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

[Xantippe]

Not all of Dave Ramsey’s investing advice is as solid as his advice on budgeting and getting out of debt, and this is a good example. If I recall correctly from listening to his radio show, he typically uses 12% as his hypothetical annual return on investments, when he calculates how retirement savings will grow over time. This rate is overly optimistic, in my opinion. Perhaps someone who makes a large initial investment in a retirement account at a time when the stock market is very low might see that type of annual return over their lifetime, but I don’t think that most people will.

His calculations also don’t take inflation into account, as far as I know. For example, even if you could get an average annual return of 12%, you have to subtract the average annual rate of inflation to get your real return. So if you make 12% per year, but inflation is 4% per year, then your real return is more like 8%.

For my own calculations, I prefer to err on the side of being too pessimistic rather than too optimistic, and I think that projecting a 12% annual return is on the optimistic side.

The calculations kind of don’t matter, because he’s encouraging people to invest 15% of income in retirement and to be debt-free, have 3-6 months of emergency savings, and to have paid off homes. If you do all of that stuff, honestly, it doesn’t matter what the stock market return is going to be–you’ll be OK.

 

[DarkLight]

Another over stated benefit. Credit scores today are indeed used for lots of things they shouldn’t be, but one can survive without a credit history just fine. There are still many local/regional banks who do old-fashioned underwriting of loans for home mortgages. Pay your utility bills and phone bills on time and you will be fine.
Another thing the DR is spot on about: do not go into debt just for the sake of a credit score.

You’ll notice I was writing from the perspective of a renter, rather than a home buyer - and actually from the perspective of a young adult who will probably have to move multiple times in a few years. A low credit score, or even a lack of a credit score, can keep you out of the better apartments in your price range. It can also mean you have to put down a fairly large deposit to get your utilities turned on, which at lower income levels can be a real hardship. Like a lot of young adults I’m still at the level where moving can cost 2-3 months worth of income, so anything that reduces that is a big deal.

Home ownership is different, but I’m not looking at that for probably near another decade.

And that’s not even counting the number of things you have to put a credit card down for just to get. Good luck travelling, most places won’t hold a room for you if you don’t have a credit card - and travelling isn’t a thing just for pleasure. Good luck renting that vehicle you need to move without a credit card; some places will do it for a cash deposit but if you’re in a smaller town that might not happen. Again, if you’re living like I was on $900 a month those are real hardships.

Basically, my impression of Ramsey is that he’s got good advice for his target audience - middle class people who are having trouble managing their debt and expenditures. Generally he’s expecting this group to have a house and a car and a stable job. I think there’s a lot of things that wouldn’t work as well for people who lack those. I think he’s also missing whether it might be sensible at times to take on debt (e.g. I’ve seriously considered the value of a car loan compared to the ability to take on more work that would be enabled by having a car).

 

[tafan]

We use our CCs similarly: put all bills on them, and then pay them off in full at the end of the month. To put it all into perspective, my DH and I went to Europe on a vacation last year, and got free (except for the usual fees) tickets to do so by cashing in our credit card airline miles. Furthermore, they help us maintain a good credit history.

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.

 

[DarkLight]

The rule I learned for credit cards was to never put more money on a credit card than you could spare out of your bank account right then. If you have the discipline to not use your card in ways that you wouldn’t use cash I think it works fine. But I think it’s good of Ramsey to recognize that it’s better to avoid the credit card until you have the discipline.

 

[tafan]

You’ll notice I was writing from the perspective of a renter, rather than a home buyer - and actually from the perspective of a young adult who will probably have to move multiple times in a few years. A low credit score, or even a lack of a credit score, can keep you out of the better apartments in your price range. It can also mean you have to put down a fairly large deposit to get your utilities turned on, which at lower income levels can be a real hardship. Like a lot of young adults I’m still at the level where moving can cost 2-3 months worth of income, so anything that reduces that is a big deal.

Home ownership is different, but I’m not looking at that for probably near another decade.

And that’s not even counting the number of things you have to put a credit card down for just to get. Good luck travelling, most places won’t hold a room for you if you don’t have a credit card - and travelling isn’t a thing just for pleasure. Good luck renting that vehicle you need to move without a credit card; some places will do it for a cash deposit but if you’re in a smaller town that might not happen. Again, if you’re living like I was on $900 a month those are real hardships.

Basically, my impression of Ramsey is that he’s got good advice for his target audience - middle class people who are having trouble managing their debt and expenditures. Generally he’s expecting this group to have a house and a car and a stable job. I think there’s a lot of things that wouldn’t work as well for people who lack those. I think he’s also missing whether it might be sensible at times to take on debt (e.g. I’ve seriously considered the value of a car loan compared to the ability to take on more work that would be enabled by having a car).

I have 3 grown kids have out of college, once they have a job offer they have been able to find an apartment just fine. None of them have ever had a credit card.

I have travelled all over the world on debit cards, they work fine. Have never had any problem. Hotels will always hold a room for you on a debit card. Yes, I know that even with a bank card, there is money going to the credit card industry.

OK: I realize there are times that credit cards are necessary, more than a convenience. But I simply refuse to use one unless it would be absolutely necessary. The h*&l with the 1% cash back. I do not like the industry.

 

[PaulGH]

The calculations kind of don’t matter, because he’s encouraging people to invest 15% of income in retirement and to be debt-free, have 3-6 months of emergency savings, and to have paid off homes. If you do all of that stuff, honestly, it doesn’t matter what the stock market return is going to be–you’ll be OK.

I agree that his advice on the whole is very good, and that most people who follow his advice will do well. I’m just nitpicking on a small point where I think that he over-promises, and may lead people into expecting returns that they don’t get. But even if you figure 6% or 8% annual return in place of 12%, his plan is still a good one.

 

[Xantippe]

You’ll notice I was writing from the perspective of a renter, rather than a home buyer - and actually from the perspective of a young adult who will probably have to move multiple times in a few years. A low credit score, or even a lack of a credit score, can keep you out of the better apartments in your price range. It can also mean you have to put down a fairly large deposit to get your utilities turned on, which at lower income levels can be a real hardship. Like a lot of young adults I’m still at the level where moving can cost 2-3 months worth of income, so anything that reduces that is a big deal.

Home ownership is different, but I’m not looking at that for probably near another decade.

And that’s not even counting the number of things you have to put a credit card down for just to get. Good luck travelling, most places won’t hold a room for you if you don’t have a credit card - and travelling isn’t a thing just for pleasure. Good luck renting that vehicle you need to move without a credit card; some places will do it for a cash deposit but if you’re in a smaller town that might not happen. Again, if you’re living like I was on $900 a month those are real hardships.

Basically, my impression of Ramsey is that he’s got good advice for his target audience - middle class people who are having trouble managing their debt and expenditures. Generally he’s expecting this group to have a house and a car and a stable job. I think there’s a lot of things that wouldn’t work as well for people who lack those. I think he’s also missing whether it might be sensible at times to take on debt (e.g. I’ve seriously considered the value of a car loan compared to the ability to take on more work that would be enabled by having a car).

Our first car, we bought on a three loan and paid for in about a year. It’s been totally paid off for about 6 of the 7 years we’ve had it. If that’s feasible, it’s not a terrible way to go. That’s not pure DR, but it was OK. We bought an additional used minivan about a month ago and were able to pay entirely in cash without having to sell the old car. That’s how far we came in 7 years.

What DR sees a lot of is the eternal car loan people. You know, the people who have a 5-year loan, followed by a 5-year-loan–until their dying day. You know the people who say, “You’re always going to have a car loan?” The even worse thing is people turning cars that are upside down to create mega-loans where they can’t even just sell the car to get out from under the loan–the loan is so large that that’s not even possible.

Oh yeah, and people in your position often overpay for cheap junkers (because they don’t have a lot of options), pay insane interest (nearly 20% in some cases), can’t sell it because they owe too much, and then get repossessed, which means that they are right back where they were to begin with, but with even worse credit and debt on the repossession.

godmoneyme.com/2012/11/06/despicable-debt-tote-the-note-car-lots/

articles.latimes.com/2011/oct/30/business/la-fi-buy-here-pay-here-part1-storyb

That’s what DR is worried about because he talks to those people every day.

I think the best advice that I can give if you do buy a used car on credit is to make sure that you are never upside down on the car–make sure that you are always in a position to sell the car without having to borrow money to do so.

 

[PaulGH]

You’ll notice I was writing from the perspective of a renter, rather than a home buyer - and actually from the perspective of a young adult who will probably have to move multiple times in a few years. A low credit score, or even a lack of a credit score, can keep you out of the better apartments in your price range. It can also mean you have to put down a fairly large deposit to get your utilities turned on, which at lower income levels can be a real hardship. Like a lot of young adults I’m still at the level where moving can cost 2-3 months worth of income, so anything that reduces that is a big deal.

Home ownership is different, but I’m not looking at that for probably near another decade.

And that’s not even counting the number of things you have to put a credit card down for just to get. Good luck travelling, most places won’t hold a room for you if you don’t have a credit card - and travelling isn’t a thing just for pleasure. Good luck renting that vehicle you need to move without a credit card; some places will do it for a cash deposit but if you’re in a smaller town that might not happen. Again, if you’re living like I was on $900 a month those are real hardships.

Basically, my impression of Ramsey is that he’s got good advice for his target audience - middle class people who are having trouble managing their debt and expenditures. Generally he’s expecting this group to have a house and a car and a stable job. I think there’s a lot of things that wouldn’t work as well for people who lack those. I think he’s also missing whether it might be sensible at times to take on debt (e.g. I’ve seriously considered the value of a car loan compared to the ability to take on more work that would be enabled by having a car).

You may have a point on renting – I don’t know, as I haven’t rented in a long time. It would not surprise me if many landlords look only at a person’s credit score. I think it makes more sense to look at a person’s credit history (i.e., have they had any missed payments that show up as a negative item on their credit report, such as not paying medical bills), but that is more complicated and I suspect that many landlords don’t want to mess with getting into that level of detail.

However, I disagree about traveling being an issue. I have traveled many times, including reserving hotel rooms and occasionally renting a car, with only a Visa debit card from my bank, and I have never had any problem.

 

[phillylawyer]

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.

Yeah, and when you shop at Walmart you support a company that pays a low living wage. Or, when you buy nearly any clothing, you support low wages in southeast Asia. Unfortunately, in our modern economy, it’s basically impossible to purchase goods without indirectly supporting something with a negative side effect. One person’s use (or non-use) or credit cards is not going to change that system.

 

[tafan]

Yeah, and when you shop at Walmart you support a company that pays a low living wage. Or, when you buy nearly any clothing, you support low wages in southeast Asia. Unfortunately, in our modern economy, it’s basically impossible to purchase goods without indirectly supporting something with a negative side effect. One person’s use (or non-use) or credit cards is not going to change that system.

Well, I rarely shop at Walmart, there are cost effective alternatives to everything that is cheaper there. If I am just buying packaged food, Walmart is not any cheaper than our local grocery store. Cleaning/paper supplies: bulk from Costco is just as cheap. Produce/meat : who wants Walmarts anyways?

Yes you are correct that it is impossible to purchase goods without indirectly supporting something with a negative side effect. But when you use a CC, there is no indirect about it, you are directly supporting them. On top of that, I would consider the usurious practices one of the single worse problems in our modern economy, and a large part of that problem is with CC companies.

Its one thing to buy something which is manufactured overseas at low wages when no retail shop offers an alternative. Its quite another to be the retail store that contacts the manufacturing at those low costs. When you use a CC, you are analogous to the latter, not the former.

In My Opinion Only: using credit cards would be an **immediate material cooperation **with evil. Immediate material cooperation occurs when the cooperator does not share the intentions of the principal agent but participates in circumstances that are essential to the commission of an act, such that the act could not occur without this participation. If no one used credit cards on a monthly pay-off basis, their business model would break down.

 

[phillylawyer]

In My Opinion Only: using credit cards would be an **immediate material cooperation **with evil. Immediate material cooperation occurs when the cooperator does not share the intentions of the principal agent but participates in circumstances that are essential to the commission of an act, such that the act could not occur without this participation. If no one used credit cards on a monthly pay-off basis, their business model would break down.

When I watched the 2014 World Cup on tv, did I support the immoral labor practices that built those stadiums? If no one watched the world cup, that business model would break down. When I order fast food, do I support the low wages for employees that work there. Noone has to eat fast food (aInd, for health reasons, maybe shouldn’t).

I don’t have a problem with people saying, I personally choose not to engage in X business, because X business commits Y action I don’t agree with. But, if it expands to “anyone who works with X business is an immediate material cooperation with evil” I think we’re overstepping a line. The Church doesn’t have a position on credit cards. I guess we will have to agree to disagree on this one.

 

[tafan]

When I watched the 2014 World Cup on tv, did I support the immoral labor practices that built those stadiums? If no one watched the world cup, that business model would break down. When I order fast food, do I support the low wages for employees that work there. Noone has to eat fast food (aInd, for health reasons, maybe shouldn’t).

I don’t have a problem with people saying, I personally choose not to engage in X business, because X business commits Y action I don’t agree with. But, if it expands to “anyone who works with X business is an immediate material cooperation with evil” I think we’re overstepping a line. The Church doesn’t have a position on credit cards. I guess we will have to agree to disagree on this one.

Again, you are not directly contracting with the companies doing the bad labor. You have a somewhat fair point with fast food workers.
And I said: in my opinion only, by which I meant that is how I consider the issue of credit cards for my own moral decisions. I can understand how this can be disagreed by many who have not considered the situation closely. I did. I had bad experiences with them when representing a family member, and since I had investments with them I did much due diligence in their business practices and business model. I came out with the conclusion that they were a thoroughly corrupt industry. Not only sold my investments, but cut up my cards.

You are correct, the Church has not said anything about CC companies, that I know of. The Church certainly has a position on usury. Although, for reasons that are beyond me, the Church does not choose to speak out against modern day usury, it does have an opinion.

 

[phillylawyer]

Again, you are not directly contracting with the companies doing the bad labor. You have a somewhat fair point with fast food workers.
And I said: in my opinion only, by which I meant that is how I consider the issue of credit cards for my own moral decisions. I can understand how this can be disagreed by many who have not considered the situation closely. I did. I had bad experiences with them when representing a family member, and since I had investments with them I did much due diligence in their business practices and business model. I came out with the conclusion that they were a thoroughly corrupt industry. Not only sold my investments, but cut up my cards.

You are correct, the Church has not said anything about CC companies, that I know of. The Church certainly has a position on usury. Although, for reasons that are beyond me, the Church does not choose to speak out against modern day usury, it does have an opinion.

Fair enough. Thanks for the thoughtful comments.

We will have to disagree about the application of the phrase “direct material cooperation with evil.” I strongly dispute the contention that any use of a credit card involves a direct material cooperation with evil (I probably don’t want to know what you would label anyone who works at one of these financial institutions). But, I don’t want to hijack this thread anymore.

I will just point out that Dave Ramsey’s objections to credit cards (which is what this thread was originally about) is because so many people get themselves in trouble with them, not because of the “credit card companies are bad actors and we shouldn’t associate with them” line of reasoning.
Dave Ramsey objects to using credit cards at all, because he thinks the temptation is too great to use them poorly. Plus, making blanket statements like “Don’t ever use credit cards” sells more books than “Generally people shouldn’t use credit cards, except in situations A, B, and C.”

 

[Aggie414]

I have followed the DR plan for years – paid off a credit card and a car and bought my last car in cash.

I do still have a credit card that I keep for emergency purposes. I had it inactive for years but after twice my credit union cutting off my debit card due to a breach, I decided to reactivate because both times my debit card was cut off were right around times I was out of town – the last time I had just gotten back from a cruise and all I could think of is what would have happened if they had shut my card down while I was on the cruise. Now, my friend could have put it on hers and I would just have turned around and written her a check; but that would have caused more stress than I want to live with. I’ve also been in Europe on vacation with a friend who fell and broke her wrist which meant an ambulance ride, emergency surgery, and a one-night hospital stay. I’m not sure a debit card would have covered that.

So while I do occasionally use it for big internet purchases or airline tickets, et cetera, I immediately turn around and pay it online out of my checking account. I do make sure I keep a tight grip on my spending because I can see how it would be very easy to just put it on the credit card and not pay attention.

And that’s probably where the DR plan has helped me the most, to get organized and have a plan. I’m a natural free spirit, and being single I don’t have a built-in accountability partner. The budget helps me to have accountability. Since I don’t have any debt, I’m able to fudge a bit when I want to; but it’s a controlled fudge as I call it. I know exactly what my budget is.

 

[DarkLight]

I will just point out that Dave Ramsey’s objections to credit cards (which is what this thread was originally about) is because so many people get themselves in trouble with them, not because of the “credit card companies are bad actors and we shouldn’t associate with them” line of reasoning.
Dave Ramsey objects to using credit cards at all, because he thinks the temptation is too great to use them poorly. Plus, making blanket statements like “Don’t ever use credit cards” sells more books than “Generally people shouldn’t use credit cards, except in situations A, B, and C.”

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.

 

[tafan]

Fair enough. Thanks for the thoughtful comments.

We will have to disagree about the application of the phrase “direct material cooperation with evil.” I strongly dispute the contention that any use of a credit card involves a direct material cooperation with evil (I probably don’t want to know what you would label anyone who works at one of these financial institutions). But, I don’t want to hijack this thread anymore.

I will just point out that Dave Ramsey’s objections to credit cards (which is what this thread was originally about) is because so many people get themselves in trouble with them, not because of the “credit card companies are bad actors and we shouldn’t associate with them” line of reasoning.
Dave Ramsey objects to using credit cards at all, because he thinks the temptation is too great to use them poorly. Plus, making blanket statements like “Don’t ever use credit cards” sells more books than “Generally people shouldn’t use credit cards, except in situations A, B, and C.”

Actually Dave Ramsey refers to credit card companies as the “scum of the earth”, he wont even do business with the big national banks because of their association with credit cards. I have heard him specifically say that he will not use a credit card and ay it off every month because he does not want to help keep them in business.

Again:enjoy your freebies and convenience, but at least do your homework about who you are in business with.

 

[phillylawyer]

Actually Dave Ramsey refers to credit card companies as the “scum of the earth”, he wont even do business with the big national banks because of their association with credit cards. I have heard him specifically say that he will not use a credit card and ay it off every month because he does not want to help keep them in business.

Again:enjoy your freebies and convenience, but at least do your homework about who you are in business with.

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.

 

[tafan]

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.

Yes, I realize that banks are in the credit card business. Our financial institutions are unfortunately horribly intertwined. And even debit cards have arrangements with Visa and MasterCard (its printed right on the card) So there is nothing I can do about that. In my opinion: its a **mediate **cooperation with evil : “The reason for cooperation must be proportionate to the causal proximity of the cooperator’s action and the principal agent’s action (the distinction between proximate and remote”. And there is nothing inherently wrong with merchant fees. I brought them up earlier to simply make a point that even if you pay no interest to credit card companies, you are still supporting them.

So in general, when I use the term credit card companies, I am saying that I don’t use that specific product of the financial institution. Not perfect, I agree.

Now, I have planned to do as DR suggests and move all banking to a small local/regional bank. I have done that for business, but not yet for personal reasons. Keep putting it off, but it needs to be done. I have other problems with the giant BofA type banks. It is crazy that our country allows 70% of banking assets to be controlled by 6 institutions. I need to quit contributing to that.

As to how I pay online, a combination of debit card and paypal. For online stuff, I have a bank account that has a limited amount in it, so my losses have a maximum amount in case a fraud occurs that I cannot get back (which has never happened). And I only do business online with debit card if it is a company I know has a huge vested interest in being honest.

 

[phillylawyer]

As to how I pay online, a combination of debit card and paypal. For online stuff, I have a bank account that has a limited amount in it, so my losses have a maximum amount in case a fraud occurs that I cannot get back (which has never happened). And I only do business online with debit card if it is a company I know has a huge vested interest in being honest.

Paying for things with paypal, to avoid materially cooperating with “big evil banks” by using credit cards seems to be a classic case of missing the forest for the trees.

 

[tafan]

Paying for things with paypal, to avoid materially cooperating with “big evil banks” by using credit cards seems to be a classic case of missing the forest for the trees.

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.