your debt paid off and begin putting that extra money to growing your emergency fund.  If your time line shows a difference of 6 months or greater, I would stop payments to the investments and concentrate on the debt and emergency fund.

[Damaramu]

I imagine it will take me a good year or two to get out of debt and get my emergency fund built up.

Possibly longer.

[j-squared]

I imagine it will take me a good year or two to get out of debt and get my emergency fund built up.

Possibly longer.

And that's normal for a lot of people. 

But just think, what would happen to you if you didn't do that, and two years from now some big emergency comes up, it could wipe you out.

[Damaramu]

Well I had some trouble at work and due to a snafu on my part I was almost terminated. Luckily, I maintain my employment. This scared me though and made me realize how crucial it is that I have that emergency fund built up.

[smurray]

Well I had some trouble at work and due to a snafu on my part I was almost terminated. Luckily, I maintain my employment. This scared me though and made me realize how crucial it is that I have that emergency fund built up.

That is true.  I think we will have some stronger generations in the finance department in the near future.  Keep moving forward.

[samanmoran]

I love Dave Ramsey. Don't get hung up on the Christian part. He's never preachy. In fact one time on his radio show, a woman called up in tears because her husband couldn't get his act together and they were broke, but she was afraid to stand up to her husband because her Christian values told her she needed "To Honor Him". Dave Ramsey came back with "God never said you need to be a doormat!". He understands how a large part of this country thinks, but furthermore he's just a down to earth no BS guy who can really help anyone make significant positive changes in her/his life.

Which is not to say, that anyone here specifically requires his help, but don't throw the baby out with the bath water!

 

Another time he was reading his fan mail and a woman wrote that she's a New Yorker, and a Buddhist, but she loves him anyway.

 

Actually, I'm a New Yorker and I find the whole North / South thing quite amusing.

 

We don't all share the same beliefs, but what I find most important is to share the same values. And these are not mutually exclusive.

 

Not a fan, the Christian preaching totally turns me off and I never get past that to hear his message.
 

 

[Enoch]

Dave Ramsey provides good inspiration. I've read a few of his books and listened to his program at various times. They provide some fundamental information and strategies for managing money.

I don't subscribe to everything he preaches though. Using credit cards -- like exercising -- requires discipline. If you do it well -- like exercising -- there can be great rewards.

As to the Christian dimension, I suspect it appeals to a big part of his audience but, it is in no way essential to his program.

[PrincessHeather]

Hubby and I read Total Money Makeover in December 2013, and since we'd been sitting on a decent chunk of savings while having a bunch of credit card debt, we finished Baby Step 1 ($1000 emergency fund) and immediately paid off our two lowest balance credit cards. Felt amazing, and we're all set to be very close to paying off a car with the help of our tax refund. We're totally on our way to being debt free!

[Why not?]

I'm a fan of Ramsey. My wife and I don't follow everything he says (we still use credit cards, but we pay them off twice a month), but we definitely agree with his principles.