Has anybody had success paying of debt with Dave Ramsey's theory?

[phillylawyer]

I don’t use a credit card with paypal, I use a bank account. Again, I cut up all credit cards and cancelled the accounts several years ago.

I got that. I would genty suggest directing some of those research skills onto the financial and consumer practices of paypal. See what you come up with and how they compare with the big evil banks as opposed to that mom and pop shop (PayPal).

 

[tafan]

I got that. I would genty suggest directing some of those research skills onto the financial and consumer practices of paypal. See what you come up with and how they compare with the big evil banks as opposed to that mom and pop shop (PayPal).

I Probably should. I haven’t looked into them. No financial institution is sinless by a long shot. So I would not expect Paypal to be any different. The best we can do is not participate in the financial services and products which are the direct source of the practices. Credit cards are high on that list.

 

[EasterJoy]

Pretty much this. Credit cards have some advantages if you can control what you do with them and not use them to make unnecessary purchases. But the sort of people Ramsey is aiming at aren’t generally those sort of people - he’s aiming at middle class people who have trouble managing their spending.

A tavern is a near occasion of sin for some, but not for others. There is nothing immoral about a tavern, per se, but some people should still stay far away from them.

Credit cards are like that. Some people should not have them, and others should only have them with the supervision of someone they can trust to help them maintain self-control. That doesn’t make them immoral. It doesn’t even mean it is immoral to have a credit card if you have a hard time controlling yourself when you have one. It means that it is can be unwise for some people to have one, and better for them to get rid of them.

 

[phillylawyer]

A tavern is a near occasion of sin for some, but not for others. There is nothing immoral about a tavern, per se, but some people should still stay far away from them.

Credit cards are like that. Some people should not have them, and others should only have them with the supervision of someone they can trust to help them maintain self-control. That doesn’t make them immoral. It doesn’t even mean it is immoral to have a credit card if you have a hard time controlling yourself when you have one. It means that it is can be unwise for some people to have one, and better for them to get rid of them.

Basically this.

 

[PaulGH]

Just out of curiosity, how do you pay for things online, like airline tickets, rental cards, hotels, etc.? Debit cards? Which bank? You do realize financial institutions make almost as much money off of charging merchants fees on debit card transactions as credit card transactions. By using credit cards you’re contributing to the exact same system.

How about a bank account. Do you have one? If so, which bank? You know that banks use money that you deposit in banks to help “lend” money to credit card users. Money is fungible. When you deposit money into a Bank of America checking account, that money is used to lend other users money, and you are materially cooperating with evil in the exact same way. I hate to break it do you, but these big evil financial institutions don’t have some sort of invisible barrier separating their “evil” credit card business from their “morally upright” debit card, personal loan, and commercial loan businesses. Money is fungible.

I have many of the same concerns about credit card companies and big banks that tafan has, and I can tell you what I do:

I do my banking with a local small-town bank that has a very good reputation in the community, and I have a Visa debit card from that bank. And while it is true that Visa pockets a small percentage of each transaction, whether the card is a credit card or a debit card, this is not the major concern that I have with credit card companies.

The major concern I have with credit card companies is that they encourage people to go into debt for frivolous expenses (as I saw first-hand when I was in college, with numerous on-campus promotions trying to get me to sign up for credit cards), and then they charge a huge interest rate on that debt, and then harrass people who can’t pay. That’s just not a business model that I want to support.

As far as I know, my bank does not do anything like this. First of all, they do not issue credit cards, to the best of my knowledge. Second, when they do loan money, their interest rates are reasonable, and they don’t loan money to people unless they have good reason to believe that the people are financially capable of paying off the loan. (This protects both the bank and the person taking the loan.)

And when it was time for us to get a mortgage, we got a mortgage directly from this same bank – an in-house mortgage that is actually from the bank, not a mortgage that can be re-sold to someone else. We did this mainly because we like doing business with this bank, but also because we did not qualify for a “standard” mortgage or whatever the term is, since we didn’t have a credit score (because we don’t use credit cards). But that was fine, because the loan we got from the bank was very reasonable, and with a good interest rate.

 

[phillylawyer]

I have many of the same concerns about credit card companies and big banks that tafan has, and I can tell you what I do:

I do my banking with a local small-town bank that has a very good reputation in the community, and I have a Visa debit card from that bank. And while it is true that Visa pockets a small percentage of each transaction, whether the card is a credit card or a debit card, this is not the major concern that I have with credit card companies.

The major concern I have with credit card companies is that they encourage people to go into debt for frivolous expenses (as I saw first-hand when I was in college, with numerous promotions trying to get me to sign up for credit cards), and then they charge a huge interest rate on that debt, and then harrass people who can’t pay. That’s just not a business model that I want to support.

As far as I know, my bank does not do anything like this. First of all, they do not issue credit cards, to the best of my knowledge. Second, when they do loan money, their interest rates are reasonable, and they don’t loan money to people unless they have good reason to believe that the people are financially capable of paying off the loan. (This protects both the bank and the person taking the loan.)

And when it was time for us to get a mortgage, we got a mortgage directly from this same bank – an in-house mortgage that is actually from the bank, not a mortgage that can be re-sold to someone else. We did this mainly because we like doing business with this bank, but also because we did not qualify for a “standard” mortgage or whatever the term is, since we didn’t have a credit score (because we don’t use credit cards). But that was fine, because the loan we got from the bank was very reasonable, and with a good interest rate.

Sounds fair enough. Do you ever have trouble with car rental reservations or hotel reservations, etc? Also, what do you do about building credit history and your credit score? I know there are other ways to build a credit history, but it definitely is harder without credit cards.

 

[PaulGH]

Sounds fair enough. Do you ever have trouble with car rental reservations or hotel reservations, etc? Also, what do you do about building credit history and your credit score? I know there are other ways to build a credit history, but it definitely is harder without credit cards.

No, I have never had trouble making hotel reservations or rental car reservations. I use my Visa debit card, and it works fine.

As far as credit history, at the time we applied for a mortgage recently, my wife and I literally did not have credit scores (or our scores were zero). This is because we had not had a mortgage, or credit cards, or a car payment, or any other debt, for quite a few years. (And I wasn’t happy about taking on debt for a mortgage recently, but we needed a bigger house, and the mortgage should be paid off before too long. A huge chunk of it will be paid off as soon as our old house sells.) But even without a credit score, we were still able to get a mortgage with a good interest rate. It was just a matter of finding the right lender who would look beyond the credit score.

So the bottom line on credit history or credit scores is that we just don’t care about that. As long as we don’t have anything negative or fraudulent on our credit history, we are happy. We don’t feel the need to build a credit score since we will probably never go into debt again, and even when we did take on debt recently, the lack of a credit score wasn’t too big of an obstacle.

 

[phillylawyer]

No, I have never had trouble making hotel reservations or rental car reservations. I use my Visa debit card, and it works fine.

I definitely have had issues, especially with car rental places, trying to use a debit card instead of a credit card.

As far as credit history, at the time we applied for a mortgage recently, my wife and I literally did not have credit scores (or our scores were zero). This is because we had not had a mortgage, or credit cards, or a car payment, or any other debt, for quite a few years. (And I wasn’t happy about taking on debt for a mortgage recently, but we needed a bigger house, and the mortgage should be paid off before too long. A huge chunk of it will be paid off as soon as our old house sells.) But even without a credit score, we were still able to get a mortgage with a good interest rate. It was just a matter of finding the right lender who would look beyond the credit score.

I understand the thought behind this. But, this does substantially limits one’s options, unfortunately. Even if you were able to find a lender that would give you a “good” rate, I would highly suspect that you would have found another lender with a better interest rate if you have a credit score 740+.
As a point of comparison, I was recently able to get a 30 year fixed loan for 3.25% interest rate. That can be thousands of dollars of savings over the life of the mortgage.
Also, while you may find a few places who will work with you without a credit history, there are a lot of financial institutions that won’t. If you want to rent an apartment, get a car loan, or even get a job in certain circumstances, it will really limit your choices unfortunately.

I understand the concern that people have about credit cards being a temptation to get people into trouble. But, at least in our modern economy, if you are responsible and can manage credit cards appropriately, they also can be a very helpful tool that can save you thousands of dollars in the long run. The thousands of dollars I have saved in mortgage interest, car loan interest, etc. can be used to support my local parish!

 

[PaulGH]

No, I have never had trouble making hotel reservations or rental car reservations. I use my Visa debit card, and it works fine.

As far as credit history, at the time we applied for a mortgage recently, my wife and I literally did not have credit scores (or our scores were zero). This is because we had not had a mortgage, or credit cards, or a car payment, or any other debt, for quite a few years. (And I wasn’t happy about taking on debt for a mortgage recently, but we needed a bigger house, and the mortgage should be paid off before too long. A huge chunk of it will be paid off as soon as our old house sells.) But even without a credit score, we were still able to get a mortgage with a good interest rate. It was just a matter of finding the right lender who would look beyond the credit score.

So the bottom line on credit history or credit scores is that we just don’t care about that. As long as we don’t have anything negative or fraudulent on our credit history, we are happy. We don’t feel the need to build a credit score since we will probably never go into debt again, and even when we did take on debt recently, the lack of a credit score wasn’t too big of an obstacle.

I will add that in the many years that my wife and I have had no recent credit history, no credit scores, and no credit cards, we really have run into only three issues, none of which was a big deal:

(1) As mentioned above, we would not have qualified for a mortgage with many lenders. But this was fine, as our local bank was happy to give us a mortgage on good terms. Maybe we could have saved a quarter or a half of a percentage point somewhere else if we had had a credit score and had shopped around, but it wouldn’t have been a big difference. And we have the advantage of going to church with our loan officer, and being able to walk into the local bank location to discuss our mortgage if needed.

(2) Our new house is heated with propane. And when we put in an order to fill our propane tank, we have to pay in advance, because they only allow payment after delivery for people who do not have good credit scores. But again, this is not a big deal. We just pay in advance, rather than waiting for a bill and paying a couple of weeks later.

(3) When we wanted to make a big purchase on our debit card, in the thousand dollar range, we had to call our bank first to pre-approve the purchase. I think we have had to do this only once or twice in the space of at least eight years, so it’s really not a big deal.

 

[PaulGH]

I definitely have had issues, especially with car rental places, trying to use a debit card instead of a credit card.

I understand the thought behind this. But, this does substantially limits one’s options, unfortunately. Even if you were able to find a lender that would give you a “good” rate, I would highly suspect that you would have found another lender with a better interest rate if you have a credit score 740+.
As a point of comparison, I was recently able to get a 30 year fixed loan for 3.25% interest rate. That can be thousands of dollars of savings over the life of the mortgage.
Also, while you may find a few places who will work with you without a credit history, there are a lot of financial institutions that won’t. If you want to rent an apartment, get a car loan, or even get a job in certain circumstances, it will really limit your choices unfortunately.

I understand the concern that people have about credit cards being a temptation to get people into trouble. But, at least in our modern economy, if you are responsible and can manage credit cards appropriately, they also can be a very helpful tool that can save you thousands of dollars in the long run. The thousands of dollars I have saved in mortgage interest, car loan interest, etc. can be used to support my local parish!

Well, if we had a car loan, that would help build a credit score for our mortgage, or vice versa.

But I think part of the disconnect here is that we haven’t just subtracted credit cards from our financial picture, while still doing everything else that is considered “normal”, like taking out a 30-year mortgage or taking on car loans. Instead, my wife and I have never borrowed money on a car in the 13 years we have been married, and we don’t intend to. And while a slightly lower interest rate would indeed save us thousands of dollars over the life of a 30-year mortgage, we should have our 15-year mortgage paid off in three to five years, barring some major financial calamity. So the interest savings for us would be a lot smaller than for a 30-year loan.

I do appreciate the information about you having trouble with renting a car with a debit card. I will keep that in mind. I have probably only rented a car two times using my debit card, since I don’t rent cars very often. I didn’t have a problem either time, but maybe I will have a problem in the future. I will make sure that I always make rental car reservations well in advance, so that I have time to deal with any potential problems. I am not worried about hotels though. We have stayed in hotels numerous times while reserving a room with a debit card, and there has never been an issue.

 

[phillylawyer]

I will add that in the many years that my wife and I have had no recent credit history, no credit scores, and no credit cards, we really have run into only three issues, none of which was a big deal:

(1) As mentioned above, we would not have qualified for a mortgage with many lenders. But this was fine, as our local bank was happy to give us a mortgage on good terms. Maybe we could have saved a quarter or a half of a percentage point somewhere else if we had had a credit score and had shopped around, but it wouldn’t have been a big difference. And we have the advantage of going to church with our loan officer, and being able to walk into the local bank location to discuss our mortgage if needed.

(2) Our new house is heated with propane. And when we put in an order to fill our propane tank, we have to pay in advance, because they only allow payment after delivery for people who do not have good credit scores. But again, this is not a big deal. We just pay in advance, rather than waiting for a bill and paying a couple of weeks later.

(3) When we wanted to make a big purchase on our debit card, in the thousand dollar range, we had to call our bank first to pre-approve the purchase. I think we have had to do this only once or twice in the space of at least eight years, so it’s really not a big deal.

I’m glad it has worked out for you. And, I’m not saying that your idea is the worst plan in the world - it can keep you from getting into extensive credit card debt. However, I have had friends with no or bad credit get into a lot more trouble than that.

Just to take one comment about your mortgage rate - you say that you might have got a slightly higher interest rate of 0.5% (I am guessing it is probably higher, but let’s go with that). Assuming a $300,000 mortgage, the difference between a 3.5% 30 year mortgage and a 4.0% fixed mortgage is $184,968.26 in interest vs. $215,608.52 over the life of the loan (a difference of more than $30,000!). If the rate is 4.5% instead, the interest jumps to $247,220.13 (a difference of almost $65,000 in interest!). That’s quite a nice donation to the local parish, or a lot of meals for homeless families, or a lot of nice vacations with the family.

Because the difference between 3.5% and 4.5% sounds small, people sometimes underestimate what that difference can actually mean over the long term.

Anyway, I am not at all trying to say your decision is wrong for you guys. I am just pointing out that there are also definite and substantial benefits to credit cards and credit history, when used responsibly, as well.

 

[phillylawyer]

Well, if we had a car loan, that would help build a credit score for our mortgage, or vice versa.

But I think part of the disconnect here is that we haven’t just subtracted credit cards from our financial picture, while still doing everything else that is considered “normal”, like taking out a 30-year mortgage or taking a car loans. Instead, my wife and I have never borrowed money on a car in the 13 years we have been married, and we don’t intend to. And while a slightly lower interest rate would indeed save us thousands of dollars over the life of a 30-year mortgage, we should have our 15-year mortgage paid off in three to five years, barring some major financial calamity. So the interest savings for us would be a lot smaller than for a 30-year loan.

I do appreciate the information about you having trouble with renting a car with a debit card. I will keep that in mind. I have probably only rented a car two times using my debit card, since I don’t rent cars very often. I didn’t have a problem either time, but maybe I will have a problem in the future. I will make sure that I always make rental car reservations well in advance, so that I have time to deal with any potential problems. I am not worried about hotels though. We have stayed in hotels numerous times while reserving a room with a debit card, and there has never been an issue.

That is great that you have been in the financial situation never to have to borrow money for a car and to be able to pay off your mortgage in 3-5 years. A lot of people, unfortunately, don’t have the luxury.

As for hotels and car, you are right that generally hotels are ok with debit cards. With car rentals, though, because the rental car companies are worried about liability charges, a lot of them are uncomfortable with debit cards because they have no way of knowing if there will be any money in that account to pay for an additional costs. If you are renting a car, I would call ahead to make sure that they will accept a debit card for a deposit, and what type of deposit ($200, $500) they require on a debit card.

Thanks for the thoughtful conversation!

 

[PaulGH]

(2) Our new house is heated with propane. And when we put in an order to fill our propane tank, we have to pay in advance, because they only allow payment after delivery for people who do not have good credit scores. But again, this is not a big deal. We just pay in advance, rather than waiting for a bill and paying a couple of weeks later.

Correction: This should have said, “they only allow payment after delivery for people who have good credit scores”

 

[PaulGH]

Just to take one comment about your mortgage rate - you say that you might have got a slightly higher interest rate of 0.5% (I am guessing it is probably higher, but let’s go with that). Assuming a $300,000 mortgage, the difference between a 3.5% 30 year mortgage and a 4.0% fixed mortgage is $184,968.26 in interest vs. $215,608.52 over the life of the loan (a difference of more than $30,000!). If the rate is 4.5% instead, the interest jumps to $247,220.13 (a difference of almost $65,000 in interest!). That’s quite a nice donation to the local parish, or a lot of meals for homeless families, or a lot of nice vacations with the family.

Because the difference between 3.5% and 4.5% sounds small, people sometimes underestimate what that difference can actually mean over the long term.

Just to clarify, our mortgage is less than half of $300,000 (and the principal amount will get a lot smaller still, once our old house sells), and it will probably be paid off in 3 to 5 years, not 30 years. But I do agree that if we had taken a $300,000 30-year mortgage and had planned to take 30 years to pay it off, a small difference in interest rate would have made a huge difference long-term. Even for the mortgage that we did take, it will make a difference, maybe a few thousand dollars? I don’t know as I haven’t run the numbers. But I figure that we have saved that much money over the years by almost never taking on debt, so I think it all evens out.

 

[PaulGH]

That is great that you have been in the financial situation never to have to borrow money for a car and to be able to pay off your mortgage in 3-5 years. A lot of people, unfortunately, don’t have the luxury.

As for hotels and car, you are right that generally hotels are ok with debit cards. With car rentals, though, because the rental car companies are worried about liability charges, a lot of them are uncomfortable with debit cards because they have no way of knowing if there will be any money in that account to pay for an additional costs. If you are renting a car, I would call ahead to make sure that they will accept a debit card for a deposit, and what type of deposit ($200, $500) they require on a debit card.

Thanks for the thoughtful conversation!

Quite a few of Dave Ramsey’s callers have managed to get into a positive financial situation similar to ours, and many of those have done so on less income, and in places where the cost of living is higher than here. So I don’t look at our situation as a luxury that only a few can afford. Certainly my income helps, but I think it is also in large part because of the choices we have made – regarding credit cards, car loans, budgeting, etc. – that we are in the position to be able to pay cash for a car if needed, and to take on only a short-term mortgage.

Thank you too for the conversation, and again I appreciate the warning about rental cars. I will watch out for that.

 

[PaulGH]

Anyway, I am not at all trying to say your decision is wrong for you guys. I am just pointing out that there are also definite and substantial benefits to credit cards and credit history, when used responsibly, as well.

I do agree with you on that. I just think that that is a big “if” because many people will not use the cards responsibly. And I don’t like the business practices of the credit card companies, so I would rather not be a customer. But yes, you are right that building a credit score or having a credit card can make certain things easier.

 

[Burt_Macklin]

I use credit and charge cards because there is better fraud protection and service than with a debit card linked to my bank account. It is much easier to report a card lost or stolen and use another account rather than having to wait for your account to be ready again. I also get insurance on a rental car if I pay using my card. I also went with the largest bank I could find because they have locations in a lot of the developing world and I find it is the easiest way to get local currency. Basically I use them because they provide a lot of financial serviced I need to do business.

When it came to what bank I use for my mortgage I didn’t have much say in the matter as the local bank I chose sold the mortgage to the “big evil” bank right after closing.

 

[phillylawyer]

I use credit and charge cards because there is better fraud protection and service than with a debit card linked to my bank account. It is much easier to report a card lost or stolen and use another account rather than having to wait for your account to be ready again. I also get insurance on a rental car if I pay using my card. I also went with the largest bank I could find because they have locations in a lot of the developing world and I find it is the easiest way to get local currency. Basically I use them because they provide a lot of financial serviced I need to do business.

When it came to what bank I use for my mortgage I didn’t have much say in the matter as the local bank I chose sold the mortgage to the “big evil” bank right after closing.

Both good points.

Coincidentally, I actually did get a call from the credit card fraud department last week saying that someone had tried to chart $400 on my credit card at a target over 1,000 miles away from where I live. They cancelled the charge and that was the end of that (with new credit cards issued). If it had been a debit card stolen, it would have been a lot harder to get my money back.

Also, as you pointed out, you can get a mortgage with a nicest local bank in the world, but two weeks later your mortgage will be repackaged and sold to some big bank. You really don’t have much of a choice regarding who owns your mortgage.

 

[Burt_Macklin]

Good for you. And those same companies you are supporting are charging rates of 20-30% penalty interest to some poor soul who happened to loose his job and missed a couple of payments. You freebies cost come at a cost to society.

And the ATM/Debit cards you are using make money by charging some poor sap who overdrew his account or who just wants access to his money. It isn’t really my fault if somebody can’t use a credit card responsibly or makes use of optional services credit card companies offer. The banks do need regulation but you don’t throw the baby out with the bath water. I for one need the services credit cards offer.

 

[PaulGH]

I use credit and charge cards because there is better fraud protection and service than with a debit card linked to my bank account. It is much easier to report a card lost or stolen and use another account rather than having to wait for your account to be ready again. I also get insurance on a rental car if I pay using my card. I also went with the largest bank I could find because they have locations in a lot of the developing world and I find it is the easiest way to get local currency. Basically I use them because they provide a lot of financial serviced I need to do business.

When it came to what bank I use for my mortgage I didn’t have much say in the matter as the local bank I chose sold the mortgage to the “big evil” bank right after closing.

For what it’s worth, we once had several fraudulent charges on our Visa debit card. We reported them to our bank as soon as we saw them on our online statement, and they were taken off almost immediately, with no hassle.