Less than $2,500 More than $2,500
Always Never Sometimes
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Dave Ramsey Cutting Up Credit CardsThe Dave Ramsey view of credit cards is pretty simple: cut ‘em up. The Dave Ramsey view of paying off credit card debt, called the “Debt Snowball”, involves paying off credit card debt in order from the credit card with the lowest balance first and then working up to the credit card with the highest balance. I am a huge Dave Ramsey fan and agree with 95% of what he says but each of these two Dave Ramsey credit card strategies are just flat out wrong. Here is why.

ISSUE #1: “Cut Up All Credit Cards”

In a fairly recent post on DaveRamsey.com titled “The Truth About Credit Card Debt” (emphasis on the quotation marks) Dave makes the following remarks: “Responsible use of a credit card does not exist… There is no positive side to credit card use.” Ramsey attempts to back up these wild claims by pointing out a study of credit card use at McDonald’s that found that customers who paid with a credit card spent on average 47% more than those who paid with cash.

There are numerous problems with both the logic behind Dave Ramsey’s “don’t use credit cards” assertions, the numbers, and of course the McDonald’s study that he relies upon to back up his beliefs. Here are some of the major problems with Dave Ramsey’s approach to credit cards:

Debunking the McDonald’s Credit Card Study

McDonald's Credit Card MachineThe McDonald’s study on credit card use does NOT prove that people will spend more money than they ordinarily would when paying cash but rather what it proves is that quite naturally when people make smaller purchases they tend to use cash and when they make relatively larger purchases they tend to use a credit card.

Ask yourself these two questions:

“If a family with 3 kids walks into a McDonald’s and buys dinner for 5 people (average cost between $30 and $35 in total) then is it more likely that the Dad will whip out a wad of cash and pay or is it more likely that he will just plop down his credit card?”

“If a teenager walks into McDonald’s and buys a double cheeseburger and a Coke from the dollar menu (average cost of $2) then is it more likely that they will hand the cashier $2 to pay for the food or is it more likely that they will hand over a credit card to pay for a measly $2 purchase?”

Just as one might suspect, most people rarely like to carry a large amount of cash on them and once the purchase price of whatever they are looking to buy increases above the $5 or $10 or $20 mark then most people will typically use their credit card to make the purchase rather than depleting their likely small stash of cash that they have in their pocket.

In other words, Dave Ramsey and others who have cited this study extensively are drawing entirely the wrong conclusion. In fact, the conclusion drawn by Ramsey is exactly backwards. Ramsey attempts to say that the study proves that when people use their credit card the actual use of the credit card causes them to spend more when in fact what the study points out is just the rather obvious truth that when people are about to make a relatively larger purchase they tend to prefer to use a credit card because they do not like to carry a lot of cash around or use up what little cash they do have in their pocket that they may need for an emergency, etc.

The truth is that the larger purchase causes the customer to use the credit card and NOT that the credit card causes the customer to make the larger purchase!

Yes! Actually, You CAN Use Credit Cards Responsibly!

OK, now that I have hopefully cleared up the misguided conclusions that many seem to infer from the McDonald’s credit card spending studies I would like to move on to also debunking Ramsey’s statement that, “Responsible use of a credit card does not exist… There is no positive side to credit card use.” (Note, that regardless of what conclusions you draw from the McDonald’s study this section should still prove that you can use credit cards responsibly, you should use credit cards responsibly, and many many people do use credit cards responsibly).

Red Herring Alert!

Ramsey states: “Now let’s talk about the rebates. If you were using a credit card at 5%, you would have had to have spent $80,000 to get $4,000 rebates on new cars that lost $6,000 of value when you drove them off the lot. That is not a good deal!” (Source)

First of all, I am not entirely sure what he means when he refers to the depreciation of new cars because obviously one can use a credit card to buy pretty much anything and not just a new car (which I personally don’t think I would ever do in the first place because of the initial depreciation hit that comes with being the first owner of a new car but that is a rabbit trail and a subject for another day). I will ignore the confusing (to me at least) new car depreciation remark because I am not really sure what conclusion he is trying to force the reader into making since the inference that credit cards can only be used to buy new cars can’t possibly be what he means (if I am missing the point entirely on this one then please point it out for me in the comments below and I will amend this section to include your comment). UPDATE: Thanks to Alfred who explains in his comment below what Dave is getting at with this statement and I of course still stand by my pretty obvious statement that you can buy pretty much anything with a credit card and not just a new car!)

Numbers Don’t Lie

Putting the new car depreciation red herring issue aside let’s take a look at the numbers because numbers don’t lie. Numbers don’t always tell us what we want to hear and they don’t always make for compelling radio/TV or result in bestselling book deals and guest appearances on the Today Show BUT numbers don’t lie.

Here is how I look at it. I can use my Bank of America debit card to make a purchase and I can pay 100% of the purchase price OR I can use my American Express Costco True Earnings Credit Card with no annual fee and I can receive cash back of at least 1% and up to 3% on all purchases to effectively end up paying anywhere from 97% to 99% of the purchase price rather than the full 100% that I would pay with my debit card or by using cash.

I schedule my credit card to be paid off in full automatically every month direct from my checking account so I never even have to worry about logging into my account or mailing in a check or making sure to get the payment in by the due date. I essentially treat the credit card just like a debit card except for I receive the cash back as well as the convenience and fraud protection that comes with using a credit card and not having to carry large amounts of cash everywhere I go.

Don’t Take My Word For It! (Calculate Your Own Potential Cash Back Savings)

Cash Back Credit Card Calculator1% to 3% cash back may not seem like much at first but as you can see by inputting your monthly spending habits into our cash back credit card calculator that amount can grow to enormous proportions after even 1 year and of course after 25 years! Just imagine if you started using a cash back credit card after the birth of your first child and then just saved the money from all of those cash back checks. By the time your child is of college age you would likely have enough to pay for at least the first entire year of college! (Don’t take my word for it – enter your own monthly spending amounts into the cash back credit card calculator and see for yourself – AND keep in mind that the 25 year projections from this tool are on the low side because the tool doesn’t even take into account the rate of growth that your cash back savings could have if you would keep them in an interest bearing or investment account!)

Why Pay Full Price?

All in all, it seems kind of silly at best and a downright bad steward of my money at worst to NOT use a credit card and pay 100% of the cost of something rather than the 95% to 99% of the full price that most cash back cards will give you (the 95% number is from the Discover More Credit Card that offers up to 5% cash back in certain categories that rotate on a quarterly basis although my personal favorite is the American Express Costco True Earnings Credit Card because I don’t like having to keep track of rotating categories and American Express is accepted at more places than Discover currently is).

ISSUE #2: “Debt Snowball”

Debt SnowballI think that the Dave Ramsey Debt Snowball approach to paying off credit card debt is a great plan EXCEPT for I certainly take issue with the advice to, “You should pay off the smallest debt first to create the greatest momentum in your debt snowball.” (Source)

The best approach to take is of course to pay off the credit cards in order from the card with the highest interest rate down to the credit card with the lowest interest rate and NOT to pay off the credit cards in order from the card with the lowest balance to the highest balance. Why? This is true because the credit cards with the higher interest rates are costing you more in interest charges every month then the credit cards with the lower interest rates and so you will save money in interest charges by first tackling the payoff of the credit cards with the highest interest rates and then moving on down to the lower interest rate credit cards.

Again, you don’t have to take my word for this because all you have to do to see the numbers for yourself is to use our Credit Card Payoff Calculator to see the sometimes dramatic effect on your monthly payment and interest costs that even a 5% to 10% different in interest rate can have.

I Still Love Dave Ramsey’s Financial Peace University!

Financial Peace UniversityAlthough I have never gone through the Dave Ramsey Financial Peace University personally I have hard many good things about it from people I trust and I have reviewed many of his teachings online and have come away impressed. Yes, I still strongly disagree with Dave Ramsey in the two areas above but don’t let that stop you from putting into practice a lot of the top notch stuff that Dave Ramsey puts out there.

Let this simply be a reminder to always do your own research, be a smart and disciplined consumer, and to never just take advice at face value even from someone who is as respected and trusted as Dave Ramsey because we are all human and we all get things wrong from time to time!

As always, do your research to find the best credit card and discipline yourself to spend less than you earn and manage credit responsibly.

What do YOU Think?

What do you think about Dave Ramsey’s view of credit card use?

What do you think about the Dave Ramsey Debt Snowball approach to paying off credit card debt?

Am I being too harsh on Dave Ramsey or am I right on the money?

BONUS: Dave Ramsey Video

Just to show that I am still a big Dave Ramsey fan I hope that you enjoy the below video of Dave Ramsey flipping out on NBC’s John Yang after Yang’s feature on the government giving tax deductions to universities. Ramsey is highly critical (and rightly so) of the socialist mindset that has crept into American thinking and exemplified by Yang. Well worth watching.

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168 Responses to “Dave Ramsey & Credit Cards: I Love Ya Dave but You are Dead Wrong”

  1. Peter says:

    I think you’re being a bit too harsh on Ramsey.

    Dave Ramsey and Mcdonalds aren’t the only ones saying that people spend more when they use credit cards. There is a Dun and Bradstreet study showing that people spend 12-18% more when using credit. Here’s a radio show on NPR talking about why people spend more when they use credit:

    NPR Show

    Also, with the whole debt snowball debate, Dave Ramsey repeatedly has says that he doesn’t care how you get out of debt – as long as you’re getting out of debt. In his opinion using the debt snowball works best. He admits that it might not be the best mathematically, but that in his years of experience it is the most successful – working with thousands of people who are trying to get out of debt – in helping them to get rid of their debts. It takes into account the psychology of debt reduction which some methods forget. It can be easy to say “emotion shouldn’t play a part in financial decisions”, but the fact is that they do play a part.

    I’m with Ramsey on this one – whatever works for you to get out of debt!

    • Joel says:

      Thanks for the NPR link. I am not familiar with the D&B study but from what I have seen most credit card use studies seem to make the same testing error that the McDonald’s study makes in that they simply highlight the fact that for relative larger purchases people just feel more comfortable using a credit card rather than carrying a large amount of cash around, running to the bank to make a large ATM withdrawal, etc.

      You have some great points from a psychological point of view though that some people that tend towards the “short term focus” group of people may end up ignoring the fact that they will have to pay off their card and they just live for the short term thrill of spending more with the credit card than they would if they had cash. I would submit that this group of people is probably in the minority though and I am not sure of a way to test this properly while still avoiding the same issues that are inherent with the McDonald’s study that I mentioned above.

      I definitely see where you are coming from because if the assumption is that person A will follow the Debt Snowball method but they won’t follow the mathematically best solution for whatever reason then of course having them utilize the Debt Snowball method to get out of debt is far better than them not getting out of debt at all.

      I guess my main beef with Dave Ramsey is that many many people come to Dave with already pre-existing motivation to do whatever is necessary to get out of debt and they just need sound advice from Dave in order to do so. For that large group of people it seems quite unfair and just wrong for Ramsey to advise them to use a method of paying off debt (Debt Snowball) that is mathematically proven to cause people to end up paying a significantly larger amount of interest over the lifetime of the debt than if they were to use the pay higher interest debt first method.

      Does this seem somewhat unfair to you for him to advise the Debt Snowball method to this very large group of people that come to Dave already determined to pay off their debt (i.e. this group of people would likely benefit much more from saving thousands in interest charges rather than getting the small psychological benefit gained from using a more emotionally satisfying method)?

      Overall though, I will be the first to say that I absolutely love almost all of what Ramsey says and I even listen to his show on the Fox Business Channel. Thanks for the comment Peter!

      • Mark says:

        In his early years, Ramsey actually taught people to pay highest interest first. His success rate with people following through was very poor. The reason being that psychology and motivation are a huge part of personal finances. If finances were all math, it would be one thing. But the reality is that math is not the problem (we’re only taking about basic arithmetic here). The deeper problem to America’s cultural debt lifestyle is personal discipline (or the lack thereof). Once Ramsey switched to the debt snowball, his success rate drastically improved.

        You have to see things from Ramsey’s point of view. He has a radio audience of some 5 million people plus millions in FPU, TV viewing, readers, etc. With an audience as large as his, he has to speak to the lowest common denominator. Many people do not have the self-motivation or the discipline to see themselves through the process of debt repayment. Hence the psychologically rewarding Debt Snowball, the Baby Step method of small goals, and the peer-reinforcing small groups in FPU. Also, Dave got to where he is by drawing hard lines in the sand and being uncompromising in his principles. The reason being that his principles work and have proven themselves countless times over.

        Contrary to popular belief, Dave is not in the business of fixing finances. He’s in the business of fixing people. This is behavior modification to the fullest, and sometimes math has to take a back seat.

        • Joel says:

          Very interesting as I never knew that originally he used to teach to pay the highest interest credit cards first. The big issue that I still see is that Ramsey many times challenges his listeners to act “abnormal” by behaving responsibly (or something to that effect as I can’t remember how the slogan goes exactly) so if that is the case (and it’s a good thing I think too by the way) then why not act abnormally from everyone else and just commit to pay off the high interest credit cards first so that you will save thousands of dollars in interest as compared to the debt snowball method?

          • ASHLEE says:

            I have two debts.. a small one with a next to nothing interest rate, and a large credit card debt with a substancial interest rate. i know that the higher interest rate will take longer to pay off, and am focusing my payments to that cc because otherwise i will be paying way more in interest than i need to. i guess for some people the pyshcological part is a big deal, and they feel they are accomplishing more by paying off the smaller debts, but i disagree. i am content to pay off my higher debt first and know that it will take time.

    • David says:

      The major fallacy in the McDonald’s argument here is that ‘cash’ also includes debit cards, gift cards, etc. When my family eats out, I never use ‘cash’ or a credit card. I use my checking account (real liquid money) via my debit card. I cannot count the number of people I know personally whose financial futures have been saved by Ramsey’s program. The idea is that the program is designed for those who ARE NOT historically responsible with revolving credit, not those who pay off their monthly bills and never accrue interest.

  2. Randy says:

    I see what you are saying, and I agree with you numbers wise. But, you need to realize that Dave Ramsey is speaking to a large audience of people that CANNOT control their spending let alone credit card use.

    I would say a large majority of people do not track their expenses and using a credit card could most likely end in disaster. Is this worth 1% back. For those people, no it is not.

    And like Peter stated above, paying off debt is not JUST about the numbers. It involves emotion. When you see progress being made paying off debt, it will spur you on to keep going.

    • Joel says:

      I think that I would take issue with your phrasing that people “CANNOT” control their spending because the very essence of what Dave Ramsey and many other personal finance experts teach is that one has to take responsibility for their situation. Ramsey mentions this over and over on his show and I strongly agree with him. This is why to me the seemingly “second best approach” to paying off debt (ala the “Debt Snowball”) is so incongruous with his basic principle of personal responsibility because acting as if people “CANNOT” discipline themselves to follow a plan, get some will power, and take responsibility for their actions flies in the face of the doctrine of personal responsibility. What do you think? Thanks for the comment Randy!

  3. Randy says:

    Just FYI, I actually use a credit card as a debit card and get free air miles. (two free trips to Hawaii to show for it!) I track my spending each month and never pay a fee or interest on the card. It works great….for me.

    In a perfect world everyone should be able to do this right? Of course the goal is to take control of your life and spending and be responsible. Unfortunately, a large majority of people do not keep track of their expenses. If Dave Ramsey told his entire audience to use a credit card like you and I do, then the result would be that it works great for some and turns into disaster for others that cannot control their spending.

    So, Dave has to preach cash because although it may keep some people from getting those air miles or 1% back, it also prevents them from the possibility of losing control of their credit card spending.

    Good conversation.

    • Joel says:

      I am perfectly fine with Ramsey preaching cash but what I am opposed to is when he makes blanket one size fits all statements and attempts to say that no one should use a credit card and there are never any benefits to using a credit card which is obviously not the case.

      As long as Dave were to mention that credit cards have some great advantages over using cash (which can be clearly demonstrated with the cash back credit card calculator I think: http://www.creditcardchaser.com/credit-card-calculators/cash-back-credit-card-calculator/ ) but that they should be used responsibly and if someone has issues with using credit cards responsibly then they should learn to control their spending or else just stick with cash then that is fine.

      I think that the one size fits all approach has the tendency to always harm at least one segment of the listening audience though which is why it is so difficult to do and something that I would stay away from but easier said than done when you have millions of people reading your books, listening to you on the radio, and watching you on TV!

      I think he is just taking the safest way out that he knows which is just to say leave credit cards alone all together and I understand that but I just disagree with the math of course and the potential “harm” it can do people by losing out on some of the very real and very significant benefits that using a credit card properly can bring.

      Do you think that Dave Ramsey in his heart of hearts honestly thinks that there is “no positive side to credit card use”?

  4. Alfred says:

    “Ramsey states: “Now let’s talk about the rebates. If you were using a credit card at 5%, you would have had to have spent $80,000 to get $4,000 rebates on new cars that lost $6,000 of value when you drove them off the lot. That is not a good deal!””

    Here’s what I think Dave was referring to:

    http://www.creditcards.com/credit-card-news/car-reward-credit-card-rebate-1277.php

    • Joel says:

      Ahh thanks Alfred! That is apparently what he is referring to. I still stand by my obvious statement that you can use a credit card to buy pretty much anything and not just a new car. Thanks for pointing that out!

  5. Joel Reese says:

    I think Ramsey’s advice is good, as long as it’s taken in moderation. My wife got out of debt by cutting up her credit cards — her credit rating is now excellent, and she has no debt. So I think Ramsey’s thoughts are good in that it can help people live within their means.

    But as I’m checking out this site and seeing the benefits of responsible (a key word!) credit-card use, I think simply getting rid of all credit cards might be “throwing the baby out with the bathwater.”

    • Joel says:

      You are exactly right in that credit cards themselves have never caused anyone to get into debt but rather everyone that goes into debt makes a choice to live beyond their means.

      Sometimes drastic measures like cutting up credit cards are needed in some cases as a last resort but I think my biggest issue with Ramsey on this particular topic is how we assumes that because some people have problems with using a credit card responsibly then therefore everyone should cut up their credit cards.

      Wouldn’t you agree that the key takeaway is that one should live within their means and take responsibility for their actions rather than attempting to blame their choices on an inanimate object like a credit card (that never spends itself!)? Thanks for the comment!

      • Joel Reese says:

        Yes, I agree with you — he’s going a little overboard here. The best thing to do would be for someone who’s in debt to come up with a thoughtfully crafted plan and follow through with it. But if someone’s thousands and thousands of dollars in debt, coming up with a meticulous budget is likely beyond him/her. So maybe the drastic action of cutting up the credit cards is the only way to decrease the debt. (Plus, it has great symbolic value, too!)

        • Joel says:

          Very true! Some have argued that Dave Ramsey is more of a master of psychology rather than personal finance and taking the extreme action of cutting up all credit cards could certainly be a strong psychological motivator to some I suppose.

  6. Dave Ramsey is very healthy for the weak, b/c the weak need to be kicked in the A&& and taken to the extreme (cut up all cards).

    For the normal folk out there, Ramsey’s advice doesn’t make sense.

    • Joel says:

      Well said and I knew I could count on you to drop by and tell it like it is! (Note: much of Ramsey’s advice is great advice for almost everyone but you are right on as it related to the two areas I mentioned above).

    • Wizard Prang says:

      As Dave Ramsey would say: “Normal is BROKE”

      • Joel says:

        That is actually a good point because the “normal”/accepted point of view in the US is unfortunately to spend more than you earn and enjoy living beyond your means. I think what Financial Samurai is probably referring to by “normal” though is more along the lines of normal readers of a personal finance blog who are somewhat financially literate. I could be wrong though but thanks for the comment!

  7. Dustin says:

    Interesting article. Especially the insight about the McDonald’s credit card study. I am a huge Dave Ramsey fan. I have been following him for years. His teachings and methods have helped me become debt free except for my house.

    That said, I must admit I do stray a bit because I have a couple of Amex cards I use and I prefer debit cards to cash envelopes. I wrote inzolo.com as a virtual envelope budget which really helps me manage them so I never overspend and always have the money available to pay them off each month.

    • Joel says:

      Yea, the more and more I think about the McDonald’s study the more I disregard the conclusions that most people draw from the study.

      I checked out inzolo.com and the concept seems like a cool idea – nice work!

      The one thing that kind of gets me a little bit is when Ramsey and some others seem to make credit card use and a budget mutually exclusive when they are not. One can certainly have a budget and stay on budget while using credit cards – wouldn’t you agree?

  8. Mark L says:

    I have been a FPU coordinator for two years, so I’ve seen a lot of people come through the class. The first thing you have to realize is that Dave is a personal finance coach. Like any coach he helps people get in better shape. Some people going to FPU are the worst of the worst – $40K in credit card debt, two car payments, a home mortgage and a home equity loan, and no savings for emergency or retirement – the obese overeater. Others are in really good shape: they have little debt and are just looking for a way to improve some – the person who just wants to lose 10 pounds and control their eating a bit. And there’s everything in between.

    What Dave tells everyone to do is eat right and exercise. What I like about him is that he uses whatever means works best for you – spiritual, emotional, intellectual. Yes, the “pay down the smallest first” doesn’t make mathematical sense, but neither does using credit cards to the point of over-extension. So, he uses a different approach to shake people up. It works. The majority of people going through FPU are glad to have done it and end up with better habits for the long run.

    I’m not going to tell you that you are wrong for keeping a credit card. If you are responsible enough to use them with discipline, good for you! You’re the habitual workout freak who looks the same at 40 as they did at 20. Most of the population isn’t so lucky.

    Dave’s advice for financial success is pretty simple: budget, control spending, save up for emergencies, big purchases and retirement. It’s not rocket science, it’s common sense. As the saying goes, though, there’s nothing more uncommon…..

    • Joel says:

      Great analogy between personal finance advice and coach. I very much agree with your analogy and also of your characterization of the different types of financial profiles: “obese overeater”, “good shape”, “workout freak”, etc. but one thing that any good coach knows is that different players need different types of coaching to reach them effectively.

      My main issue with Ramsey is that he treats everyone the same and assumes that everyone is an “obese overeater” and he tells everyone to just cut up their credit cards and use the Debt Snowball method.

      I strongly agree with your last paragraph but wouldn’t you agree that it also seems like pretty common sense to never have to pay full price for something by using a cash back credit card and still just sticking to the same old budget that you would have if you used cash?

      • Mark says:

        Dave has an audience of multiple millions of people. He has to teach to the lowest common denominator. The reason being that 100% of the people that successfully follow his plan will be debt free and fiscally secure. It’s simple and impossible to misunderstand. If he were to start varying his principles based on situation, he would have thousands of listeners misunderstanding and doing the wrong thing. Heck, he has enough people misunderstanding him now, and he hasn’t changed his simple principles in 20+ years!

        While a personal coach could afford to customize and streamline a plan based on an individuals strengths / weaknesses, Ramsey does not have that luxury. With millions listening, he goes with the tried-and-true method that works 100% of the time. Wouldn’t you?

        • Joel says:

          Personally, if I were to give generic advice that is right for many but not all then I would make certain to preface everything I say with a disclaimer of sorts that each situation is unique and my advice would just be generic one size fits all advice so take it or leave it (or better yet I would direct viewers to a personal planner in their city that agrees with my basic principles). Then again, if I was minting millions from books, radio shows, and TV shows as Ramsey is then I would probably be more mindful of doing things in a very commercially appealing way as he does. :)

        • Joe Parsons says:

          Mr. Ramsey’s advice can easily be distilled into one page of double-spaced type:

          1. Don’t buy stuff on credit that you can’t afford
          2. Set aside money for emergencies and the future
          3. If you are in trouble with debt, stop incurring it (we could also state it as, “When you’re deep in a hole, stop digging.” )
          4. Make a plan to retire your debt systematically

          The problem is, that simple advice by itself doesn’t sell books or keep his large television and radio audience. So he “pads” it to fill space. His 240 page book is approximately 2/3 testimonials and anecdotes. Since his primary role is as coach/cheerleader/preacher, that’s to be expected, and not inappropriate appropriate.

          Where I have a problem with Mr. Ramsey is that he often uses logical fallacy, misdirection and outright falsehood to make his case. For example: he claims that a dealer makes only $89.00 in proft when selling a car for cash, but thousands when they sell the financing. This is simply. Not. True. According to my local Honda dealership, the typical gross profit on a Honda Civic is around $3,200–after the normal discounts. He claims that a new car loses $6,000 of its value the day you drive it off the lot, and loses 60% over a four year period. This *may* be true for some makes, assuming one pays full retail and sells for below wholesale, an unlikely scenario. He claims buying for cash will get a better deal than financing the same vehicle. Also untrue, according to three dealerships I surveyed recently; the “cash” price is identical to the “financed” price.

          Dave Ramsey has done an enviable job of creating a large audience of raving fans who hang on his every word. Many of those fans will view anyone who dares to criticize *anything* he teaches as nothing short of the antiChrist. We who have reservations about his methods and systems are told we “love debt” and are ignoring “Biblical principles.”

          Someone recently said to me, “When YOU have as much money as Dave, maybe I’ll listen to YOU.” The reality is, though, that Dave Ramsey did not get wealthy by following his own advice. He is wealthy (estimated to earn between $25 and $40 million annually) because of his book sales, syndicated radio and television programs and Financial Peace University. Other than being a real estate agent in the mid-80s, that is all he has done.

          I don’t want to minimize the good that he has done. Many people in deep trouble financially have been able to turn themselves around by mking a plan to retire their debt. Many of these people actually *cannot* be trusted with credit of any sort; but Ramsey assumes that EVERYONE is in this category. That’s why he makes statements like, “There is no such thing as responsible use of a credit card,” or “The FICO score is an ‘I love debt’ score.”

          For many, following Mr. Ramsey’s advice (especially with regard to closing credit cards) could stand in the way of accomplishing what they want. With respect to mortgage finance, I find him to be woefully out of touch with the reality of what is required to get a mortgage.

  9. Maria says:

    I also agree with many things that Ramsey has to say but I have my own grievances:
    1)I followed Ramsey’s $1000 emergency fund idea before attacking my debt (which by the way was accumulated from medical expenses before I had an emergency fund.) Big trouble followed when my air-conditioner repair bill came to $4,000 and my emergency fund could not cover it.
    2)Your example of responsible credit card use is not exclusive. I understand that when someone stops using credit their score will sit well, possibly even increase..however..if someone started out as cash only they will pay dearly in many areas. Without a credit score, expect to payer higher rental rates and higher rental rates. The one thing I have never heard Ramsey mention is how someone is suppose to purchase a house without a credit score.

    Thanks for your article. I think you were dead on when you said “Let this simply be a reminder to always do your own research, be a smart and disciplined consumer, and to never just take advice at face value…”

    • Joel says:

      You make a great point in that many people do not realize the high cost of not having a good credit score and an established credit history. Yes, it is possible to qualify for a loan without and established credit history but it is much more difficult and one will likely pay thousands more in interest charges over their lifetime than someone who responsibly uses credit to build their credit score. Thanks for the comment!

    • BeyondWeird says:

      As one who thoroughly enjoys listening to the talk show, I must say the basic premise of Ramsey’s message is solid… but its simplistic “one size fits all” approach can be a bit tiresome at times. However, Ramsey DOES oftentimes deviate from his own rigid advice when the individual situation warrants.

      1) In the case of the $1K baby emergency fund… again this is a training technique he uses to develop a habit of paying CASH, not charging when unanticipated expenses arise. Its the idea of changing mindset and behavior…. so when your cost for the repairs greatly exceeded the balance of your emergency fund, the only thing worse than that would have been having no emergency fund at all!

      Undoubtedly it would save more money to pay down $1K of debt at 18% or more than to save up a baby starter emergency fund, but the Ramsey plan is not designed to squeeze maximum value out of each $. Its more of a global approach for those who have truly lost their way financially. From what he says, the $1K amount covers most average types of “emergencies,” or unplanned expenses… such as a fridge or washer, small car repairs, etc.

      2) Ahh, the great credit card debate. I, personally put EVERYTHING possible on my cards, and LOVE doing so. I also never, ever, pay one penny in fees or interest…. and am WAY ahead at this point, getting literally thousands$ in freebies as a result. Even my CAR insurance is lower because of an 800+ credit score! Responsible use of credit cards is the BEST approach — and by responsible I mean paying them off several times EACH MONTH, before the bill even arrives. (I tend to pay weekly, whatever the balance is, and NEVER spend more than I already have in the account!).

      Ramsey is against almost all credit, including mortgages when the buyer has less than 20% down — he prefers for people to save the money first, then pay cash for the house if possible — Voila! no need for a good credit score…. this might work well in small towns, but in larger communities you can’t even rent a decent place without reasonably decent credit.

      That said, I DO enjoy Ramsey, and coincidentally structured my own finances in a way that essentially mirrored the Ramsey “Baby Steps.” He is a bit more credit averse than I am, but knows the horror stories all too well of good folks creating disasterous situations due to misuse of credit…. and likely considers paying a bit more to be debt free the lesser of the evils…. and don’t forget he has made MILLIONS selling his program, too! Evidently, radical sells books & products – LOL

      • Joel says:

        Congrats on the 800+ credit score! I think that you are exactly right in that if Dave Ramsey were ever to go into the profession of “personal” financial planning and not mass market/showmanship financial planning then he would likely give very different advice to different types of people, wouldn’t you agree?

        • BeyondWeird says:

          Absolutely agree with you, Joel. Ramsey is a businessman whose product is primarily target marketed to a certain demographic group. From what I can tell, he appears to be a decent sort & a straight shooter. His right-wing, conservative, edgy style fits in well on the Fox network. He has a successful business model. Were he a financial planner his advice would be far more tailored to meeting the financial objective of the individual client in a manner specifically meeting each client’s needs. CLEARLY it does not make FINANCIAL sense to pay down a lower interest rate debt before a higher interest rate debt…. just because the total balance is smaller. The end result is paying more interest — obviously!

          This one item ALONE concerns me in his “one size fits all” approach. But I am a logic & numbers driven person, not one who has debt, and needs to achieve a “small success” by paying one off to “feel good.”

          What I NEVER hear Ramsey advocate, that seems to be a total no-brainer, is to try transfering balances to those low or no interest card promotional deals that are available. Some years back I was able to put the last few thousand from my last debt, (a car loan), onto a promo offer, paying a smallish $75 or so fee, and paid NO interest at all after that for about a year or so. BIG savings for me, and no worry about not getting the payment in time, as I made a sizable payment every week or two, and paid it off early. We had done that a couple of times over the years, and again, have saved thousands in interest as a result — its fun to run the numbers & calculate the savings possible through this technique!

          Thus, it would seem the first step in a debt reduction plan would be to minimize the amount of payment being lost to interest, and maximize the amount going to pay down the debt itself!

          EX: 10K in credit card debt at 18% = $1,800 in interest per year.
          reducing the interest rate to 5% on a promotional 1 yr rate = $500 in interest per year, a savings of $1,300…. now THAT is a significant amount! (this assumes that the balance remains the same for the whole year…. just to illustrate the point.).

          This demonstrates the HUGE savings possible if one is able to reduce the interest rate on debt, an issue I have never once heard Ramsey discuss. Undoubtedly this topic of rate reduction / decreasing interest / increasing payment amount devoted to actual debt reduction, rather than servicing the debt, would be one of the first addressed with an individual client. However this approach might possibly create a can of worms that too many in Ramsey’s target demographic would not adequately manage (ie spend more, or late pay), resulting in a worsening of their debt situation.

          • Joel says:

            You are right on the money. You could maybe say that the overall principle of “you can’t give the best advice to everyone all at once” is kind of like a corollary to the classic “you can’t please everyone all the time” since the reason both of those statements are true is that everyone is different and to give one size fits all advice is typically not going to be the absolute best solution for everyone.

      • Jay Clemins says:

        Too bad you don’t have an 800 credit score.

        Why would you lie about it?

        Its mathematically impossible to have an 800 credit score and not have debt, and since you say you pay zero in interest then you are obviously debt free.

        So either you are lying, or you hacked into the reporting companies and changed the %s for your account.

        • Joel says:

          Sorry Jay, you are wrong again. It is certainly possible to have an 800+ credit score while being debt free. You can still USE credit cards which will show up in your credit utilization ratios but then you just pay them off in full every month when the balance is due. It really is shocking how many easy to verify facts you are just flat out wrong on. Too bad for you but at least now you know. Please do not insult other participants in this discussion by calling them liars when you don’t know what you are talking about.

          • Beyond Weird says:

            Hey Jay, you simply don’t know what you’re talking about. I DO have an 800+ credit score, and have NO consumer debt. While I continue to maintain an ultra-low rate, low balance, low-LTV, home mortgage, in Ramsey-speak that makes me “debt-free.” I could easily pay off my mortgage in full, but the rate is so ultra low – below 3% net cost of funds – it is not prudent to do so for several reasons, including some that pertain to liability law in my state of residence.

            I have been able to maintain an 800+ score for years through the use of revolving credit, in addition to having that very small mortgage loan. My available credit lines total several hundred thousand, and I rarely have more than $1000 total owed on my credit cards…. and if I do its simply because I haven’t paid the balance yet that week, or I just paid a tuition bill, or made a large purchase.

            And, BTW, your comment about hacking into the reporting company is bizarre, at best — really not at all reality based! May I suggest you do your homework, first, before spewing wildly ignorant baseless accusations?

        • Joe Parsons says:

          Jay, how would you know Jay’s credit score? Setting that aside, it is VERY possible to have an 800+ score and have not one dime of debt. It takes actvie, long-established accounts, called “seasoned tradelines.” None of those accounts needs to have a balance, although, because of reporting cycles, there may be a reported balance. For most revolving accounts (credit cards), there is a grace period, typically 25 days. This means that there is no interest charged if the balance is paid before that time. Many of us access our accounts on line and set up automatic payments so we don’t wind up paying interest unintentionally.

          By the way: accusing someone of lying when you have absolutely no way of proving your accusation is really bad form. It is also the last refuge of someone on the losing side of an argument.

          • Joe Parsons says:

            Sorry, I meant to say “Joel’s credit score.”

          • Charles says:

            Actually Joe what you say is interesting but in my experience untrue. My 93 year old mother, through me, wanted to open an account with Ally.ca bank.

            Because she has NEVER used credit cards and owes nothing, they required proof of income like a mini-balance sheet.

            So in Canada it appears Dave is right again.

            Don’t you think with all his research staff he might now a thing or two that we don’t Joe?

          • Joel says:

            Appeal to Authority/Appeal to Wealth hybrid (i.e. btw I am imagining this said in a really snobby tone of voice: “Well Joe, don’t you think that because Dave Ramsey is a big shot with lots of money and a big research staff that he knows some things that we don’t so we should just take him at his word and not debate the evidence? After all, he is THE Daave Ramsey!” ) :)

  10. Mike says:

    Your “McDonald’s” statements are even more assumptive than what Dave Ramsey is saying. You assume people pay for larger purchases with plastic than with cash. That would be because it is what? More convenient? Yes!! Exactly proving Ramsey’s point. Plastic is more convenient and we are willing to swipe more than carry and hand over bills. It is more emotional to pay with cash!

    • Joel says:

      Hi Mike, thanks for the comment. I appreciate what you are saying but you are wrong. The “assumption” that people tend to pay for larger purchases with plastic rather than cash is not an assumption it is a fact. Studies (and common sense) prove that by and large most people will tend to use a credit card for a larger purchase rather than cash (because they don’t like to carry a lot of cash around, it’s more convenient to use a credit card, its more secure because you have fraud protection and the ability to chargeback something, they are not a member of the Mafia, etc. etc.)

      Ramsey’s point is not whatever it is that you are mentioning but rather Ramsey’s point is that the McDonald’s study proves that simply by virtue of using a credit card that the credit card use itself causes someone to spend more than if they pay with cash.

      Ramsey’s point is false. As I state above, “The truth is that the larger purchase causes the customer to use the credit card and NOT that the credit card causes the customer to make the larger purchase!” Wouldn’t you agree with this sentence?

      • Maria Barker says:

        I know this is an older thread, but still wanted to put my 2 cents worth in on this single point. I KNOW that I personally, and others in my family, spend more on a credit card than in using cash, debit, or check. I know this about myself, I know this about my family members because we have talked about it. And I know it is not a matter of not carrying around lots of cash, because I can see the difference in my credit card use, and my debit card use. So no, in some cases, people WILL spend more, BECAUSE it is a credit card and is not coming out of the available funds that day. I am not arguing that Dave is always right, I am not saying CC are evil or that there are no benefits to them. I am saying that on this one point, I have evidence to the contrary. Thank you for this good discussion.

        • Joe Parsons says:

          If people spend more using non-cash methods (and I put debit cards into the same category as credit cards), it is in now way the fault of the method of payment. One of the many ironies of Dave Ramsey’s religion (and make no mistake: it is indeed a religion) is that he requires a great deal of discipline in following his doctrines–but his core assumption is that, in his words, “responsible use of a credit card is not possible.” It is because of his demonization of those eeeevil credit cards that he insists not only that his followers cut up their credit cards, but also that they close the accounts so as to be immune from temptation to use them. This advice is not only misguided, but even dangerous to those who follow it. While someone can get a mortgage without having any “open tradelines” (active accounts), the purchaser will pay significantly more for credit than if they have at least two credit cards in good standing. PLEASE NOTE: “active” and “in good standing” does NOT mean that there has to be a balance. The accounts simply should be open and active. It is NEVER necessary to pay a single penny of interest on a credit card. Never, ever.

          • Maria Barker says:

            This,while informative, is not a reply to what I said. You said, ““The truth is that the larger purchase causes the customer to use the credit card and NOT that the credit card causes the customer to make the larger purchase!” Wouldn’t you agree with this sentence?”

            I politely gave you my reasons why that blanket statement, like all blanket statements, is not entirely correct.

            In some cases, the larger purchase might cause the card use. In oher cases, people make larger purchases because of the credit factor. In a comment below, you specifically state that a more accurate test would show debit card use vs credit card use. “a much better study would be to compare debit card use vs credit card use.” Your words.

            I gave you my anecdotal evidence of just that. I can not help that you now wish to lump debit and credit in the same category. In point of fact, they are not the same. NOR did I state that I spend more with a debit card than with cash. I said I spend more with a credit card than with a debit card. I said it was because of the credit feature. I said I knew people who did the same.

            Finally, I never said Dave Ramsey was right, or good, or wise. His blanket statements are just as wrong as yours are.

  11. BeyondWeird says:

    For what its worth, multiple researchers have demonstrated consistantly that those who use credit cards vs. cash tend to spend more overall. As I recall the figures used range in the 10 – 20% more spending overall when using credit.

    Yes, I’d say that at McD’s more people use “plastic vs. paper” when buying dinner for the fam vs. a cuppa joe. But that might easily be adjused for when debit card use / vs. credit card use is evaluated. Yes, as a died-in-the-wool credit card user, I likely would fling a buck at the cashier or clean out the change in my pocket than bother with a debit/credit card.

    However, it is a pretty well researched and accepted financial fact that credit cards tend to encourage spending vs. cash only….
    uh, if nothing else, the proof is in the fact that sooooo many people are burried deeply in credit card debt they cannot afford, and few, if any, who pay cash only are!

    Kinda intuitively obvious, eh?

    • Joel says:

      I think that I would tend to agree that on the aggregate level those who use credit cards tend to spend more overall than those who use cash or debit but only because of the people with a lack of financial discipline who have spending impulse control issues and thus spend more using credit (and write bad checks, overdraft their account, live paycheck to paycheck, etc.) which then in turn drives up the numbers as a whole for all credit card users.

      My real issue is with anyone drawing any type of meaningful conclusion from the McDonald’s study because as you mention a much better study would be to compare debit card use vs credit card use.

      All in all though you are right in that while it is not true for everyone (i.e. the people who use their credit card responsibly) there are certainly people who can’t control their spending and end up in credit card debt which pushes the spending for the whole group of credit card users higher than those who only use cash (only using cash can by definition only allow people to spend up to 100% of the cash that they have while credit cards by definition can allow people to spend more than 100% of the money that they have so then if even one person carries a balance on their credit card then it pushes the numbers up higher for all of the credit card users as a whole compared to the cash users who are already capped out at their ceiling of 100% – right?)

  12. Brad says:

    I too agree with a lot of what DR says about credit card use, but it hasn’t stopped me from using my delta airline card. I too have traveled to Hawaii and home to TN twice in the last year for free. I think it all depends on the person and their personality. Part of the argument for using cash is that you can get “deals” (see Dave’s Super Saver chapter in FPU). Extroverts might feel more comfortable wheeling and dealing with retailers for cash deals but I just don’t have time for that. Time is more important to me and I end up paying more in the long run. Oh well. Don’t tell Dave I said that. ha ha.

    • Joel says:

      Yep, the ideal scenario is for people to use credit cards responsibly and I know that Dave is tailoring his advice to people that already have admitted that they have a problem with controlling their spending but I think that better advice would be to fix the root issues of lack of self control, no financial discipline, etc. rather than throwing the baby out with the bath water and saying to cut up all credit cards.

      What’s next? If people get overdraft fees with their checking accounts should they cut up their debit cards and tear apart their checkbooks?

      It’s a little ridiculous to act as if it is the credit cards fault itself rather than the person that is actually doing the spending.

  13. superdestroyer says:

    It would help if Dave Ramsey knew something about college athletics. My guess is that Dave Ramsey has never donated a dollar to the University of Tennessee-Knoxville except to the Athletic Foundation.

    The question is why should people get the price of a sports ticket by calling it an educational donation when the donation is used to pay for overpriced coaches (Lane Kiffin anyone?) or is used to pay for Athlete only facilities for athletes who are committing felonies while not practicing football.

    If universities were really interested in academics, they would have gotten rid of their athletic departments a long time ago.

    Vanderbilt University no longer has a separate Athletic Department and people cannot no longer make donations in order to get better tickets there.

    • Joel says:

      I think that while there are certainly some bad things that spring up in college athletics the majority is very good both for the university and student body as a whole and also the individual athletes themselves. I don’t see how your idea of getting rid of an athletic program would do anything to further academics at any given school..

  14. Jan says:

    My husband and I are coming up on three years of completing the Dave Ramsey plan. We were never big spenders and were generous, very generous, to charities with our money. We were about to take out a home equity loan to complete a renovation project. One week before finalizing the loan, I happened upon DR’s “Total Money Makeover” and totally changed our plans. Since then, we have paid off over $40,000 in school loans for our children, paid off $8,000 in credit card debt, paid $40, 000 cash for the renovation, paid off two new/used vehicles, and tripled the amount we are able to put toward savings and retirement. We had never been big credit card users and paid off charges as soon as possible. Unfortunately, a few unplanned events prevented us from paying off the cards as planned. THIS is what caught us with our credit cards and what often catches others. We once had enough in savings to take a big trip. We used our cards to pay while on the trip with the intent of paying them off when we got home. Then, appliances broke, septic systems had to be replaced and other catastrophes happened. Had we paid with the cash to begin with, we wouldn’t have gotten caught and we would have found other ways to solve our problems.

    I used to think nothing of swiping my debit card for a plain old cup of coffee at Starbuck’s several times per week. Once we started using cash envelopes, that fee had to come out of my “blow money” envelope. Guess what? It was so much harder to spend that cash that I stopped getting coffee at Starbuck’s. That little bit of extra spending added up quite a bit and when we stopped frivolous spending with the cards freed us up to pay off debt faster. The envelopes helped us stay focused and accountable. Everyone I know who tried to do it with their debit cards has failed in the endeavor. They always think they will have more willpower than they actually do.

    We never cut up our credit card (we only have one) and only use it for convenience on a limited basis.

    We are now at the point of deciding whether or not to pay off the house. We won’t rush into that decision as we want to make sure the numbers work to our benefit.

    We worked the debt snowball a la Dave Ramsey because we could see the results faster and it encouraged us to keep going. Paying $100 per month on a large credit card debt does not allow someone to see the results. All I could see was how much of that went toward the finance charge. It was discouraging. Paying smallest to largest helped us (and about 30 others we have helped make budgets) see results faster and kept us going. It is psychological. Nothing wrong with that whether the numbers tell you differently or not.

    Alcoholics Anonymous does not tell people they can keep drinking “just a little”. They say you have to STOP drinking. Period. To get control of debt, people have to stop spending. It requires sacrifice. Always looking for loopholes will not help the majority of people. It will just encourage slipping back into old patterns.

    • Joel says:

      Congratulations! That being said, the AA analogy is a good one but you actually switched up something when you said, “To get control of debt, people have to stop spending.” when in reality it should be: “To get control of debt, people have to stop spending money that they don’t have”. In other words, whether someone uses a credit card, debit card, check, cash, or a Confederate penny the method of payment is totally irrelevant because the issue is that to get control of debt one must spend less than they have.

      None of the various instruments of payment ever spend themselves – the owner does all the spending. Many people like to play the “blame game” and act as if it’s somehow their credit card’s fault that they got into debt when in reality its certainly not the fault of an inanimate piece of plastic. It would be similar to someone with a weight problem blaming all of their overeating on their fork. No matter whether they use a fork, spoon, knife, or just shove the food in their face with their hands to eat it still boils down to the fact that the method of eating is totally irrelevant because the issue is that to get control of ones weight one must eat less!

      Wouldn’t you agree?

  15. Polly says:

    Perhaps a little gentleness in your title would be appropriate. Saying someone is dead wrong when they aren’t is misleading. He isn’t dead wrong. His method works and is proven by the successful results it’s garnered. If common sense really worked we’d not be in the mess we are in.

    • Joel says:

      Sorry Polly – but he is dead wrong in these two areas as I have illustrated in the post above.

      I certainly do still respect Dave Ramsey but if you take a look at not just the title of this post but actually read the post you will see that I am not disputing whether his methods work or not and in fact I actually put in a little plug for his Financial Peace University at the end of the post BUT what I am saying is that in the two areas mentioned above Dave Ramsey IS dead wrong. Sorry, that was and still is my opinion based on the facts that I have presented.

      Thanks for your comment!

  16. Jan says:

    Hi, Joel, thanks for the response, but I really do mean that people have to stop spending, but what I will add is that they have to stop spending for a period of time (this would be where the AA analogy would break down). I didn’t buy the Starbucks and we stopped spending frivolously. That extra money was applied to debt reduction. Obviously, the sacrifice was worth it for us. We still managed to enjoy ourselves with travel and entertainment, but those expenses were intentionally planned for ahead of time (i.e., the envelopes and/or special savings accounts). It’s the intentionality and sacrifice that allow us to be at the point of paying off our house very soon as well as put away money for retirement, something that job loss and frivolous nickel and dime spending prevented us from doing earlier.

    I will say one other thing about Dave Ramsey’s plan that was just important and helpful to us. We had quasi-budgets before, but we really didn’t know what we were doing. The Ramsey plan helped us personally because it gave us a guideline we didn’t have before. Since the, we’ve adapted it meet our needs. I wish someone had taught us to do this 25 yrs before. Now, in addition to wedding gifts, we include the Ramsey book as part of the package. It has literally turned young families around because of a clear cut plan. I truly never expected the positive response we did receive from these young couples as a result. Good dialogue, thanks.

  17. Joe Parsons says:

    My daughter has become an avid Dave Ramsey fan. While I find much to like about his approach, there are some things that concern me. Setting aside the cult-like enthusiasm of many of DR’s adherents, he makes many statements that are simply incorrect, and dangerously so.

    I speak as someone who has a three-decade history of working in finance, first as an investment real estate broker for fifteen years, then as the owner of a mortgage company for the last twenty years. I can legitimately claim to be an authority in matters of credit and debt management.

    Mr. Ramsey advises not only paying off credit cards, but then performing a “plastectomy,” cutting up the cards and closing the accounts. To those who protest (correctly) that this will cause their FICO scores to go drop, he claims that a credit score is unnecessary. He calls it an “I love debt score.” For anyone wishing to buy a home using a mortgage, he advises finding a lender who uses “manual underwriting,” rather than relying on “some clerk” who inputs your loan file into an automated system to make the lending decision.

    There are glaring errors in his plan. First, a FICO score is generated not by carrying a large amount of debt, but by showing open, active accounts, called “open tradelines” in underwriting parlance. As many have already pointed out, closing revolving accounts (credit cards) will definitely lower a borrower’s FICO score, sometimes disastrously. It is not necessary to carry a balance on those accounts to have a high score; it is only necessary that they be open and in good standing—and the longer the accounts have been established, the more they enhance the score.

    If a borrower has few open tradelines, they can indeed use “non-traditional” credit, like cell phone, utility and insurance bills to apply for their mortgage. The problem, which Mr. Ramsey doesn’t mention, is that the borrower will likely be limited to an FHA-insured loan. This government loan program carries a higher cost than a conventional mortgage: an initial mortgage insurance premium of 2.25% of the loan amount, plus .55% additional monthly insurance. For a modest (by California standards) purchase of $250,000, a $200,000 FHA loan would carry an additional up-front cost of $4,500 and additional monthly expense of $92.00—only because of the lack of a credit history.

    If that borrower has a low credit score because of previous bad habits together with no open tradelines, the cost of even a conventional mortgage will also be higher—sometimes dramatically so. A credit score of 620, for example, will require a “loan-level price adjustment” of 3% of the loan amount, or $6,000 for a $200,000 loan. A score of 679 would have a slightly lower added cost: 2.5%.

    Many lenders will manually underwrite and fund FHA loan without regard to credit score. Of the 300 lenders my company does business with, the handful operating this way have dramatically higher pricing: sometimes a full percentage point higher than their more conservative counterparts.
    In his advocacy of “manual underwriting,” Mr. Ramsey neglects to mention one simple fact: ALL loans are manually underwritten. Even when a borrower receives an automated underwriting recommendation of “Approve/Eligible,” that loan will always be reviewed by a flesh-and-blood underwriter for approval. No lender blindly accepts automated findings.

    There is much to like about Dave Ramsey’s systematic approach to debt retirement, even though some have said that he is “bad at math” (a specious criticism at best). What is more worrisome is his adamant “debt is bad” stance. His core assumption seems to be that his adherents are unable to refrain from accumulating large amounts of debt, therefore they cannot be trusted to have credit cards. I believe this to be a false assumption.

    It is easy for anyone earning upwards of $25 million annually, as Dave Ramsey does, to proclaim, “pay cash for everything; all debt is bad.” I would feel more comfortable with his advice if he taught people how to use and manage credit responsibly. Not everyone should be characterized as a debt-oholic.

    Joe Parsons
    Dublin, CA

    • Joel says:

      Thanks for the great comment Joe! I agree wholeheartedly in that cutting up credit cards not only doesn’t address the root problem which is the person doing the spending and not the card itself but the fact that there are many additional negatives to cutting up credit cards, one of which is the additional money that one will end up paying via higher interest rates on home loans.

  18. I understand and agree mathematically Joel BUT …
    I agree with Dave in this sense …

    Using credit cards is an addiction like alcoholism. In order for alcoholics to STOP drinking they cannot say “Well I will go to the bar with my buddies and drink coke.!” or “I’ll just have ONE drink.” AA KNOWS THAT DOES NOT WORK.

    Our society is credit-addicted. They need the CCA [Credit Card Anonymous] method that Dave uses.

    Are there individuals who can use credit cards responsibly? Of course BUT the question is …. CAN MOST OF OUR SOCIETY? I think the answer is NO!

    Another hint. If credit cards DID NOT get people to spend more why are there so many available, online ads, offers in the mail, on TV?

    The answer is THEY WORK! People get them. People use them.

    Being a Psychology major I know people need to see progress to feel rewarded or they give up. I personally would pay off the largest interest rate first…. Actually this is what I have done…. in the past… I also do not recommend this UNLESS you are a totally disciplined person or YOU will use this and become addicted just like most are to credit cards …

    Home Equity line of credit …. most I can pay in interest is 1% above prime. [Only works if your home is paid off.] I would put all debts on the credit line at the low rate. THIS TOO can become AN ADDICTION. So it is only for the disciplined.

    I also like the emphasis that Dave uses, even if you are correct in some ways Joel. Who would ever think of buying an older but good car for cash unless you heard Dave explain how?

    I certainly never thought of it. I always just paid the payments! I could afford them. I paid them like a necessary evil. Now I want to teach others that it IS possible to pay cash for cars using Dave’s approach.

    I sympathize with what you say Joel and for me personally I may use methods like I mention above or you mention above.

    However when you meet people individually who are discliplined in almost any other way but spend too much because they use credit cards, I would like to think that one day I could never use them again just in principle because they are enslaving.

    Charles
    $aving a Dollar

    • Joel says:

      Great comments Charles but I think where you and Dave have it absolutely wrong is that what is REALLY enslaving people is their materialistic/live beyond their means/worry about it later/irresponsible/lack of discipline/lack of self control/shop til you drop mentality and NOT the method of payment that they use to feed their addiction.

      In other words, to use your AA analogy (and I realize that this analogy isn’t perfect as is the case of most analogies but I think it works nicely and we can use it because you brought it up) it would be like me saying in an AA meeting that the only way to beat alcoholism is to never ever even up pick up a cup or glass of anything (water, juice, soda, etc.). “Let’s all stop using cups because those cups are the very things that are funneling that alcohol right into our mouths! No more cups! Cups are evil!” and then you respond – wait a minute – “I can drink water out of a cup, can’t I? A cup is just an inanimate object and I can use it to drink water or drink alcohol.” and then I say, “No way! There is no right way to use a cup! In fact, all cup making companies are evil too! It’s not my fault it’s the cups fault and the cup making companies fault! Let’s go have a party to cut up all of our cups!”

      Remind you of anything?

      In a nutshell – WE enslave ourselves via debt using any type of instrument we choose. A credit card where we go into credit card debt, a debit card where we constantly overdraft, a payday loan where we pay too much in interest, a home equity line of credit where we leverage ourselves, guess what! WE did it to ourselves! It’s not the (insert name of financial instrument here)’s fault! That is just an inanimate object! WE have to take responsibility for OUR OWN choices and admit that the problem is…. wait for it…. here it comes… US!!! WE are the problem!!!

      Even Dave Ramsey, who is known for advocating personal responsibility, is playing the “blame game” and saying it’s the credit card/credit card companies fault instead of telling people it’s OUR fault.

      Wouldn’t you agree?

      (Excuse the caps just wanted to emphasize a few parts but didn’t mean for it to sound like shouting)

      • Charles says:

        No. No analogy is perfect Joel. How many millions do you have?

        Once you tell me that you have as much as Dave, then maybe I should listen to YOU, right?

        Do you not get the discipline idea Joel? That is what VERY FEW people have.

        The rest of your answer is semantics, playing with words.

        So I will be awaiting the report of your millions, expectantly.

        • Joel says:

          You seem to be missing the entire point. The point is that by using the wealth of the person arguing a certain position as the criterion for the truth of their position you are committing a logical fallacy (the fallacy of “Appeal to Wealth” – please Google it or research it before proceeding).

  19. RAd says:

    “we” maybe the problem but what about responsibilities of the people issuing credit cards? what about their constantly breaking federal laws? why is credit so easily available? Your missing dave’s whole point! yes, we need to take responsibility for ourselves but the snakes and vipers need to be stopped too! The snakes you play with ie. credit cards……..will bite you one day and guess what? dave will still be preaching and you’ll be long gone!

    • Joel says:

      Hmm – you say that – “we MAY be the problem”. I would say that “we definitely ARE the problem” wouldn’t you agree?

      I am not sure of what you are referring to with the “constantly breaking federal laws” statement – what do you mean by this?

      Since when is having credit easily available a bad thing? (Or wait, let me take a wild guess – you are going to point to the sub prime mortgage fiasco and attempt to absolve everyone of responsibility that applied for a mortgage and couldn’t afford it and place the blame all on the banks, right? After all, it could never be the responsibility of poor little you and me to think for ourselves and actually have a budget, buy a house we can afford, live within our means, etc,. right? That would be way too constricting! Let’s just blame it all on the big faceless corporations! Home loan companies are evil! Credit card companies are evil! They are like snakes and vipers! Ok, now I feel much better about my poor choices because it’s never my fault…. right? :) )

  20. Beyond Weird says:

    Really, RAd, these are exactly the kind of simplistic “Ramesy devotee” lowbrow mentality comments which result in self-marginalization of Dave Ramsey followers.
    No, a credit card is not a snake.
    Corporations offer credit cards, not “people.”
    Credit card companies offer a product that many people cannot control themselves, and lack the self discipline to use properly. That is the fault of the individual, NOT the product itself.

    Uh, I’ve successfully used credit cards responsibly for at least 30 years, and I’m the same age as Dave Ramsey, so I doubt that he’ll still be “preaching,” while I’ll be long gone — and snakebitten to boot!

    BTW, I haven’t paid a dime in fees or interest in years, have low insurance costs as a result of a stellar credit score, and just deposited the Credit Card Rewards check for $50 from buying gasoline, and got a major retailer gift card for $100 from my other card’s “Point’s” program.

    Generally speaking, I pay my credit cards weekly, online, (no wasting 44 cents of hard earned money on stamps for me!) I charge EVERYTHING possible, yet rarely spend more than the minimum necessary on ANYTHING. Its just plain RESPONSIBLE to make my money work as hard for me as it possibly can.

    Guess I’m simply the kind who has always loved rice & beans…. I’m extremely frugal, and my purchases are always value based. BTW, I’m on baby step 6 & 7 right now…..

    The key? It doesn’t matter how much you make, as long as you spend a less. LIVE DEBT FREE…. but use wisdom & discernment in the process. Demonizing credit cards is both ignorant and irresponsible.

    Hey, simply PAY YOUR BILLS ON TIME, and the credit card companies will never hassle you.
    Uh, isn’t it against federal law somewhere also to borrow money AND NOT PAY IT BACK!!!!
    You act like there is something wrong with a company demanding they be paid back for what was borrowed from them?
    YOU TOOK THEIR MONEY and YOU have the nerve to call THEM snakes & vipers!!!!

    Call me old-fashioned, but I cannot understand that mindset.

    • Joel says:

      Well said. It is very strange how many people can totally flip flop their “principles” when it is a company/corporation. If a company borrowed money from someone but then never paid them back then people would raise Cain to demand that their money be paid back but yet somehow it is OK for people to borrow money from a company and then not pay them back, pay late, whine they they shouldn’t have to pay late fees, etc……

  21. Beyond Weird says:

    Thanks, Joel. It seems part of Ramsey’s appeal is his ability to allow and encourage transference of responsibility for one’s own actions onto the “Snake & Viper” credit card company.

    This is clearly a not so subtle ploy to encourage fundamentalists — through the use of the snake analogy, aka satan, aka evil — to perceive credit card companies as demonic entities.

    Then, when the “innocent borrower,” fails to pay it back, and the CC Company finally sells the dead-beat debt off to a collection agency for 10 cents on the dollar, the overspending irresponsible thief (innocent borrower) can feel okay about it, since the credit card companies are all evil predatory satanic vipers anyway — as you said, “flip-flop their principles” through these rather amazing mental gymnastics they perform to justify their rip-off.

    Credit card companies KNOW that offering unsecured loans has risk… thus the high interest rates compared to most secured loans. Yes, the fees are high for not paying on time, but it was the consumer’s CHOICE to spend money they did not already have in the bank. Did they somehow NOT READ THE LEGALLY BINDING CONTRACT THEY SIGNED when they chose to get that credit card?

    As far as the easy availability of credit? Uh, in a capitalistic system companies ADVERTISE their products, and pitch them to sell them to consumers. Easy credit is not the problem – the problem is when when people choose to use that easy credit to spend more than they have.

    Since Ramsey types hate big government (its “bad” too), you would think they’d realize easy credit is part of a lesser regulated free market economy (less regulation- “good!”) at work.

    What shocks & offends my personal belief & value system most is that Ramsey ADVOCATES settling debts for less than was borrowed and owed! He regularly advises to “offer them $3,000 on that $8,000 debt,” or some such. WHAT!!!! Never do I hear him telling people to offer what they TOOK from the company as payment in full for the delinquent loan!

    Fine to negotiate on the fees and interest accrued, but couldn’t they AT LEAST be advised to pay back the money they borrowed, on “Christian” principle alone, if for no other reason?

    • alaskan_spirit says:

      Beyond Weird –

      I’ve been reading through the posts on this blog and have really enjoyed your posts. I think you’re spot on in how you manage your money and wish that more people adhered to your approach.

      The only thing I wanted to point out in your post above was with respect to their reference toward Dave Ramsey advocating people to settle debts for less than what was borrowed. I’ve been an avid listener of his program and have noticed the only time he’d recommended this process is in situations where the caller is in financial dire straits due to job loss, decrease in income, illness, or any other situation where they simply do not have the money to pay it off in full.

      He’s fairly consistent in advising people who have the means to pay the money back do so; in fact I think he takes this sometimes to an unacceptable level and recommends dipping into their retirement savings to do this, especially if it can prevent declaring bankruptcy. Personally, I do not believe under any circumstances should a person cash out or withdraw funds out of their money designated for retirement. I really enjoy his approach to managing money however I do think that people need to take the knowledge that he imparts and apply it to their lives on an individual basis. Even DR says dont do anything anyone says (including himself) without thoroughly thinking things out. This is the reasoning why he refuses to make individual suggestions about what mutual funds to invest in; he wants people to do the research and educate themselves instead of listening to him blindly. And for that I have great respect for him.

      • Joe Parsons says:

        Alaskan, A couple of things (and it should be obvious by now that I am no fan of Dave Ramsey): first, where he advises people to “think things out,” I think he knows most of his fans simply won’t do that. They’ll accept his whole thesis uncritically. With respect to his not recommending specific funds to invest in, I think there are a couple of reasons. First, if you’re purposely vague, no one can pin you down later if you happent to be wrong about a recommendation. And second, he wants to avoid the liability associated with making specific recommendations. This is called being smart.

        For all my strenuous objections to Ramsey’s teachings and approach, there is much good in what he teaches. I have a problem with the fact that so much of it is so wrong, and that he uses dishonest means to make his points.

  22. Maki Wells says:

    I have recently enrolled in Dave Ramsey’s class and so far I think he as some very valid points. After reading most of the commentary here I must say that Dave Ramsey is one man with his own experience and what worked for him. So his approach to debt reduction does not work for everyone, nor does other people approaches work for everyone like Suzie Orman…

    See even the McDonald’s research…in all honesty me as a consumer, I do tend to pull out my credit card more often than not and I do spend more…however when I do decide to carry cash, I limit myself to what I have on hand right then…that is why credit lines were established, to get us to spend more money than we have…companies know exactly what they are doing to generate more money…

    I have read a lot of debt-free living books from both a Christian perspective and financial gurus and what I have found is that there is no one right answer…what I have found is that majority if not all encourage a debt free lifestyle whether you choose to keep your credit card and pay it off every month or pay cash for everything out of pocket…Everyone has a different approach to reach the same goal and Dave is entitled to that…that does not mean everything he states is set in stone, it works for him and some of the people he comes into contact with…

    But I must say there are a lot of people in the world currently who wish they did not live above their means, with this current financial situation our country is in…real estate markets, credit cards, lines of credit all appealed to a great deal of us, majority of us took a piece of the pie…who’s right, who’s wrong – it’s just a matter of where you want to place the blame…who’s approach is better in terms of getting out of debt and saving – that’s all a matter of what works for you…Dave is not perfect and his plan doesn’t work for everyone, but it does work and someone has to offer something to help a lot of us to get on track some how…

    • Joel says:

      You make a great point in that a plan doesn’t do any good unless it is acted upon so in that sense you are right in that everyone’s situation is different and different approaches work for different people.

      I think that also proves out the point being made that Ramsey attempts to pigeonhole everyone into the same set of circumstances though by assuming that credit cards themselves are evil and that they can’t be used responsibly under any circumstance which is of course untrue.

      One thing I do take issue with though is your statement that “I have read a lot of debt-free living books from both a Christian perspective and financial gurus and what I have found is that there is no one right answer” because especially from a Christian perspective whatever the Bible says about finances is always the right answer.

      As far as the McDonald’s research goes – would you say that your personal tendency to spend more when paying with a credit card vs cash is because your credit card is forcing you to spend more or is it because you simply want to spend more (and because you want to spend more you make the internal decision to spend more than you should and worry about the consequences later)?

      Thanks for the great comment!

      • [CAPS FOR EMPHASIS ONLY]

        Do I follow Dave Ramsey’s principles in entirety? No! Would I teach people [the majority] to use credit cards responsibly? NO! It is obvious from our society that MacDonald’s research or not, that PEOPLE ARE HOOKED ON CREDIT CARDS WHICH RAKES IN A LOT OF DOUGH TO THE CC COMPANIES. [Not yelling, just emphasizing, putting English back into the net].

        Credit Cards encourage people to spend more! TRUE. Should be obvious.

        We have such a debt-ridden society I do not want to encourage people who have had debt problems to “USE CC RESPONSIBLY”. If YOU can, more power to you. I can in general, even tho I do spend more because I have one with me. It is paid off every month and I keep getting those MBNA cash checks frequently.

        However arguing about whether Dave is right or not is not the point. He is the AA for CC ABUSERS.

        I teach a FPU class and have taught at least two groups of Crown Financial [same principles]. The people that come though don’t need, a “use your credit cards responsibly and they are okay answer”. They need STOP USING THEM!

        Sometime in the long distant future when they actually get on their feet, they may again be able to have ONE credit card and use it responsibly.

        I would never tell an AA member to DRINK RESPONSIBLY. IT DOESN’T WORK. I WILL NEVER TELL A PERSON WHO HAS HAD CREDIT PROBLEMS TO USE CC responsibly because IT DOESN’T WORK EITHER!

        Do his principles work for everyone? YES! IF YOU USE THEM THEY WORK! IF YOU DON’T THEY WON’T! Simple.

        Credit cards ENCOURAGE people to spend more. THEY ARE LIKE A POISON TO MANY IN OUR SOCIETY.

        I see a few who never pay any interest, as I do not, and all they do is collect points, or cashback, as I do, but we ARE NOT REPRESENTATIVE OF SOCIETY.

        Now I will quit helping Joel to make more money from his credit card sponsors [ you realize he makes big bucks when you click on a CC link and sign up? It can be $50 – $65 or more depending on the card company. We are all helping Joel make money. Aren’t we nice?

        I too make money from affiliate programs but at this point I cannot accept a CC company as a sponsor because to me they put too many in harm’s way. Just my humble opinion. No reflection on anyone else.

        Joel. You should send all your commentators a $5 Tim’s card just for helping you!

        NOW IF YOU REALLY WANT TO SAVE MONEY, checkout Trip-ways.com as the advertisers there GUARANTEE the LOWEST PRICE ON STAYS AND FLIGHTS ETC.

        HOW CAN YOU BEAT THAT? And you can use a credit card to book! (:-)

        I use them myself and they pay me for my own trips! I love it!

        (:-)

        • Joel says:

          Hi Charles,

          Thanks for the nice long comment – I posted a few thoughts of mine surrounded by the asterisks :)

          “Do I follow Dave Ramsey’s principles in entirety? No! Would I teach people [the majority] to use credit cards responsibly? NO! It is obvious from our society that MacDonald’s research or not, that PEOPLE ARE HOOKED ON CREDIT CARDS WHICH RAKES IN A LOT OF DOUGH TO THE CC COMPANIES. [Not yelling, just emphasizing, putting English back into the net].

          Credit Cards encourage people to spend more! TRUE. Should be obvious.”

          ***Bare Assertion Fallacy***

          “We have such a debt-ridden society I do not want to encourage people who have had debt problems to “USE CC RESPONSIBLY”. If YOU can, more power to you. I can in general, even tho I do spend more because I have one with me. It is paid off every month and I keep getting those MBNA cash checks frequently.”

          ***Smart man!***

          “However arguing about whether Dave is right or not is not the point. He is the AA for CC ABUSERS.”

          ***Actually according to Dave he states that his advice is not just for credit card abusers but for everyone.***

          “I teach a FPU class and have taught at least two groups of Crown Financial [same principles]. The people that come though don’t need, a “use your credit cards responsibly and they are okay answer”. They need STOP USING THEM!”

          ***Actually, they need to learn some responsibility, self control, and some discipline. As you so aptly put above – credit cards don’t abuse people – people abuse credit cards. You can take away the credit card but its just a scapegoat for the true root of a problem – which is the lack of self control.***

          “Sometime in the long distant future when they actually get on their feet, they may again be able to have ONE credit card and use it responsibly.”

          ***Therein lies the pons asinorum – just because Dave Ramsey made them cut up their “evil credit card” doesn’t mean that Dave actually fixed the root of the problem which is …drum roll… the spender! NOT the tool that is used to do the spending. :) ***

          “I would never tell an AA member to DRINK RESPONSIBLY. IT DOESN’T WORK. I WILL NEVER TELL A PERSON WHO HAS HAD CREDIT PROBLEMS TO USE CC responsibly because IT DOESN’T WORK EITHER!”

          ***False Analogy first of all but additionally I just want to clear up that if someone has difficulty saying no to their desire to spend more money than they should then if they can’t learn some self control then by all means definitely they should just stop using a credit card altogether if that will help (although many of those same people turn to payday loans, bounced checks, overdraft with a debit card, – so let’s not forget a credit card if just a method of payment) – my issue is when Ramsey attempts to say that all credit cards are evil and no one should ever use a credit card which is of course baloney. Ramsey never says that people who have major credit card self control problems should not use credit cards he just says everyone should stop using credit cards. That is the problem.***

          “Do his principles work for everyone? YES! IF YOU USE THEM THEY WORK! IF YOU DON’T THEY WON’T! Simple.”

          ***You could also say the same about a theory where everyone is required to go live in the mountains and trade furs for vegetables too but does that mean I should scream and yell and accuse everyone that doesn’t go live in the mountains as being financially irresponsible? :) ***

          “Credit cards ENCOURAGE people to spend more. THEY ARE LIKE A POISON TO MANY IN OUR SOCIETY. ”

          ***Actually people encourage themselves to spend more because they see something and they want it so they buy it even when they know they should be responsible. They buy it because they want it. Sorry, but we humans are all that way. If I get fat its not my forks fault its my own fat self’s fault for eating more than I should and not exercising. Or wait – maybe we should just blame all of those fast food restaurants for daring to advertise their delicious food to us!! That’s it! It’s not my fault for overeating – it’s not my fault at all – it’s those evil fast food restaurants!! How dare they!! Sorry Charley, but you can see how ridiculous your position starts to sound.***

          “I see a few who never pay any interest, as I do not, and all they do is collect points, or cashback, as I do, but we ARE NOT REPRESENTATIVE OF SOCIETY.”

          ***So, in other words if we are both good stewards of our money and make wise financial decisions in all areas of our finances, including credit card use by using them responsibly, then that means we should just tell people to NOT copy our behavior and learn to be financially responsible and wise with their money just like we do? Hmmm.. I don’t think so.***

          “Now I will quit helping Joel to make more money from his credit card sponsors [ you realize he makes big bucks when you click on a CC link and sign up? It can be $50 – $65 or more depending on the card company. We are all helping Joel make money. Aren’t we nice?”

          ***Appeal to Motive Fallacy***

          “I too make money from affiliate programs but at this point I cannot accept a CC company as a sponsor because to me they put too many in harm’s way. Just my humble opinion. No reflection on anyone else. Joel. You should send all your commentators a $5 Tim’s card just for helping you! NOW IF YOU REALLY WANT TO SAVE MONEY, checkout Trip-ways.com as the advertisers there GUARANTEE the LOWEST PRICE ON STAYS AND FLIGHTS ETC. HOW CAN YOU BEAT THAT? And you can use a credit card to book! (:-) I use them myself and they pay me for my own trips! I love it! (:-)”

          ***Feel free to promote but please no more spam unless you continue to leave nice long in depth comments :) ***

  23. Charles says:

    DEBUNKING THE DEBUNKERS

    Also Joel or whoever is talking about the Mac example Dave uses, I believe that he is talking PER PERSON, so it doesn’t matter how big the family is.

    Also it is logical that you will spend more if you have a credit card. Why would anyone argue that? Isn’t it obvious that people spend more with credit cards?

    Why DO YOU THINK THERE ARE SO MANY CARD OFFERS?

    HINT! THEY WORK! THEY MAKE PEOPLE SPEND MORE.

    [You might also want to invest in financials, Canadian banks etc. and then you can make money from those who DO USE CC's too much without actually encouraging them to spend more. CANADIAN BANKS ARE BIG WINNERS and THE BEST ONES GIVE DIVIDENDS AS WELL!]
    (:-)

    • Joel says:

      For the McDonald’s example you have a good point because I am not sure if they are talking about per person or not but if they are I should have used a different illustration then the family example. My point still holds true but I just should have chosen a different illustration.

      For the second part: Ignoratio Elenchi – there are many reasons why there could be a lot of card offers.

      • ComputerDoc says:

        My answer to you Joel is KISS. Keep it Simple Stupid! I am NOT calling you stupid. But in the science of logic, one assumes the simplest explanation unless there is real hard evidence to the contrary.

        So I say again. WHY SO MANY CARD OFFERS? THEY WORK.

        I challenge anyone who does not understand the power of advertising pumped into us from every media outlet possible, to find a study that PROVES that ADVERTISING does NOT work. IT WORKS!

        Why DO YOU THINK THERE ARE SO MANY CARD OFFERS?

        HINT! THEY WORK! THEY MAKE PEOPLE SPEND MORE.”

        Hint! Its called ADVERTISING…. it works to help people want & buy & use products.

        COMMENT: Credit cards categorically do NOT make people spend more! This is a categorically false assumption.

        I think it is splitting hairs to deny this. THEY DO ENCOURAGE PEOPLE TO SPEND MORE or they would have tried them years ago and given up. CC COMPANIES are not stupid. They spend lots of money seeing what works.

        When something works, they pump out more variations.
        THEY WORK.

        Comment: People who spend more than they can afford lack self-discipline.”
        ABSOLUTELY! AND DOES ANYONE DENY OUR SOCIETY LACKS SELF-DISCIPLINE?

        Let me give you a simple example from last night’s FPU class I coordinated.

        We have 7 couples, some with their teen children; we have 7 singles.

        Total of 22 people present not counting the two coordinators

        Guess how much DEBT they had between them, NOT COUNTING MORTGAGES?

        $238, xxx !!!

        Did they lack self-discipline? Of course! SO DO I TELL THEM TO GO HOME AND PRACTISE SELF-DISCIPLINE? Or do I encourage them to get rid of them credit cards UNTIL such time as they get out of debt and are back on their feet. THEN MAYBE, JUST MAYBE, they might be able to have a credit card.

        AA works because the answer to LACK OF SELF-DISCIPLINE IN DRINKING IS NO DRINKING! And guess what ” ONCE AN ALCOHOLIC, ALWAYS AN ALCHOLIC!

        Is it possible that there are SOME who may have to NEVER USE CREDIT CARDS AGAIN? Of course! Are there some who will be able to use them responsibly? Of course. As long as we realize that WE WILL spend more with credit cards UNLESS you are in the 99th percentile of individuals who CAN exert enough self-discipline all the time. BUT THAT IS NOT THE MAJORITY. It is a VERY LOW MINORITY.

        I could quote so many stats that prove that using credit cards WILL make you buy more. To me as a psychology major, it is obvious. To some it might not be obvious, due to denial, or thinking everyone is like you, or thinking that self-discipline is easy, or perhaps as a defense mechanism because we all want to justify, right or wrong, what we do.

        YES I SAID ALL. Of course my cat Cloe can be excluded! She has exerted AMAZING CONTROL over her use of credit cards! But then again perhaps she doesn’t understand the commercials! (:-)

        Cheers from the terran model of financial stability, Canada!
        And by the way, WE DID OWN THE PODIUM! We paid for it, we built it and we OWNED IT! (:-)

        ComputerDoc
        (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-) (:-)

    • This post and others like it are indicativeof the simplistic thinking that seems to prevail among many of the DR fans: “There are so many credit ard offers because they work! They make people spend more!” If that were the case, why wouldn’t the MERCHANTS be offering them? The profit for credit card providers is in the per-transaction service fees and possible annual renewal fees (more prevalent for those people with no credit history or low credit scores). Debit cards are also highly promoted for similar reasons. And I’d venture to say that, if a spending pattern were done for debit cards as it has been done for credit cards, the results would be similar. Many people (myself included) prefer not to carry a lot of cash and use plastic as a responsible and convenient alternative.

      • Joel says:

        Exactly right – great comment!

      • Charles says:

        @ Name [required] [I guess it is NOT required1].

        No one is talking about debit cards, so why should it be brought up? Isn’t this site called “credit card chaser”?

        Of course debit cards also can cause problems but not as much if you DO NOT have an overdraft connected to them. Once you spent what is in your account you have to stop. Unlike credit cards where you can spend your limit!

        Your comment answers NONE of my points.

        You simply throw labels at my comments.

        Why don’t you take one point at a time and dispute it?

        That is how intelligent discussion is done.

        Perhaps you did not learn that in school but as a former teacher that is what I taught.

        You might call your answer of a cross between the logical fallacies of a red herring and an ad hominem attack with NO evidence, just opinions.

        If I want opinions, I come here. If I want facts I research the evidence.
        A good rule to follow.

        1) present ONE opinion
        2) support the opinion with at least one or two facts
        3) offer another opinion

        and continue in the same vein.

        That is what makes discussion, rather than simply and exchange of opinions.

        Good luck!

  24. Beyond Weird says:

    “Why DO YOU THINK THERE ARE SO MANY CARD OFFERS?

    HINT! THEY WORK! THEY MAKE PEOPLE SPEND MORE.”

    Hint! Its called ADVERTISING…. it works to help people want & buy & use products.

    Credit cards categorically do NOT make people spend more! This is a categorically false assumption. People who spend more than they can afford lack self-discipline.
    Credit cards make it easier for undisciplined folks to spend money they don’t have. Yes, the CC company makes money in merchant fees when CC’s are used, just as any company offering a product or service makes money when it is purchased or used.

    These are simple equations:
    CC + CC User + (budget or plan) = spend more: FALSE
    CC + CC User + (Irresponsibility) = spend more:TRUE

    Likewise:
    CC + CC User = spend more: FALSE — the determining factor in this equation is missing! The determining factor is the USER of the CC!

    CCs are like power tools. They are both tools.
    Some people use power tools improperly, and they get hurt. Just like CCs.
    Some people have taken the time & trouble to learn how to use power tools, and are very skillful in their use. They can handle a circular saw or a hammer drill, nail gun, etc. The tools aid in their effectiveness, and save time.
    Others make do with hacksaws, manual brace drills, and a hammer. Just like cash or debit cards, these tools WILL work, they WILL get the job done. And some fools won’t get themselves shredded as easily by them either.

    But, that does NOT make power tools bad or dangerous. They have more POTENTIAL to cause harm when used irresponsibly (like CCs v. Cash), but that does not make power tools inherently evil, nor do we need to teach people to shun power tools, as that’s the only way to prevent themselves from ever getting hurt!
    Clearly the answer is to learn to use them properly….
    and yes, I HAVE met people that should probably never be in the same room as a power tool…. same as with some people and CCs.

    BUT, remember, there is still the potential for someone to hurt themself with a hand tool – just as they could with cash…..
    Cash can be lost or stolen… and I DO worry about these irresponsible types — that can’t even manage a credit card — suddenly believing that carrying around envelopes stuffed with cash is a good idea.

    I hate the idea of a Mom with small kids getting distracted in the grocery store or parking lot and consequently losing $100 – $200 cash as a result. This could REALLY put a pinch on young family’s budget!
    The idea that cash, or hand tools, are completely risk free seems to be promoted by the Ramsey Plan Advocates.
    Having a bank account drained with a stolen credit card could also put a paycheck to paycheck type family on the brink, while they’re waiting to get the matter straightened out with the bank, etc. and possible overdraft fees might result — and good luck getting THAT refunded promptly, BTW.

    Also, those spending habit research reports are based strictly on transaction amounts per sale, not per person, for what that’s worth.

    Joel, thanks again for setting the record straight… and once again debunking the false logic.

  25. Beyond Weird says:

    (oops)
    meant to say “Having a bank account drained with a stolen DEBIT — not credit card — could also put a paycheck to paycheck type family on the brink,”

    Personally, I think credit cards used properly are far safer & more efficient, just like power tools…
    but we will always have those who tout the virtue of “hand tools;” undoubtedly it sells more books & course memberships!

  26. ComputerDoc says:

    YES WE WILL ALWAYS HAVE TOOLS! Of every stripe. But REMEMBER WHAT WORKS FOR YOU MAY NOT WORK FOR EVERYONE. Don’t be so far “beyond weird” that you don’t understand how advertising and our economy works.

    What we personally think usually comes from our personal experience. It does not necessarily apply EVEN to MOST others. It may apply to some.

    AND CREDIT CARDS SELL MORE OF E-VER-Y-THING! (:-) Although some will always ‘tout the virtue of credit cards’. And others, FAR TOO FEW,

  27. ComputerDoc says:

    [continued after wrong key press] ….will tout the value of abstinence, from credit cards. Very hard to get pregnant with abstinence! Even harder to get in debt!
    (:0>

  28. Beyond Weird says:

    Being beyond weird actually means that I fully comprehend exactly how advertising works.
    Those who do NOT understand how it works are the ones so easily lured by it. These are the people who absorb the advertising message, and consequently fail to recognize that they have been “snookered” by the Madison Ave Ads.

    So… they wind up in a place where they GOTTA have a certain brand of shoe, or GOTTA have a specific brand of shirt with someone else’s name emblazened across it… or GOTTA have a bigger Bass Boat, or, or, etc. They feel they aren’t “winner” with out all the pricey accoutrements & “status artifacts,” etc.
    These people are the ones whose behavior is “based on what we personally think, coming from personal experience” rather than having made the choice to educate one’s self in personal financial matters, and basing financial decisons on facts vs. feelings, eh Doc?

    Actually ADVERTISING sells more of everything. Advertising works, certainly!
    Credit cards sell nothing.
    Credit cards buy nothing.
    Credit cards are plastic tools that can be utilized to efficiently complete financial transactions involved in purchases of goods & services.

    I like credit cards — I like the fact that they’re efficient. They are an effective tool for me. That’s it. I also like to pay the balance every week on-line, I like the discounts & $100′s in cash-back I get from paying all my bills this way. It makes me feel nice & warm & responsible!

    Remember, all Tools require proper training and safe usage. Ah, yes, literacy is an amazing thing – especially coupled with decent critical thinking skills….

    Far be it from me to “tout the virtues” of a tool or a piece of plastic. *shrug* But then I’m not going to be touting the virtues of cash, or abstinence, any time soon either….

    Given that I’m debt free, payed cash for my vehicles for years, have fully funded every investment imaginable, and could easily live for over a year never touching a retirement account… plus get lower Auto insurance rates as a result of 800+ credit score… and responsibly use my credit cards faithfully, I, ….um, …think I pretty much have a decent handle on how the economy works, eh, Doc?

    • ComputerDoc says:

      Actually I will have to disagree that “credit cards sell nothing”.

      Definition: Selling is the art of convincing someone they “NEED” what they really want.

      Do credit cards help convince a person to BUY? OF COURSE THEY DO. Therefore THEY are sellers. And if you have taken the Dave Ramsey material you will know all the rationalizations [which come from the ads] that “I DESERVE IT. I WORK HARD”; it’s easy to pay back at ONLY $29 per month!”; “They are on sale now and I might not ever get this chance to SAVE THIS MUCH again!”

      All of the above comments are simply rationalizations for buying when one has a credit card. If one DID NOT have the credit card, then without cash, the individual COULD NOT buy. The CC makes it easy to go into debt OVER AND OVER AND OVER AND OVER AGAIN.

      I just found out from my assistant coordinator that the group he is running in another church was over $400,000 in debt, NOT COUNTING MORTGAGES.

      Without credit cards would they be in debt???

  29. ComputerDoc says:

    To Beyond Weird
    I get it. It was not obvious at first. It is weird that a large majority of our society is still at WEIRD. So you are saying you are “beyond weird” and you are absolutely right.
    Congratulations! Nothing like paying NO interest and getting money from the credit card company is there? (:-)

    YOU do have a handle on advertising and the economy. For YOU they work in your FAVOUR. For MOST they work against because they ARE WEIRD! And that’s just the problem.

    I certainly never meant to belittle someone who has finances under control. I only meant to dispel the idea that EVERYONE can use credit cards forever. SOME CAN NOT.

    And since the SOME are a VERY LARGE GROUP, I believe in abstinence for them at least until they have gotten all debt taken care of and have a savings plan in place as Dave suggests.

  30. Beyond Weird says:

    Hi Doc… We are in agreement about many in our society who are best served by laying off the credit cards entirely — certainly “at least until they have gotten all debt taken care of,” as you say.

    Using a credit card for a purchase when one has an existing balance of ANY amount, carried over from the previous billing cycle, is of no value (in most cases — possible exception is the fraud protection/extended warranty benefit of CCs). Bonus points, or whatever, are NOT going to exceed the amount one will pay in interest!

    Really, we are talking SMALL percentages with the CC rewards/cash back programs. Small, as in 1% to 5% cash back…. but then I just had a short term CD renew for .45% (yes the decimal is in the right place) , as in LESS than 1/2 of 1%. So, to me, 1% back is a pretty good deal…. its more than I’lll earn on savings in 2+ years.

    A favorite saying of mine is “Pennies Count.” Which leads to another favorite, “take care of the small things & the big things will take care of themselves. ” Translated, that means I don’t squander small sums. I look for VALUE in all purchases…. you’ll never find me in the Stop-N-Rob Market shelling out $1.50 for a can of soda! Not a big deal, and I can easily “afford” it… but its the sloppy wasteful mindset I CAN’T afford. Waste not, want not! Fundamentally, its about being a good steward of what I’ve been entrusted with. Utilizing my CC’s wisely is simply part of that strategy!

    Really, so many people are in a world of hurt financially because they can’t even get to WEIRD! In Ramsey parlance, that is someone who pays cash, and is debt free. FAR too many can’t even approach WEIRD, they’re stuck at NORMAL, which in Ramsey-speak, means BROKE & buried in debt. NO ONE is saying NORMAL is good. Drowning in debt is miserable, stressful, & takes a terrible toll.

    We NEED to have some financial education – awareness. We need to realize that the credit cards in our wallet have nigh unto NOTHING to do with the amount of debt we owe. The SOLE responsibility for that lies squarely with the man in the mirror!! My inability to accept that irresponsible financial decisions rest entirely on my shoulders – ALONE, will only perpetuate my problem! .

    No credit card company EVER MADE me spend one cent. NEVER . EVER. If I overspent THEN I ALONE did it. Me. Nothing , and no one else did that.

    The advertising was the bait, and I fell for it, hook, line sinker. The lines of credit offered to me did not do it. My own greed and foolishness did. My stupidity did. I deluded myself into thinking it would be OKAY to spend more money than I had. REALITY CHECK!

    Yes, at some point I took a look around, and made the decision I was NOT ever going to get ahead by paying one cent of my hard earned money in interest. I remember hearing somewhere, “You can’t ever get rich paying interest to other people.” Well, that made sense to me, so I stopped doing it…. and not that I ever paid much to begin with! The idea of using part of my income to “service my debt,” as its called, just set wrong. I’m just a contrarian by nature… I question and evaluate, and analyze. Bottom line — paying interest on debt is DUMB.

    I believer most people CAN probably get their finances under control, then learn how to utilize credit cards responsibly. It will certainly require a change in mindset — from “I deserve it,” to” I DESERVE to live FREE from the bondage of debt, and the bleeding off of my resources in finance charges.” If someone knows they’re too weak and irresponsible to do that, well, yes, those types REALLY should avoid any credit card use.

    A small example of how I choose to plan my purchases:
    My Gateway laptop suddenly dies, then shoots sparks out the power cord connection. Bummer. Its toast…

    The good news is I have plenty of money in reserve for such nuisances. The constant freezing up & crashing of the PC products was pretty annoying, so I decide to go with a Mac. Go to store & bag one… use the CC. It gets me about 1.5% back on this purchase…. so I’m gonna get about $30 in “points” or rewards, aka CASH back for me! Woo-hoo!

    Look, I planned the purchase, & already have the money for it. The $30 won’t make me rich, but I’ll take it. Its the concept of INTENTIONALITY. I deliberately used my card to maximize the benefit to me.

    Come Monday, after I buy the thing, I go on-line & pay $1k on the card I used. This goofy card gives me more points every time I pay a bill on-line. The next week I pay the rest. By the time I get the statement the computer has weeks since been paid in full. This system works. I’m not a spender. I get big points by paying stuff like college tuition, ALL types of insurance on a home & multiple vehicles by running these expenses through my CC.

    I use another CC for gas. I don’t spend more money on gas because I charge it either. I’m gonna put the same amount of gas in the truck no matter what. I get 5% back from my gas.

    That card just offered a promo on gift cards from a favorite store, Lowe’s, so instead of it taking 5000 points ($1,000 in gas…. about 15 weeks worth for me) to get $50 gift card, I only need 4000 points. I usually just take the $50 check from that one, but hey, that’s a 20% better “effective rate of return,” and I ALWAYS need stuff from that merchant in the spring. And so it goes….

    WAY beyond weird….

    And thanks! I really appreciate the dialog — we ALL need to continually raise our awareness of responsible personal finance strategies. Where I start to see caution lights in my mind is when the Ramsey Plan starts promoting the idea that the CC is the problem, rather than whomever’s name is embossed on it!!

  31. Beyond Weird, I agree with most of what you say. Where I disagree with you (and certainly with the world of Dave Ramsey) is where you say that “You can’t ever get rich paying interest to other people” and “Bottom line — paying interest on debt is DUMB.”

    Your first statement is simply not true. While the technique of using leverage (“Other People’s Money”) is a two-edged sword, it is an effective financial strategy when used judiciously. While real estate may be a frightening topic these days, investing in real estate continues to be a good long-term strategy. If I purchase an asset that appreciates at the rate of 3% and I am able to acquire it using a cash down payment of 20% with a loan of 80%, my rate of return will be dramatically higher than if I had paid cash for it. Moreover, I will be borrowing money at, say, 4% (5.5% face rate less the savings from state and federal taxes), I have preserved liquid cash to invest at a higher rate elsewhere. Borrowing money at one rate and investing it at a higher rate (“arbitrage”) is how banks make their money.

    As a mortgage broker, I often consult with people whose fondest desire is to “own their home,” meaning that they seek to pay off their homes as quicklyas possible. Their strategy is to throw all available cash at their 5% mortgage. One problem with this approach is that they are investing money at a sub-4% rate (paying off debt is an investment) where they could be investing that same money to get a dramatically higher yield.

    Debt is a means to an end–not the viper Mr. Ramsey and his adherents make it out to be. I was fortunate to attend an elite university. It was (and is) also one of the most expensive institutions in the country. In order to take advantage of this opportunity, I had to incur a rather large debt in the form of student loans which took years to retire. Despite the substantial and obvious benefits derived from being an alumnus of one of the most prestigious universities in the world, should I have avoided incurring that debt, opting instead for community college and less expensive schools? Looking back over four decades, I know I made the right decision–both personally and professionally.

    If I acquire something today using someone’s else’s money, the inerest I pay is simply part of the cost of the puchase. It is neither “smart” nor “dumb.” I can choose to have the benefits of that item today, rather than at some indeterminate time in the future. The questions I should ask myself are: can I afford the debt service; and is having the benefits of that item now worth whatever the cost of interest are over time.

    The whole philosophy driving the Dave Ramsey industry is that ALL debt is bad, because no one can use debt responsibly. Mr. Ramsey advocates the “plastectomy” (cutting up and closing all revolving accounts). The reasoning behind this appears to be that it is impossible to use debt responsibly in Mr. Ramsey’s view. While this is almost certainly true for many of his customers, it makes no sense to tar ALL uses of credit with that same brush.

    Joe Parsons
    Dublin, CA

  32. Beyond Weird says:

    Hi Joe, Actually I believe you are right on as far as the appropriate use of debt, including leverage as a tool. But clearly you function at a far different level than most, from a financial standpoint! Really, you are right on!

    This phrase I used, “You can never get rich paying interest to other people” is a greatly oversimplified statement, as you so aptly pointed out. Where I believe it has validity is insofar as Credit Card type – overspending – consumer debt goes. THAT is far different, to my mind, than utilizing leverage — a far more sophisticated concept to most — which actually offers amazing potential upside as an investment technique.

    The statement I used is only an adage which addresses a mindset — basically the Earn-Spend treadmill, where conspicuous consumption lifestyle leads to ALWAYS being on the paying, vs earning end, of the game. I guess what it really means is that paying large sums of interest to service CONSUMER debt is dumb.

    When I heard this simplistic phrase, while recognizing its shortcomings, still the fundamental premise of getting to a MINSET where its NOT okay to waste money on interest for depreciating items was the takeaway message it offered.

    Actually, I’ve used the principle of leverage quite successfully. THANK YOU for pointing out my gross oversimplification. I guess I’ve put leveraged investments in such a different category in my mind that I wasn’t thinking of these AT ALL when I wrote my response. Your example of the power of leveraged investments is well stated. Time Value of Money is an important concept, as well !

    For example, put $10,000 down on a $200K home, appreciating at a modest 5% per year, and voila! Just one year from now that home is now worth $210,000. If sold, (not taking fees into account!), This original $10,000 investment has NOT gone up just 5%, but rather it has DOUBLED, from $10,000, to $20,000 — a stunning 100% rate of return, courtesy of the power of leverage!

    Conversely, to expand on the concept and clarify, what IS dumb is structuring one’s financial behaviors so as to always end up being on the paying end, vs the earning end, of the financial spectrum. Leveraged real estate is an investment technique — and interest is part of the cost of the investment. But OPM investing is far out of the league of most Ramsey level types.

    Really, tying up money in real estate, vs remaining liquid, can have extremely negative results…. I’d much rather lose a home to foreclosure that I only have 5% down on than 50% – particularly in a declining market !

    Actually, one of the aspects of Ramsey that makes me want to pull my hair out is his insistence on paying off the mortgage…. jeez! How horrifying to wind up in a compromised position due to not having adequate liquid assets, while the house is 75% paid off, and in danger of foreclosure.

    FAR better to save the money in a reasonably safe investment, if having a paid for home is one’s goal, and paying it off in full when the balance on the investment exceeds the balance of the house note.

    The other aspect I’ve not seen addressed, as far as a paid for home is concerned, is the risk of losing one’s home in a lawsuit when the home is a paid for asset. If the home has a mortgage, due to the lien-holder’s interest in the property, the home is not attachable, at least in the state I live in.
    Also, my taxes are greatly reduced, due to the “mortgage exemption” I have on my property taxes, again in my state of residence.

    Your example of the benefits of utilizing debt to obtain a 1st class Ivy League education clearly exemplifies an appropriate use of debt — really as an investment — to obtain a valuable asset, your education! As much as Ramsey loves to deride Ivy League educations, there is an unquestionable value in the vast network of connections one makes in such venerable and respected institutions. Education’s value is not measured exclusively by future earnings alone!

    Appreciate your insight, & your valuable expertise. I think we’re in agreement about the shortcomings of the simplistic-extremist Ramsey Industry Plan. –BW

  33. Joe Parsons says:

    BW: I think we are pretty much on the same page. If I had had to make the choice at age 17 between going to community college and a state university with no debt and the school I did attend with student loans, I would do the same thing–even looking back from this distance of time.

    I recognize that simply attending an Ivy school does not in itself assure a world-class education; it is always up to the initiative and talent of the individual student. But I believe that the opportunities–both during the undergraduate years and beyond–are greater for these elite schools than for other institutions. Mr. Ramsey attended the University of Tennesee at Knoxville, a state school. While this is a fine school, it is in a different category from any of the first-tier private universities. It also carries a cost less than 20% of those institutions. I haven’t observed Mr. Ramsey deriding the more expensive universitiies (like the Ivies), but if he does, I’d have to ask myself whether this was to any extent a matter of “sour grapes.”

    With respect to taxes, I’d like to offer one small correction for you: I am in California, but I believe this would be true for all states. You refer to the property tax exemption. This is a reduction in property taxes for one’s personal residence. In California that exemption is $7,000, which reduces property taxes by about $80/year. It is a completely separate issue from that of interest deduction. Having a free and clear personal residence would not eliminate the property tax exemption. Overall, it is a comparatively minor amount.

    Again, my biggest quibble with Dave Ramsey’s approach is his assumption that ALL debt is evil, and that no one can be trusted with a credit card. The paradox and irony of his approach is that he requires great discipline of his adherents, while simultaneously presuming they have none. He tries to have it both ways–and the disturbing thing is that his man fans actually let him get away with that logical legerdemain.

    Thanks for the conversation.

    Joe Parsons
    Dublin, CA

  34. Beyond Weird says:

    The Ramsey radio show is on in my area during my daily commute, on the Faux-News network. That ALONE puts him in a Limbaugh-rant type category. But, strangely, I find the program entertaining, and occasionally listen online as well.

    One of the places where his opinions get downright scary is when he goes on a “dissing” rant about educational costs, and derides the value of a College Education. One of the places many people get socked with debt is student loans – TRUE – but the advisability of student loans is highly situationally dependent.

    Now, if someone is taking out huge loans to attend an obscure fundamentalist type college, and winds up $75,000 in debt, dropping out after 3 years from a Social Work, or Psychology degree program (not to minimize the value of these degrees, but from a financial standpoint — a poor investment), then the debt was a terrible idea. At this point you’ve pretty much just transferred to the School of Hard Knocks.

    Ramsey brags repeatedly that he has a “P-H-D. in D-U-M-B,” then waxes eloquent about how ‘ya don’t need a degree, cause so many stupid people have ‘em. WHAT?!!

    He’ll also get on a roll about sending a kid to an Ivy League school, and how it really don’t matter where a degree came from, and the community colleges are just fine instead. Well, not really. Recent research has shown that those who go to a 2 yr school 1st & then transfer to a 4 yr have a much lower graduation rate than those who start at 4 yr institutions.
    I’ve actually heard him poo-poo Harvard, and the value of a degree there! Reasoning? He couldn’t care less where one went to school when he’s hiring someone. Well, I think Harvard probably made a big difference for a brilliant poor bi-racial kid named Barack Obama, and certainly most others who’ve traversed their hallowed halls. Betcha Ramsey’d have found someone among his classmates who’d have been in a position to extended him enough credit to continue floating his highly leveraged properties if he was an Ivy League Alum!

    BTW, when I checked further I learned the homestead exemption in this state reduces property taxes by up to about $900 per year, and the separate mortgage exemption reduces them by about another $50. I had thought the amount for the mortgage deduction portion was greater than – but, found it was a relatively trivial amount (confused with homestead).

    Yes, evil demon debt, is actually the reason WHY the standard of living is sooo much higher in the US vs other places. For example, Mexico in particular. There? Well you just live wherever you can afford until you can pay for a home in full. Consequently the tin-roof tarpaper shack ghetto-like existence for many. Our mortgage market & industry made home ownership possible for working class folks here!

    Your assessment of Ramsey shortcomings is quite astute. How ironic, indeed! Remember, the main bulk of his appeal is to legalistic-minded fundamentalist types who actively WANT someone to proscribe specific rigid behaviors and RULES. Witness the hissing disdainful tone Ramsey devotees often employ when one dares challenge the Ramsey Party line program. It often smacks of “you’ll burn in hell,” if you DONT BELIEVE, infidel! (like the snakes -n-vipers credit card analogy)

    Yet I still have a fondness for the coach-like approach to getting out from under consumer debt, generating awareness, and challenging the cultural assumption that we should all be broke spend-a-holics.

    Joe, you hit the nail on the head! The paradox of these highly disciplined followers somehow not possessing enough self-restraint to responsibly use a credit card is utterly incongruent. How ironic, indeed.

    Good, insightful discussion! -BW

  35. Joe Parsons says:

    One of the several concerns I have about Mr. Ramsey is that his followers seem to accept ALL his advice uncritically–and that includes my daughter and son-in-law. He holds himself up as a financial authority, and in some areas he is. But there are many areas where he is simply wrong, and dangerously so.

    I think the bulk of his audience is people who recognize they are in serious trouble, and are looking for any kind of lifeline they can get. Additionally, since so much of that audience is drawn from the Evangelical community, there may be a tendency to take what he says on faith and at face value–just as though he were a preacher which, in a sense, he is. I happen to come from a mainline denomination that is seen as quite a bit more liberal than the Evangelicals. We are encouraged to question and investigate, where other, more conservative denominations are expected to take what they are told literally, with few questions. I think there is a certain amount of comfort in being told in effect, “You don’t have to think too hard; we are doing all that for you.”

    I am particularly interested in confirming that he has minimized the importance of a college education–especially the value of one from any of the first-tier schools. That would be especially telling.

    Joe Parsons
    Dublin, CA

  36. Beyond Weird says:

    Agreed, again, Joe. Uncritical acceptance, and a smug derisive tone toward those who are of a differing mindset are both hallmarks both Ramsey devotees and many Evangelicals.

    I’m from a mainline denomination myself, and married into an Evangelical clan, and I’ve participated extensively in both over the years. I’ve witnessed a whole lot of rigid fundamentalist extremism, and the unquestioning acceptance of the Ramsey followers seems borne of this same mindset, based on my experience. The “just stay in the truck, cause we’ve done all the thinking for you” approach simply scares me.

    As far as Ramsey’s Financial Authority: his determination to get out from CC debt, and put one’s financial house in order — he’s pretty spot-on there, IMO. I’m a bit uneasy about the small to large $ vs. % approach, but for most people its getting to a mindset where they stop going further into debt, and pay off what they’ve got. So far, so good.

    As far as the USE of credit cards, ever – as in Never Ever. No, this is too legalistic and extreme for me. Teaching people to use credit cards properly, as a tool, and without paying interest, is entirely possible… particularly when you’re working with someone who has paid off all their debt, and has a solid emergency fund in place. This is evidence of a disciplined individual.

    Beyond the point of where a family has their emergency fund in place I think he goes dangerously off course at times. His complete contempt for FICO – yikes, that’s potentially very harmful to overall financial well being in so many ways for most people. His whole approach to mortgages is also questionable. Delaying retirement account contributions? That’s pretty questionable.

    He is categorically down on ANY student loans, ever. And yes, as a long time listener I can attest to his frequent devaluing of college degrees, and particularly so regarding those from first-tier schools. He repeatedly reiterates that it doesn’t make ANY difference where a degree is from, and that employers couldn’t care less where an applicant graduated. Telling? Very.
    -BW

  37. Joe Parsons says:

    I just watched Dave Ramsey’s tantrum about John Yang’s story on NBC. I have no particular feelings about NBC or John Yang, but the way Ramsey went off on Yang was almost comical.

    The gist of Yang’s story as I understand it, is that because personal donations made to college athletic departments are tax-deductible, the federal government is effectively supporting college athletics. Furthermore, Yang’s story goes, the public is subsidizing athletics without their knowledge or consent.

    Ramsey calls that statement not only a lie, but also a “socialist mindset.” He then spends another fiveor six minutes bloviating about how our money is our money, and we should be entitled to keep everything we earn, contrary to what the liberals and socialists believe.

    Two things: first, someone’s making a statement you disagree with is not necessarily a lie. making a statement that is not true is not necessarily a lie (an error is not a lie, for instance).

    Second, there is a fundamental financial principle that says that money you no longer have to pay is identical to money you receive. If I lend you $100, then forgive the debt, for example, I have *given* you that money, since you no longer have to repay it.

    The fact that I can deduct mortgage interest and property tax from my income tax and thereby reduce my tax burden by, say, $10,000 per year is NO DIFFERENT from the governmnent giving me that money to subsidize my housing. No. Difference. Money I don’t have to pay (less taxes because of the deductions) is exactly the same as money I receive. Exactly.

    By the same token, if I donate $1,000 to my alma mater and in so doing reduce my tax burden by $300, the government is in a very real sense “subsidizing” my donation: I’m giving $700, they’re giving $300, and the U. gets $1,000.

    If that is socialism as Ramsey claims, then any of us who make tax deductible donations or who claim mortgage interest and property taxes on our Itemized Deductions so we can reduce our tax burden, well, we are socialists, too. I am wondering whether Mr. Ramsey, who claims to have no mortgage or other debt, itemizes his deductions to reduce his own presumably substantial tax liability. If he writes off property tax, he’sgetting a government subsidy. If he pays tithes and offerings to the church and deducts those sums on his Schedule A, he is allowing the Gubmint to subsidize the church.

    Contrary to what some have accused me of, I have no animus toward Dave Ramsey. I think he helps many people. But for him to claim, “Liar liar pants on fire” when a journalist airs a story that he thinks demonstrates some sort of socialistic bias, that strikes me as not just disingenuous, but even hypocritical, as he himself has told many, many lies (by that definition) in his books and programs.

    • Joel says:

      “someone’s making a statement you disagree with is not necessarily a lie.”

      Very true.

      “making a statement that is not true is not necessarily a lie (an error is not a lie, for instance)”

      Hmm, in other words you are saying that one must knowingly tell a falsehood in order for it to be a lie (intent is required)? I could maybe buy that if someone made an off the cuff remark and then later admitted that they didn’t do the proper research or were misguided in what they said in some way BUT if a reporter takes the time to supposedly thoroughly research an issue and then says something that is false, even if they have the best of intentions, it is probably still a lie – wouldn’t you agree? (great question though as I am kind of undecided on this one to be honest)

      “there is a fundamental financial principle that says that money you no longer have to pay is identical to money you receive. If I lend you $100, then forgive the debt, for example, I have *given* you that money, since you no longer have to repay it.”

      Hahaha you are exactly 100% right in your scenario BUT you are exactly 100% wrong in your analogy – the government has not GIVEN or LENDED us any money – it’s all our money in the first place! I hate to break it to you but all of the money in the world doesn’t flow from the government who decides to “allow” us to work and earn money or “lend” us money as in your scenario with the lender and the borrower. You are absolutely wrong on this point.

  38. Joe Parsons says:

    Joel, regarding “intent” being a necessary component of a statement we’d label a “lie:” yes, it is. Here are a couple of dictionary references:

    1. A false statement made with deliberate intent to deceive; an INTENTIONAL untruth; a falsehood.

    2. Something INTENDED or serving to convey a false impression; imposture: His flashy car was a lie that deceived no one.

    Or the verb form: to speak falsely or utter untruth KNOWINGLY, as with INTENT to deceive. [emphasis mine]

    There are additional, lower definitions that don’t require intent to deceive and there are some shades of meaning, but I think it’s reasonable to say that someone who is “lying” is *intentionally* making a false statement. If I say, for example, “It’s going to be sunny tomorrow,” and it pours down rain, I could be accused of being a lousy weatherman, but not of lying. If, on the other hand, I say, “The FICO score is just a measure of how in debt you are, how much you love debt” and, being an authority on the subject of credit and debt I know that not to be true, I could reasonably be accused of telling an intentional falsehood–lying.

    With respect to my analogy: If you agree that as residents of the U.S., we have a certain obligation to pay taxes on our income, then any reduction of that obligation is exactly the same as receiving money. If the $20,000 I pay annually in mortgage interest reduces my tax burden by $5,000, that is precisely the same as *receiving* $5,000 from the government in the form of tax relief.

    I will concede, however, that, where taxes are concerned, using a debt-forgiveness analogy, while technically and logically correct, might muddy the water a bit. I’m standing by the underlying principle, though. Not all money owed is “debt.” The rent I pay for my office space is an obligation I meet each month, but it’s not a debt.

  39. Joe Parsons says:

    I meant to comment on this as well:

    “Hmm, in other words you are saying that one must knowingly tell a falsehood in order for it to be a lie (intent is required)? I could maybe buy that if someone made an off the cuff remark and then later admitted that they didn’t do the proper research or were misguided in what they said in some way BUT if a reporter takes the time to supposedly thoroughly research an issue and then says something that is false, even if they have the best of intentions, it is probably still a lie – wouldn’t you agree? (great question though as I am kind of undecided on this one to be honest)”

    If a reporter makes an unintentional factual mistake, it is just that. It is NOT a lie. It might be sloppy or lazy journalism, it might even be unethical (depending on the subject of the statement). There is certainly a fair amount of journalistic laziness evident–that’s why there are retractions.

    There have been instances of journalists making allegations, only to learn afterward that they had overlooked some material fact in the story. I call that laziness or inattention.

    Going back to the John Yang story that set Dave Ramsey off, I think Ramsey was completely off base, and was using the story as a sort of launching pad for his extended philippic about socialism and such. His accusing Yang of lying could actually be construed to be slander, unless he could prove that what he (Ramsey) had said was factual. It wasn’t, and he would not be able to provide such a defense.

  40. Anne says:

    As has been said already, common denominator. His main preaching is that credit cards are all bad, because the people with no impulse control need to believe that to start getting on track.

    It’s like telling an obese person to start with a sugar free diet so that they can start focusing on what’s healthy for them. Once you start eating sugar (using cards) it’s hard for someone with no impulse control to stop when they’re supposed to. Through time and training they will realize that sugar is not all evil when eaten in healthy proportions.

    Ramsey knows that over time people can learn the benefits of cards, but that is for them to learn on their own. He can’t say those things as a main preaching method because then everyone will justify their own use of cards whether it is legitimate or not.

    The idea is to learn to spend less than you make, and the best way is to force yourself to only spend what you have is by only using cash. Once you learn that kind of lifestyle, using cards would be easy and you can reap the benefits, but you have to learn the self control first.

    He handles individual calls differently than his usual preaching, also. I’ve heard him handle people who obviously have a good head on their shoulders much differently than someone who is insisting that they can’t work more than a part time job when they have nothing better to do, just because it’s “too hard”.

  41. Joe Parsons says:

    Here’s part of the problem I have with Ramsey: in his zeal to sell his point of view, he makes statements that are simply untrue–and I believe that, since he KNOWS the statements are untrue, they can only be called “lies.” It doesn’t matter whether his motives are pure; the statements are knowingly untrue, therefore they are lies.

    Ramsey has a large following because of his skill as a self-promoter and preacher. Many follow him because they think, “He’s rich, so he must know what he’s talking about.”

    The fact is that Dave Ramsey has become rich because he has leveraged his personal charisma and believability into a fortune. He earns an estimated $25 to $40 million annually, not from following his own advice, but from the sale of his books, seminars and “designer” envelopes and from his radio and television appearances. He learned early in his career that Evangelicals would relate to him. That community represents a large segment of his market.

    I believe that lies are lies, regardless of the pure motives that might motivate them. Telling the world (in writing, no less) that all debt is bad and that it is not possible to use a credit card responsibly because some segment of the audience is irresponsible doesn’t excuse an outright lie.

    One of the paradoxes of Ramsey’s philosophy is that he assumes that all his disciples are incapable of self-discipline, while simultaneously demanding a high degree of same. It is no different from the recovering alcoholic’s position (and preaching) that moderation in alcohol consumption is impossible. Ramsey draws much of his approach from 12-step programs.

    Ramsey’s telling a different story to different people doesn’t mitigate the original untruths.

  42. I have enjoyed the interaction with others on this topic.

    In the interests of not cluttering up (ok, hijacking) this very nice blog with a lot of my own thoughts, I’d like to invite anyone interested to my “Financial Gurus” blog at http://wp.me/pYSt1-3.

    There is nothing for sale there (except what WordPressmight stick in the margins without my knowing) and no hidden agenda.

    You’ll see me there as “Joe Money.”

  43. I definitely had problems with credit card debt in the past, but have used them responsibly for the last 10 years or so. I never cut them up, but due to circumstances (moving to another country) in the beginning, I didn’t use a credit card for 2 years. I don’t think it was a necessary step because I just learned to live within my means.

    The key is simple – don’t use them if you don’t have the money to pay them off every month – period. Cutting them up implies that you don’t trust yourself and you have to learn to develop that self-discipline.

  44. Jarrod says:

    Here’s all I know:

    Before following Ramsey’s advice – $6,000 on credit cards, $3,000 in small debts (bowflex, computer, etc) $95,000 owed on $150,000 house. Living paycheck to paycheck, but credit score great.

    After Ramsey’s advice & 5 years hard work – 0 credit cards, $0 debt including house. One year worth of income in savings just in case. Much more real estate and more retirement savings. Stress went bye, bye and credit score is zero.

    Life is good.

  45. BeyondWeird says:

    Great job Jarrod! Ramsey has great advice about becoming intentional about our finances and spending habits.
    As far as being an excellent motivator, Ramsey does a wonderful job, and his plan definitely works.

    Really, what Ramsey’s plan does is take you on a longer route, or course, towards a destination – financial freedom & peace.
    That’s a whole lot like choosing a route to get from where you are to Milwaukee…. there are multiple potential routes, and likely several reasonably good options. Yet, there is one route that is the most efficient and fastest course to the destination. This is NOT Ramsey’s route…. he essentially takes the scenic path, that feels like more fun, but results in taking longer to get to where you want to go!

    Nothing wrong with the scenic route, but you MIGHT have been able to be where you are today in 4.5 yrs, vs 5, had you chosen the direct & efficient path instead of the scenic route….

    But hey, in the end, you still got where you wanted to go!

    Difference for me, with an 800+ credit score, and STILL debt free, with tons of savings too, is my car insurance policies are about $1,000 a year less due to my excellent credit rating, not to mention the hundreds in credit card rebates I get back each year since I run all my regular expenses through my credit card whenever possible!

    Yes, my only stress now is the decision between Lowe’s vs. Starbucks for my next $100 gift card, free from Chase!

    But hey, Welcome to Milwaukee! I’ve been here for a quite a while, and YES, Life IS Good!

    • Jay Clemins says:

      “Difference for me, with an 800+ credit score, and STILL debt free”

      Again, you don’t have an 800+ credit score while being debt free. Its mathematically impossible!

      • Joel says:

        Sorry Jay, you are wrong again. It is certainly possible to have an 800+ credit score while being debt free. You can still USE credit cards which will show up in your credit utilization ratios but then you just pay them off in full every month when the balance is due. It really is shocking how many easy to verify facts you are just flat out wrong on. Too bad for you but at least now you know.

  46. Joe Parsons says:

    Jarrod, no one in his right mind can disagree that carrying an intolerable consumer debt load is a Bad Thing, or that systematically retiring that debt is other than desirable. However (and it is an important “however”): your personal decision to pay off your debt and your success in doing so, was YOUR doing, not Dave Ramsey’s. As I have often reiterated, there is much to like about Mr. Ramsey’s core message; but much of what he teaches is so far off the mark as to be harmful to many. His contention, for example, that “the FICO score is an I-Love-Debt score” is simply incorrect. It is NOT necessary to be in debt a single penny to have a good credit score–and that credit score determines far more than your ability to get a loan. More and more employers are pulling credit reports and using them in their decisioning process. By the way: there is no such thing as a FICO score of zero–the range is from 300 to 850. Someone may have no score at all, but that is highly unlikely; you would have to have been “under the radar,” with no consumer accounts for at least fifteen years not to have a FICO score. Dave Ramsey has become wealthy, not as a result of following his own advice, but through his media empire. If he were to recant at least some of the statements and bad advice he has given over the years (like, keep your money in stocks, because the Dow Jones has averaged a 12% return over the last 70 years), I would consider him to be at least somewhat credible. But (to the best of my knowledge) he hasn’t, so I don’t.
    Personal disclaimer: I have been in the real estate and mortgage industries for over three decades. While you may see my comments as being self-serving because of my profession, I’d urge you to evaluate them critically on their own merits. One could reasonably claim that Dave Ramsey’s advice is self-serving, In that he is in the business of promoting his books, seminars and radio and television work.

    • Jay Clemins says:

      Here is what your FICO is made up of. Do a google search and see for yourself.

      35% is based on your payment history, and how many times you were late.
      30% is based on the amount of total credit you have, and the amount of that credit that you are currently using.
      15% is based on how long you have had the accounts.
      10% is based on how much new credit has been added.
      10% is based on the mix of creditors you have.

      Now go find a rich person who has never /needed/ a credit card, or take out a loan. Why? Because they are… rich. What would their almighty credit score be?

      Right.

      • Joel says:

        Actually Jay, the percentage of credit card use INCREASES significantly for those who are wealthy vs those who do not make as much money. Your lack of understanding of the proper way to use a credit card is very telling. The reason the rich person uses credit cards is because of the convenience factor, the security factor, the prestige factor (i.e. “AmEx Black” etc.), etc. and NOT because, as you put it, they “need” a credit card as in they are charging purchases to their credit card because they don’t have money in the bank (unless you are Nicholas Cage or Lindsey Lohan that is lol). I would also bet that not only does credit card use increase the wealthier one is but also there is an increase in the amount of loans taken out. Sorry Jay, you are wrong on every account in each of your comments so far. Please do some research next time rather than using Dave Ramsey as your one and only source and then building your entire financial worldview off of the “debt is evil” idea. (btw even if you were right and rich people do not use credit cards more frequently than those less wealthy (and you’re not) then your argument is still inherently flawed as its the simple fallacy of “argumentum ad crumenam” or “appeal to wealth”)

      • Joe Parsons says:

        Second item: 30% of your score is made up of credit utilization. Correct. Here is what that means: when your balance on revolving accounts exceeds about 30% of the high credit llimit, it will begin to pull the FICO score down. The reason I say “about 30%” is that the criteria are slightly different for each of the three FICO models, and those criteria are not made explicitly public by FICO (formerly Fair, Isaac & Co.)

        “Rich people” do indeed use credit–judiciously. Contrary to what Ramsey proclaims, debt (also known as “leverage”) can indeed be used to create wealth. It is a two-edged sword, though. That’s why the word “judiciously” is important in this formula.

  47. Really? says:

    Dave has some good ideas, but his approach is not for everyone. Know several CPAs (the types whose only debt is the house & maybe a vehicle) who generally approve of Dave’s approach … except for credit cards. And they go ABSOLUTELY crazy when he talks about traveling without credit cards. Universally for business travel it’s credit cards – not cash, not debit cards – for these debt free people. When travel is done, expense reports are filed & before the credit card due date reimbursement is received and credit card paid – no fees, no interest, no penalties. Use of the credit card provides easier protection than debit cards (you have to work harder to get the protection on the debit card).

  48. Jarrod says:

    @ Beyondweird – My insurance hasn’t gone up at all except for when I upgraded to a sportier car. It’s easy to find companies that are smart enough to realize that FICO isn’t everything. I like using Perkstreet for my debit needs, you get the cashback without having to play the credit card company games.

    @ Joe – When your car is sitting in the driveway sitting still and there is no speed would you say the speed is zero? The answer is yes. Also, it only takes about 8 months of inactivity.

    @ Really – Any Visa debit card has the same protection as a credit card. Yes really. If your CPA isn’t bright enough to see how stupid paying interest is (on just a house and maybe a vehicle) it’s probably time for a new CPA. I don’t want someone helping me with my money when they are flushing thousands of their own dollars yearly.

    Guys, where can I buy your book? Ramsey built a business with his dead wrong advice so surely you guys have built a “better advice” business that is gonna bring him to his knees right? I anxiously await this light reading material. You guys should come check out the scenic route sometime.

  49. Joe Parsons says:

    Jarrod, your comparison between not using an automobile and the rating models used by Fair Isaac Corporation (FICO) is invalid. Negative credit information is reported by all three bureaus for seven years, public record information (judgments, foreclosures, bankruptcies, etc.) are reported for ten. Closed accounts will be reported for at least ten years, often more. It is simply not possible to have, as you and Mr. Ramsey keep claiming, “a FICO score of zero.” But what do I know? I’ve only been working full-time in the field for two decades.

    Your assertion that “Ramsey has built a business with his dead wrong advice,” while correct, is not a testament to its validity or its suitability for all who buy it. Such a claim is an example of a logical fallacy called “argumentum ad populum:” millions of people believe it, so it must be true. You can see how false this claim is by saying, “nearly half the country voted for [insert candidate or party here], so their position MUST be right.

    I have read Dave Ramsey’s books carefully and spoken at length with many of his most zealous fans. One of the observations i have made is that he often uses the language of the recovering addict, the terminology of the Twelve-Step Program. His assertion that, “responsible use of credit cards is not possible” is the exact equivalent of the alcoholic’s sponsor who tells the recovering drunk, “No, you can’t have even one drink because you can’t control yourself.” The advice to the recovering addict is correct and appropriate–but not everyone is an addict who cannot control him or herself.

    With respect to paying interest on a home loan: first, there is no cheaper money available anywhere than mortgage money. A 30 year fixed rate mortgage today carries a rate of around 4.375%. For most people, that mortgage interest is deductible, making the true (after tax) rate around 3.25%. Putting money into any investment that earns more than that amount (and Ramsey urges his followers to put money into the stock market for a 12% return) rather than into equity in the home will generate far more wealth more quickly than paying off one’s home. This principle–borrowing money at one rate to reinvest it at a higher rate–is called “arbitrage.” It’s how wealthy people have become wealthy through their investments.

    As a somehwat irrelevant footnote, Ramsey suggests buying “beater” cars, and setting aside money that would otherwise be used for a car payment, selling that beater after two years for its original purchase price (!), then taking the proceeds, along with the money saved to buy a better “beater” every two years or so. This, he says, is how millionaires become millionaires. This plan, of course disregards the likelihood of major repairs needed by that old used car. Someone in my own family became Ramsey devotees, sold their three year old car with warranty and a year of payments remaining. they bought a 10 year old car from a friend. This week, they discovered that this Dave Ramsey Special will need a new motor.

    But they have no car payment.

  50. Jarrod says:

    I give up man, you win.

    It looks like some rational adults could look at the debt information for the average family in this country (the majority are deep in the hole & carrying a balance on their cards) and agree that the things you do, the things that most financial advisers advise probably don’t work for the vast majority of folks. His advice is right for more people than yours.

    The maintenance on the 16 year old beater I drove cost me nothing more than a new car would have, though a new car would have lost 60% of it’s value in the first four years, making a new motor cheaper.

    The average homeowner isn’t going to go invest money at a better rate of return, the average homeowner is going to trudge through, check to check and then get foreclosed on when they encounter the slightest misstep.

    But hey, like I said, you win. I just like the way he gets people out of debt better than the way you don’t.

    • Joe Parsons says:

      Jarrod, I have never said that Ramsey’s core message is wrong; but something as simple as, “Don’t buy stuff you can’t afford, quit amassing debt for the things you can’t afford, retire the consumer debt you have and save for the future” doesn’t sell books and seminars or gain a large audience. One has to embellish the message and create a narrative in order to turn it into a business, as Ramsey has done.

      What “most financial advisers advise” is essentially the same as that core message. I suspect that you don’t really know WHAT I advise. What you do know is that I have shown that certain statements of Dave Ramsey’s are false or misleading. I have gone to some lengths here to show just WHY those statements are false. His advice regarding debt is certainly correct for those people who could be considered to be the financial equivalent of alcoholics; but that does not cover ALL people, by any stretch of the imagination.

      Part of Ramsey’s appeal is his avuncular, folksy charm (“I give the same advice my grandma would, except I leave my teeth in.”) and his outreach to a largely Evangelical audience. I had a discussion with one of his avid followers a while ago. I asked her what the attraction was for her, why she followed him almost as though he were a religious leader. “He makes all this stuff simple enough for me to understand,” she replied. When I suggested that in oversimplifying these matters that he was dispensing wrong information, she just shrugged, and said, “Well, that’s just your opinion.”

      Your last statement about the “average homeowner” is the kind of thing Ramsey often says–and it is every bit as incorrect. The “average homeowner” is unlikely to pay additional money toward his mortgage, it’s true; but the un-average person who has discretionary money for retiring debt will be far better off to keep the mortgage and place the money in some other investment vehicle. If I have a $200,000 house with a $150,000 mortgage payable at $750 per month, I will have the exact equivalent of a free and clear home when I accrue a cash sum equal to the mortgage balance. And that cash sum can easily be invested to generate more than adequate income to pay the mortgage. The big difference is that I will get there far sooner than someone who simply puts extra money toward the mortgage. And your assertion that “the average homeowner” with a mortgage is “the slightest misstep” away from foreclosure is simply laughable.

      Finally,buying old cars is risky. Sometimes you luck out, sometimes you don’t. Sometimes you just have no choice and have to get that old beater. However: selling a serviceable newer vehicle that may have a loan on it, just to add to the “debt snowball” may be a false economy, fraught with risk, as my friend has just recently discovered. In my opinion, it is one more bit of bad advice dispensed by Mr. Ramsey to an adoring and uncritical audience.

  51. Beyond Weird says:

    As far as car insurance rates go, regarding FICO scores. My rates never went UP, they went down further when I applied to a super-safe program offered for those who demonstrate exceptionally high degrees of personal responsibility and prudence.
    A measure used by this company, which happens to be the largest and lowest rate company here in this state, is FICO. Since I have no tickets, nor accidents, and my FICO is very high – despite having no debt and paying no interest – I was eligible for a significant rate reduction. Each of my 5 vehicle’s rates is about $200 per year lower as a result.

    BTW, its easy to have a very high FICO, and no debt. Just have longstanding accounts that are paid in full several times a month… well before a bill ever comes due. (Actually, they’re paid before the bill arrives).

    Yes, if you use Perk Street debit card — which Ramsey has been regularly touting on his show lately — you do get the benefit of cash back for its use. I like getting my 5% back on gas, grocery, & drug store purchases with Chase. My other rewards card gives me about 1.5% back… not bad either!

    As far as the protection of a Debit vs. a Credit Card. Well, at least fraudulent credit card transactions don’t immediately come out of my checking account before my bill comes!!! Yeah, lotsa luck working through a fraud situation with hundreds or thousands already GONE from your bank account…. I’m SURE the bank will be willing to immediately return the stolen funds to your account on the spot! (yeah, and I’ve got a bridge to sell, if you believe that one!)
    No, its FAR easier to contest a fraudulent charge, insofar as the money has NOT already been taken out of one’s bank account.

    CPA’s don’t pay interest on the charges they use for travel or business expenses. For example, Octobers charges will be due around the last week or so of November, so reimbursements are paid to employees well in advance of the credit card due date, resulting in no interest charges. OF COURSE you NEVER charge these expenses to a card with an existing balance carried over from the previous month.

    CPAs assuredly comprehend that no interest is paid using a credit card properly as a tool for business travel. There is no “flushing of thousands” involved in any manner!

    Hey, if you like Ramsey & the scenic route, go for it. I’m further towards my goals faster as a result of taking a more financially direct route, but if you prefer paying lots more interest on the journey to your destination, that’s up to you.

    No I don’t have any interest in writing books — I’d much rather spend my time on other pursuits — lots of people write books and make money. Remember Jim & Tammy Faye Baker? They wrote books too… so do a whole lot of others who choose to make money in this manner. Some get rich doing so, but that doesn’t necessarily make them totally right.

    Ramsey is what he is… he’s entertaining, his plan is a whole lot better than staying broke, but that doesn’t make him right all the time, either.

    Wisdom is being capable of evaluating a product, belief, concept, and identifying its strengths & weaknesses…. its not an All In – Either/OR Black and White proposition. I personally enjoy exchange of ideas and discussion of financial topics. Listening to Ramsey’s show is simply a form of entertainment — I agree with him sometimes, and other times not so much. Baby Step One I agree with wholeheartedly, as well as being mindful and aware of one’s finances. After that? Well, most people could do better from a purely FINANCIAL standpoint….. I know I have!

  52. Beyond Weird says:

    Joel,
    I’m also concerned about the reliability and safety of ANY 16 year old “beater” on the road. Does the exhaust leak? Do wipers and defrost still work? How about the seatbelts or airbags?

    And I certainly wouldn’t invest $3,000 to $4,000 in it to replace the motor!

    No one argues that a 3 yr old used vehicle is usually a good deal from a financial standpoint, but it can also be a big bite to many if that’ good quality late model (or beater) used car’ blows a motor, as mentioned above.

    And I have to wonder about a financial guru who advocates investing in the stockmarket – in mutual funds yeilding 12% return rate — while insisting on paying down a 3.5 to 6% mortgage first, instead. Ramsey says this is because of “risk.”

    Well, isn’t it riskier to put money into an illiquid investment, like a house, at a miniscule rate of return, vs. into an account one could use to MAKE the remaining house payments for months if one suddenly lost a job for longer than the 3-6 months of emergency fund expenses he advises? (BTW, Suze Orman is advising a 1 YEAR emergency fund, due to current economic conditions)

    That 10 or 20 thousand extra principle payments that were made are 100% at risk if one should wind up in a forclosure situation, right? (10 – 20K used as an example…. it could be far worse!)

    How much better and safer to invest in a more liquid account, and make several years worth of house payments from this account if there is a long-term hardship that occurs! Yes, after a year of being out of work, its gonna be pretty tough to get that money back from the extra paid on that mortgage if its needed….

    Joel mentioned Ramsey’s “Adoring and Uncritical Audience.” This is one of my main concerns, too. Its very, very scary when people simply refuse to think critically for themselves, and blindly accept the latest Guru’s advice unquestioningly.

    Really, its okay to think for yourself! Actually, its essential. Don’t EVER buy in to anyone else’s program without thinking it through.

    Please, please, don’t ever just drink the Kool-Aid!

  53. Joe Parsons says:

    Beyond Wierd (should I call you Mr. Wierd, or may I call you Beyond?)–I think you’ve got it! And I was the one, not Joel, who spoke about “adoring and uncritical audience.” When I was talking about this same principle (putting money into some vehicle other than into home equity) someone said, “Well what happens when that homeowner loses his job and has to make that big mortgage payment? How about THAT, wise guy??” Before I could respond, someone else chimed in and said, “The $200,000 cash saved up in this example would make that house payment for a LONG time!” Yes, it’s a very good idea to have a substantial emergency fund. A year is good, but you can ask many people who are in industrires where they have been out of work for far more than a year: they would prefer a much larger emergency fund. And having multiple thousands of dollars in home equity is inaccessible. The only way to get it out is to refinance or sell–and either of those alternatives might be problematic.

  54. Beyond Weird says:

    oops, Sorry Joe! Yes, meant you, not Joel. I should be more careful when proofing posts! Beyond, or Weird works well for me… but I’ll try to call you Joe, if that’s okay.

    Its important to have dialog on financial topics, such as this forum. The exchange of ideas furthers awareness.

    You’re right about some workers being out of work for protracted periods… certainly you’ve seen this in your line of business, and the financial impact is devastating.
    Any of us could become ill at any time, and even with decent disability coverage, most people still incur many other illness related expenses…. so having all available funds in excess of 3 to 6 months of expenses all tied up in the house is really worrisome. At least it is to me. Couldn’t agree with you more, Joe.

  55. Really? says:

    Jarrod -
    Don’t care what you or Dave say, where I live you CANNOT rent a rental car without a credit card. You can PAY for one with a debit card, but you won’t drive OFF THE LOT unless you have a credit card. Other than the airport, only one rental company in town – no competition. Airport companies want to see an itinerary.

    The CPAs may own cars and houses outright – don’t know – DO know they carry no credit card debt – and say debit cards don’t cut it for travel. Argue with them.

  56. jysharp2003 says:

    Root issue is measuring and controling your expenses.
    With years of failing because of manual entry to budget spreadsheets etc, I found importing my bank statement for tracking is the truest way to make a budget work long term. My MS Money application no longer worked so I searched and found a program called bank2budget (www.bank2budget.com). This program cuts my paying bills and tracking expenditures by 90%. I spend about 1 hour a month and can show you trends and many other charts. It requires MS Access version 2002 or higher though.
    Good luck to us all.

  57. Beyond Weird says:

    Woo hoo! Just ordered $250 in free gift cards from my bank/credit card rewards program! Didn’t buy anything different than usual…. still had to have car & home insurance. Needed to pay the kid’s tuition…. normal stuff!
    Hey, I might not get rich off the points, but my new washing machine will be almost free with the gift cards my spouse is getting in rewards too, and I am sure gonna enjoy my free coffee beans from Starbucks. Might even “splurge” on a tasty free Caramel Latte while I’m there baggin’ the beans.
    Just love making every dollar count!

  58. Katrina says:

    Dude, you’re an idiot. The fact that millions of people have gotten OUT of debt thanks to his advice just proves that he knows what he’s talking about. I work at Dairy Queen (close enough to McDonald’s) and I see dread on most people’s faces when they have to whip out the credit card for a large purchase. There are people who have a lot of 20 dollar bills on hand to give to us. Heck, even a few people come in with hundred dollar bills, so I don’t get what you’re trying to say about the credit card thing… that it’s easier to have a card on hand?? That’s just lazy… and DEBIT cards are fine. CREDIT cards are S-T-U-P-I-D! It’s spending money you don’t have only to pay it back with interest. You seriously don’t have a brain stem…

    • Joel says:

      @Katrina

      Let’s list of some of the logical fallacies that you committed:

      - Ad Hominem Attack
      - Appeal to Accomplishment
      - Appeal to Emotion
      - Proof by Example

      Probably a few more but maybe the biggest is your statement that, “CREDIT cards are S-T-U-P-I-D! It’s spending money you don’t have only to pay it back with interest.” since obviously you can use a credit card and just pay the balance off in full each month and never pay a dime in interest which is the approach that I am advocating so you may want to brush up on your basic understanding of how a credit card works :)

      • Yes Katrina got a little huffy and insulting. He shouldn’
        t have.

        However you really did not answer his point. How do you argue with success?

        @Joel

        Again I bring up the “you don’t tell an alcoholic to just have one drink” analogy.

        I do use them responsibly BUT I know I spend more because I can with a credit card. When 2008 hit and our income all came from the market …. I reduced my CC spending at Staples from over $750 per quarter to much less than $100. We had to.

        So might I add Joel, your logical fallacy is that everyone can do like you… it’s listed in there somewhere. Do you really think they can?

        Also by not answering his points you used the “red herring” fallacy.

        Just a reminder.
        Have a good!

        -Charles

        • Joel says:

          Sorry Charley, you’re wrong. :) (Couldn’t resist changing your name from “Charles” to “Charley”) :)

          “So might I add Joel, your logical fallacy is that everyone can do like you…”

          I don’t think everyone can be like me, in fact, many people have a problem with financial discipline. If you will re-read the post you will notice that I am debating against the idea that Ramsey proposes in that “responsible use of a credit card does not exist” so in order for me to prove that statement wrong I simply need to submit one example of responsible credit card use (which I and other commentors have done quite adequately). I am not sure if you really grasp the subtlety of this point or if you do but are just trying to do a clever little twisting of what I have said in hopes that I and others won’t catch on but in a nutshell all I am saying is that Dave Ramsey’s universal statement is not true, however, I am NOT arguing for the inverse universal statement that everyone can use a credit card responsibly (just that some people can).

          “Also by not answering his points you used the “red herring” fallacy.”

          I think I have addressed Dave Ramsey’s points quite adequately in the article and in the comments. If you are referring to Katrina which you have referred to as “he” :) a couple of other times for some reason, I am not really sure that she has a point other than that she is upset at me.

          • Name Not Required says:

            Actually we go by the preponderance of the evidence.

            We are not talking logic rules, but simple rules of evidence.

            Dave has evidence. I have evidence.

            You are using semantics to try to prove Dave wrong.

            Dave does not need to spell out that he means that “cc don’t work for the majority” but that is what he means.

            He is right.

            We are not talking subtlety but evidence.

            Dave has it.

            My own personal research backs it up.

            So what is your net worth Joel?

          • Joel says:

            You lost me by starting off with your strange idea that logic does not apply in this discussion. I’m only interested in having a logical discussion so if you are not then feel free to keep blathering on but obviously there is no use engaging you if the rules of logic are not welcome.

  59. Joe Parsons says:

    @Katrina: Your post exemplifies one of the characteristics I see in many followers of Dave Ramsey; anyone who might criticize some teaching of Ramsey’s is almost invariably met by a personal atttack.

    Here are some facts: While Ramsey is a great cheerleader for getting people to shed debt and pay attention to their fiances, his advice (“Baby Steps,” debt snowball, budgeting) is nothing at all special or unique, and taught by many, many financial advisors. While credit cards can lead to trouble, one could say exactly the same thing about automobiles, guns, alcohol or sex. All have their virtues when used correctly and responsibly, and consequences when abused. To make a blanket statement that “credit cards are s-t-u-p-i-d” is equivalent to an alcoholic’s saying, “alcohol is always destructive and bad.”

    Ramsey’s oft-repeated statement that, “responsible use of a credit card is not possible” is quite simply untrue. There are many people (and I am one of them) who use credit cards regularly without ever paying a dime of interest, but we get the advantages of the “float,” where we get to use someone else’s money interest-free for 25 days, but pay the balance in full each month.

    I would say I agree with more than 90% of what Ramsey teaches. I agree especially with his own statement at the beginning of FPU: “Know what 98% true is? 98% true is still a LIE.” By his own yardstick, Ramsey lies. Many of his statements, like, “A FICO score is an I-love-debt score” are simply untrue–and I have to believe he KNOWS they are untrue; and even though he is dispensing these untruths with a noble motive, they are still untruths.

    By the way: please post extolling the virtues of debit cards in place of credit cards. I’d be delighted to have that discussion with you.

  60. Beyond Weird says:

    Oh, my, Katrina! Your statements show such a complete lack of comprehension as to the fundamentals of credit card use. Where to even begin… ?
    First of all, I already have the money to make a purchase whenever I use my credit card for a purchase. Yes, the money I’m spending is already in my account! I just simply use credit cards as a tool, and a means of facilitating transactions. Not because I’m lazy. Not because I’m stupid. I simply WILL NOT carry sums of cash around with me, in my book that is s-t-u-p-i-d.
    Also, most RESPONSIBLE credit card users NEVER pay any interest on their cards. Ever.

    Actually, according to Ramsey, all those Fast Food shoppers are the stupid ones…. who need to “never see the inside of a restaurant unless they’re working there,” and should be home cooking with E-Meals, and workin’ the debt snowball, rather than dining on fast food and pricey frozen treats!

    You really might want to consider giving these issues some actual thought, yourself, vs. calling other astute writers “stupid” while you yourself simply parrot the Ramsey Party latest lines and sound bites!

  61. Joe Parsons says:

    @Joel: I have always enjoyed identifying logical fallacies, too! A minor quibble, though (and yes, I *am* a rhetoric geek!): Katrina did not use an ad hominem fallacy; it was a simple insult. An example of an argumentum ad hominem fallacy could be, “Yeah, well you filed bankruptcy once, so you’re wrong.”

    I got into an, um…discussion with my daughter recently (she’s an avid DR acolyte). She and her husband sold their late model Acura, which had 15 months worth of payments remaining, and bought a much older Honda. After two months, it developed that the Honda needed a new engine–notwithstanding the fact that their mechanic had pronounced the car sound.

    Now, with a third child on the way, they are shoppng for a larger car–with a budget of $6,000. I suggested that, for reasons of safety as well as reliability, they should set their budget higher. The rationale, such as it is, is that “Cars lose 60% of their value after three years, so a new car is a waste of money.” I responded that such a generalization was simply untrue; some cars depreciate more than others. I showed them how a five year old Honda Accord retains almost 70% of its value after four years.

    None of these facts are likely make a significant dent on those who are the True Believers. If Dave says it, they’ll believe it, no questions asked.

    • Joel says:

      Good points, although in regards to the personal attacks maybe it would be better to describe them as an implied ad hominem attack since the placing of the personal attacks before* and after the attempt at an argument was most likely designed to invalidate my argument based on her suggestion that I am an “idiot” and I “seriously don’t have a brain stem” :)

      * Technically, you could maybe even say that it was an attempt at “poisoning the well”

  62. Charles Pedley says:

    @Joel

    You are doing the same thing as Dave, aren’t you Joel? By totally disagreeing with him he is on one pole and you the other. Is the ice melting?

    Your statement below IS true to an ALCHOHOLIC …

    “To make a blanket statement that “credit cards are s-t-u-p-i-d” is equivalent to an alcoholic’s saying, “alcohol is always destructive and bad.”

    Joel. Again, not everyone can be like you!

    You brought up fallacies.

    Your statement above is an Argument from fallacy: [see wiki: http://en.wikipedia.org/wiki/List_of_fallacies

    Also cannot remember the fallacy name but there is one that might be called an
    Assumptive Fallacy: Because I can do it, everyone can.

    Just a reminder.

    Have a good!
    -Charles

    • Joel says:

      Sorry Charley, you’re wrong again. :) (And again I couldn’t resist changing your name from “Charles” to “Charley”) :)

      ” Your statement below IS true to an ALCHOHOLIC …
      “To make a blanket statement that “credit cards are s-t-u-p-i-d” is equivalent to an alcoholic’s saying, “alcohol is always destructive and bad.” ”

      You are not understanding the meaning of what a “blanket statement” is. A blanket statement applies to everyone, not just alcoholics. Therefore, while the statement above is true to an alcoholic, it is not true to many other non-alcoholics.

      “So might I add Joel, your logical fallacy is that everyone can do like you…”

      I don’t think everyone can be like me, in fact, many people have a problem with financial discipline. If you will re-read the post you will notice that I am debating against the idea that Ramsey proposes in that “responsible use of a credit card does not exist” so in order for me to prove that statement wrong I simply need to submit one example of responsible credit card use (which I and other commentors have done quite adequately). I am not sure if you really grasp the subtlety of this point or if you do but are just trying to do a clever little twisting of what I have said in hopes that I and others won’t catch on but in a nutshell all I am saying is that Dave Ramsey’s universal statement is not true, however, I am NOT arguing for the inverse universal statement that everyone can use a credit card responsibly (just that some people can).

  63. Joe Parsons says:

    @Charles: “How can you argue with success?” I think what many people overlook is that Dave Ramsey, who is indeed a wealthy man, acquired that wealth not through following his own advice (although I’m reasonably sure he does so), but from his syndicated radio and television work, his books, seminars and Financial Peace University. (I’ll disregard whatever he might make on his $24.95 designer envelopes and other paraphernalia).

    One has to admire the man: he quickly turned his failure in real estate into a media empire that nets him an estimated $25 – $40 million annually. He has managed to create a very simple narrative, starting with his failure in real estate investing in 1988–he attributes it to Tax Reform, which is, quite simply, nearly impossible–to the formation of The Lampos Group within a year of that failure. He essentially models 12 Step programs, using much of its terminology, attitudes and methods. The working assumption is that *everyone* has a spending problem and needs Dave’s Program to rescue them.

    He has created a following that has more than a few cult-like characteristics–including the refusal to listen to any dissent or criticism, the separation from unbelievers and the authoritarian nature of the teaching.

    With respect to your use of credit cards and how you “had to” reduce your credit card spending at Staples, that is an illustration of the mindset about use of credit. Making purchases using a credit card is no different from using cash–unless the spending is recreational. For the purposes of your example, it’s not the credit card expenditures that mattered, it was the purchase of office supplies, unless you carried a balance from one month to the next. If that was the case, then the poor economy might have done you a favor.

    Contrary to what Dave Ramsey adamantly claims, it IS possible (and normal) to use credit cards responsibly. Even one simple counter-example refutes his statement–and that has been done here many times.

  64. Beyond Weird says:

    @Charles, @ Joe, Argue with success?
    Well, Bernie Madoff was rather successful for YEARS! But, success is not the same as accuracy or truth.

    Clearly I’m not comparing Ramsey to a criminal, simply pointing out that someone’s financial “success” does not necessarily validate one’s claims or statements. As its said, “might does not make right.” I believe that’s accurate insofar as financial might goes, too.

    One of the most telling calls I’ve heard on Ramsey was from a man whose wife was adamantly opposed to “plastectomy,” (cutting up the cards in Ramsey parlance). The main reason for her objection? Because she & her husband had gone on an all expense paid vacation, courtesy of their credit card rewards program.

    Wife’s argument was basically unwillingness to forgo such perks. No overspending involved, no debt, no financial issues. So Ramsey goes on a typical rant where he spouts about his “data” and is quite adamant that he has a corner on the market of truth concerning credit cards. The caller-husband stated, yes, the wife had indeed read, heard, or understood Ramsey’s position on credit cards. But she was steadfast in her position. Ramsey went on to “diss” her to no end, making derogatory statements about her having issues, and being troubled.

    I mean, hadn’t she heard HIS opinion!!! Well, indeed she had. BUT, she was still hell-bent on thinking for herself, and had…….. (tada!!! ::drum roll::), reached a DIFFERENT conclusion than DAVE!!!
    It was interesting to listen to him essentially ridicule the heretic, who dared to reach her own conclusions, and did NOT consider DAVE to be the final last word on the topic.
    The unmitigated GALL & NERVE of the woman! Dave just couldn’t comprehend, and it was a bit sad to listen to him insulting this caller’s wife. Highly authoritarian, indeed!

    Really, as one who runs my expenses through my credit card, I can attest that I definitely don’t buy more College Tuition or Insurance of any type because I run these expense through my credit card!

    Actually, it would be wonderful for me if I did spend more by using a card! I’m already far underspending, and if card use encourages me to spend a little more, then that’s actually plus for a debt free non-spender like me.
    Yes, I love the insurance discounts and flexibility an 800+ FICO score affords me. An “I love debt score?” Hardly; that’s a farce. Its an “I hate debt, and pay my balance off weekly, thank you very much, score.”

    Hey, guys! I’ll even drink to that…..

    • Pressing For Truth says:

      @ Beyond

      I guess I did not explain it well enough. Sorry about that.

      I mean hundreds of people if not thousands have used Dave’s methods and they were helped by them.

      That is the success that I am talking about.

      Those who use his methods, do better in financial matters than those that just pull out the undisciplined old plastic for everything.

      Dave made his money honestly by presenting principles which work and are proven by users. By the end of any FPU I have conducted the debt-load goes down considerably. That is evidence.

      So drink to anything you like, like Dave’s success? (:-)

      Don’t you just wish you had half the enterpreneurial spirit Dave has? Of course you do and I do too. But hey we were not all meant to be millionaires.

      Did you ever read that within 10 years or less of winning 1 million dollars, the winners go back to their former net worth or even less?

      You are taking exceptions and making them rules.

      Your rules are opposite to Dave’s.

      You say, “Use a credit card responsibly” That’s your rule.

      However the massive debts of many stand as evidence that your rule only works for a few while Dave’s works for many.

      I’ll take the many!

      • Joel says:

        Circular Cause and Consequence Fallacy (i.e. people proactive, motivated, and disciplined enough to follow Dave Ramsey’s program would likely succeed in their debt elimination efforts using other programs as well because the root cause of their success is their character traits of being proactive, motivated, and disciplined, the root cause of their success is not necessarily Dave Ramsey or any particular program)

  65. Jerry says:

    OOFTA! I get enough of this stuff on AM Talk Shows! Signing off this one.

  66. Shane says:

    I have only been in the States a short time so Dave Ramsey is new to me. I started listening to his show for a few weeks now, as his philosophy is used (well they say they use it) by a few colleges here at work. My first impression was this guy is talking 90% common sense, and 10% garbage. There was nothing interesting nor particularly revealing. I cannot subscribe to his fuzzy logic where I would end up spending more money to pay off debt. I also don’t agree with thoughts on his credit cards. I use my credit card to pay for anything I can – pay it on time – and get almost 2% cash back at the end of the year.

    After a few callers, what astounded me is the extraordinary low level of basic financial understanding in this country. I also see it firsthand here at my work place. People have trouble with calculating percentages or compound interest, basic budgeting, spending within their means. I earn a good living now, but when I earned $15k a year out of college I lived within my means, and had no debt. When I earned $30k, $60k I had no debt. I have no debt now. This capitalistic consumer ideology in the U.S. is ridiculous. I understand folks can run into health/emergency issues, and this can force them into a deeper hole than they anticipated; But most of the debt in this country is simply from over spending. Buying ‘crap’ they do not need. I understand one has to live, and splurge every now and then, but people need restraint too, and there is little of that around.

    Do they teach any of the basics in the schools here? Or are people simply emotional over-run by commercial after commercial everywhere they turn? or celebrities in your face showing their wares? or peer-pressure forcing people to buy things they do not need?

    The government of this country sets a terrible example by being completely fiscally irresponsible. Massive Social programs with massive Military and discretionary spending equals massive debt and deficits. Worst of all, bankruptcies laws are among the most lenient in the world. People here know they have fail safe. Spend spend spend, can’t afford to pay it off, file for bankruptcy, which eliminates most debt (not student loans of course – another day’s discussion), and folks come through the other side still holding many assets.

    If things were different, and the reality was not being able to pay your debts meant you would end up on the street with your children, they might think twice about buying that new tricked out super duty f350, and buy the 4 year old Kia Spectra instead. But what fun would that be…

    • Press For Truth says:

      @Shane

      You obviously have learned discipline which most people have not.

      So goes the decreasing level of American Education from highly-paid civil servants.

      In Buffalo NY, the level of graduation is around 50% and yet the top dog, gets over $300,000 for accomplishing that.

      Something is wrong in Dogville.

      You discovered it yourself Shane.

      Don’t know where you learned principles of finance, but most have not been taught, except by the TV and ads.

      You are one of the only guys on this board that seems to have evidence for their opinions.

      You might want to leave soon before you descend to the general levels you mention, just by listening to unproven opinions given by unproven people [or perhaps just the owner with different ID’s.

      Is that what you do, Jolly? Sorry, just couldn’t resist calling you Jolly.

      Good luck!

  67. Jay Clemins says:

    You’re asking the wrong questions and hitting at the wrong issues there, and why I have no idea.

    How many rich people do you know with an excellent credit score? Zero, rich people don’t have one.

    How many rich people do you know that use credit card points to get airline miles or other junk? Zero, they just buy the ticket.

    How many rich people do you know that pay off their credit balance at the end of the month? Zero, rich people use a debit card or pay cash.

    You seem to be fine with not being a rich person. I’m not. I’m aiming to be rich. I’ll do what rich people do – thanks. And Dave’s plan is getting me there.

    So you keep right on with your cards, and your points, and your I Love Debt score etc etc. Me, I’d rather be rich and I’m on a plan to be exactly that.

    • Joel says:

      Sorry Jay, you are wrong on every point you made in this comment just like your other baseless comments. Rich people CAN have credit scores (and CAN have excellent ones at that), rich people use credit cards (actually at a higher percentage than those who are less wealthy), and rich people do not use only debit cards and cash. Even aside from the fact that your argument has all of the facts wrong (exactly opposite in fact), your argument is also a logical fallacy. You are committing the logical fallacy of “argumentum ad crumenam” or “appeal to wealth”. Even if we ignored all of those things I could also bring up the fact that I have an 8 figure net worth while still in my 20′s and you have just admitted that you are not rich so even according to your fallacious standard – my argument would still trump yours. Sorry Jay, but you are wrong once again. Please do some research before spouting off and especially before criticizing other commentors by calling them liars.

  68. Steve says:

    Jay and Joel, You actually both are right. We own our house have no debt and no credit cards (check cards though) so we don’t have a credit score. We have been denied some services because of this no score status but we get be with workarounds. We have started credit card usage so we build some history but the key is paying of this activity timely. Dave R is right on the majority of people will float the credit card debt and turning sour for the user.
    Does anyone really know if you or your family spends more than you bring in? If you don’t you should not use credit cards.
    We use an application that effortlessly shows where our money goes to and the net. Bank2Budget.com and it only cost $15. Their slogan is “Know your $Net” and we now get it.
    Treat each other and your neighbor with respect! OK?

    • Joe Parsons says:

      Steve, I think you are illustrating why so much of what Ramsey teaches is wrong. His basic premise regarding credit cards is, “responsible use of a credit card is not possible.” His assumption, which you echoed, is that “the majority of people will float the the credit card debt and [turn] sour for the user.” First, neither you nor he he has any way of knowing what the majority of people do regading credit card usage. Ramsey is fond of sweeping generalizations like, “buying used cars is how millionaires got that way.” I’m paraphrasing a bit, but that is what he says, and it is simply not true–yet people continue to swallow the lie.

      Ramsey’s many adoring fans look to him as a financial authority, as though his wealth were the result of his following his own advice. It’s not; he has done two things professionally: he was a real estate agent until 1987 or so, when he quit that business after filing bankruptcy; and he has been a financial “guru” who tells people what to do with their money. He has leveraged his folksy, avuncular manner into a significant media empire. THAT, boys and girls, is where his wealth has come from.

      I don’t begrudge him that succcess for a minute. I do take exception to the fact that so much of what he teaches is so far off the mark.

  69. Joe Parsons says:

    I can’t resist.

    Jay, I recognize that many, many people who have adopted Dave Ramsey’s plan are far better off for having done so. Much of what he teaches is sound, and I’ve said so repeatedly; but you can’t build a multimillion dollar empire as Ramsey has by teaching such a simple concept. You have to embellish the message.

    Unfortunately, much of what he teaches is, quite frankly, garbage. And I believe he knows it to be such. In his opening to FPU, Ramsey says, “You know what something that’s 98% true is? It’s a LIE.” By his own reckoning, Ramsey does lie. Here’s what I mean: First, Ramsey refers to the FICO score as an “I Love Debt Score.” He claims that the only way to have a high score is to have debt–lots of it. I am not sure whether he claims that wealthy people don’t have FICO scores, but, as a recognized expert in the field, here is what I can tell you: high net worth individuals DO have open revolving accounts (credit cards). That does NOT mean that they carry a lot of consumer debt. Typically, they don’t because it seldom makes economic sense. Because these are “active tradelines,” but with low reported balances, these people have very high credit scores.

    I work professionally with a great many high net worth clients. I have for over thirty years. I spend much of my work day examining and analyzing credit reports and financial statements. What you state is simply not true. Ramsey is constantly bloviating about what “rich people” do (e.g. “The average millionaire buys lightly used, two year old cars. That’s how they got to be a millionaire.”) Much of what he teaches is utter nonsense, like this. He caters to those people in his audience who are typically financially distressed and who are gullible enough to accept his message unquestioningly.

    One example of the many logical fallacies he uses is one of my personal favorites. In one of his books, he asks, “Why are most finance professors broke?” This is an example of “petitio principii,” also known as “begging the question.” Another example of this is the old, “Have you stopped beating your wife?” question. It is fallacious because the premise (broke finance professors, wife beating) is assumed to be true in the question. There is, of course, no way he can prove his assertion; it is made up, as so much of what he says is.

    I admire what Ramsey has been able to to do–namely, to elevate himself from failure in real estate and bankruptcy to his present wealthy state. But do you really think he got rich by following his own advice? Of course he didn’t; he got rich by finding and exploiting a niche. He began offering financial counseling to couples in his church, then built The Lampos Group into its present successful media empire. It’s American entrepreneurism at its best; but there are also many elements of P.T. Barnumism in his success, as well.

  70. Beyond Weird says:

    @Jay, where do you get these ideas you have about what “rich” people do or don’t do?
    First of all, what is the definition of “rich people?” Do you mean those who have at least 1 Million net worth?
    If that’s the case, I know a few low seven-digit millionaires… they shop on sale, they clip coupons and mail in rebates. They’re happily frugal, and have always spent a little less than they made. They’re savers, and often givers.
    ONE way they save money and hassle is through the use of credit cards. They often like getting that credit card statement because it lists all the expenses for them for the month. The cash-back or points or rewards OFTEN do go towards their next new car, or the latest trip they took, or gets donated to a worthy cause. These people love their frugality, and are extremely content with what they have…. its just a habit for them to make every dollar count, and when they see opportunities to save money or get a little bonus for simply running normal expenses through a credit card, they’re often happy to avail themselves of it…. plus they maintain their astronomically high credit ratings as a result of this behavior.
    Also, they’ve probably never made a late payment on any account ever, not even once!
    Hey, Ramsey’s “I love debt score” statements are both ignorant AND false. That’s one topic where he really is off base and goes off the deep end. Have another cup-o-his koolaid, okay?

    • Name Not Required says:

      @ Beyond Weird
      Your first paragraph is good.

      However to be frugal you have to be disciplined. Your examples are. Millionaires in general are.

      The population at large IS NOT.

      That’s why Dave’s method works.

      You make statements about FICO scores WITH NO EVIDENCE.

      I am beginning to think all this made up names are simply the owner with another identity! They all sound so much the same.

      Perhaps if you don’t like what Dave says about FICO scores, would you take the word of a Credit Union?

      See http://www.creditunions.com/article.aspx?articleid=2106

      Gee sounds a lot like Dave’s comments doesn’t it?

      1) Payment History: 35%
      2) Capacity (Amount You Owe): 30%
      3) Length of Credit History: 15%
      4) Types of Credit: 10%
      5) New Credit: 10%

      So “Beyond”, instead of your simple opinions can you please present some evidence for them?

      Better Dave’s Koolaid which has helped a lot of people than your Koolaid which has helped how many?

      A simple list will do. OR full testiomonies if you like.

      Good luck!

      • Beyond Weird says:

        Well, NNR, its pretty straightforward:

        1) Payment history — pay on time for many years = maximum score (35%) which is easily done simply paying off all revolving no balance accounts on time.
        2) Capacity — this is NOT what you owe, but rather what your credit limits are in a ratio with what is owed. Again, easily done with no balance, or a balance for a few days each month that is a small percentage of the limit (30%) = maximum score
        3) Longstanding accounts (15%), which means accounts that are years old = maximum score
        4) Types of credit (10%), simply a variety of accounts
        5) New Credit (10%), could be any number of things, such as taking advantage of a promotional opportunity, or refinancing a mortgage.

        Each of these is easily done with limited use of credit. It is an easy way to manage a credit score, with the attendant benefits, such as eligibility for work with some employers and lower insurance rates.

        I’ve listened to a number of callers who have problems renting, or getting favorably termed mortgages because they have failed to properly manage their credit score.

        If you’ve read Stanley-Danko’s book, “Millionaire Next Door,” then you’d be familiar with the research that is supported by my personal experience with (mostly frugal) low level Millionaires.
        So much for my, uh…. “simple opinions.”

        More like Simply Facts?

        Have another cup of Koolaid while you’re at it…. you’ve managed to capture Dave’s condescending attitude quite well in the tone of your posts, BTW!

  71. Name Not Required says:

    This site is helping Joel make affiliate bucks on credit card offers I am assuming.

    However the opinions offered here are simply opinions with few facts, sometimes distorted facts or attacks on Dave who is a millionaire.

    I challenge any of you to total up your net worth and list it here so we can see if Dave has more to show for his beliefs or you do.

    So I await your list!

    You can call yourself anything I noticed. So just give initials or something.

    I am willing to bet that none of you on this board have come close to making as much money as Dave, or have you?

    If you have prove it!

    If you want a mechanic, do you want an apprentice or a master mechanic?

    If you want a doctor do you want a med student or an experienced medical doctor?

    If you want advice on money, you follow the money.

    Dave Ramsey, Suze Orman and many others generally agree on how you can do better with money than average.

    Do they agree on everything? OF course not. Who does?

    But they agree on general principles and they have the money to prove it.

    The point is … do you?

    If not, why are you giving advice?

    Okay Jolly? Sorry just couldn’t resist calling you Jolly. I hope you are! (:-)

    Good luck!

  72. Name Not Required says:

    @Joe
    Really Joe?

    Ever heard of Warren Buffet?

    He says he made his money by the KISS principle. Keep It Simple Stupid.

    Ever heard of Coke? Pretty simple right? Sugar-syrup and flavour. Warren Buffet invested.

    Ever heard of razor blades? Gillette in particular? Warren Buffet invested.

    And the beat goes on.

    Joe, who are you really? You seem to have swallowed a bunch of myths.

    What is your net worth?

    If it isn’t a million I will take Dave’s word over yours any day!

    Good luck!

    You also have distorted facts about Dave and his money, all partial truths, but not much truth.

    • Joe Parsons says:

      Where to start, where to start…Let’s start with how Dave Ramsey became wealthy. In the latest edition of his book, “Total Money Makeover,” (actually, in all editions of the book) he starts with what in 12 Step terms is called “The Drunkalog.” He talks about how he was a millionaire real estate agent in 1986, owning $4 million in property.

      News Flash #1: owning over a million in real estate doesn’t make one a millionaire; having a net worth over a million does. Since I was brokering and investing in real estate at that time, I am more than a little certain that he did not have over a million in equity. More about that in a bit.

      News Flash #2: Ramsey claims that, because of Tax Reform (the Tax Simplification Act of 1986), the lenders called his loans. Lenders didn’t operate like that–certainly not as a consequence of tax reform. If they had and he actually had equity in these properties, he would have been able to unload them quickly and pay off the loans. I suspect he simply got in over his head, overleveraged, bought a lot of properties with no money down (very common and easy to do in those days) and just had to bail. Tax reform? Not a factor.

      So he filed bankruptcy around 1987 and immediately reinvented himself, forming The Lampo Group, and started counseling couples in his church about financial matters. He was able to parlay that into the media operation he has today.

      I admire that kind of resilience. What I do not admire is his frequent lack of veracity (regardless of how well-meaning it might be) and his tendency to dispense bad information and outright lies.

      This may seem to be strong language–even offensive to the Dave Ramsey devotees here; but in the opening to Financial Peace University, Ramsey says, “You know what something that’s 97% true is? Something 97% true is a LIE.” By his own definition, Ramsey lies–and I don;t think it’s errors in fact. i think the lies are knowing and intentional, in support of his narrative.

      What’s the narrative? In a nutshelll:

      1. All debt other than mortgage debt is bad
      2. Mortgage debt is marginally acceptable if you follow Dave Ramseys dicta.
      3. The only True Path to financial freedom is Dave Ramsey.

      Look. I don’t dispute that much of what Ramsey teaches is valid and common sense. But you can’t build a financial enterprise with just that simple message. You have to enhance and embellish it. And that’s what he has done, to great effect–for himself.

      But if you really, really believe that his message is valid because of his wealth, then you would do just as well to follow advice from Paul McCartney or Mick Jagger. They both have a LOT of money–quite a lot more than Ramsey, I’d venture. (For Joel: this is a logical fallacy called Argumentum ad Crumenam, Appeal to Wealth).

  73. Charles Pedley says:

    Joe, his generalizations are true for the most part. He makes them into rules because most people don’t have the discipline needed to use them wisely.

    Actually Joe are you a millionaire?

    So why should I take your advice if you are not?

    Dave is a millionaire so maybe he knows things you do not?

    1) Responsible use of a credit card IS very infrequent. Otherwise the credit card companies would not be making so much money and the average person would NOT be more in debt than the salary they earn every year.
    Also Joe, the stats are there to be had if you know where to find them on credit card use. Dave has a staff that knows where to find them. How do the newspapers get them and report on them once or twice a year?

    2) You say [with NO evidence while Dave quotes evidence] that “buying used cars is how millionaires got that way.” I’m paraphrasing a bit, but that is what he says, and it is simply not true”

    Actually Joe, you are offering your biased opinion whereas Dave has a whole staff who does research for him.

    News for you Joe! Dave is right!
    Have you ever read the book “The Millionaire Next Door” by
    Stanley and Danko?

    They researched the topic and guess what? DAVE is RIGHT!

    The average millionaire lives in a middle class neighbourhood and owns a car that is several years old.

    They explode myths that you and the average person believes. Read it and then come back and report FACTS JOE, NOT OPINION.

    If I want facts, I go to Dave among others, if I want opinions I go to Credit Card Chaser.

    Good luck. You will need it if you continue to believe myths with NO evidence for your opinions.
    -Charles

    • Joe Parsons says:

      Charles: “his generalizations are true for the most part” I’d like to refer you to the introduction to FPU, where Ramsey says, “Know what something that’s 97% true is? It’s a LIE.”

      Moving on…

      “Responsible use of credit cards is very infrequent” That’s not what Ramsey says. he says, “Responsible use of a credit card is not possible.” There is a difference.

      My net worth is irrelevant to this discussion. For that matter, so is Ramsey’s.

      With regard to Ramsey’s admonition to buy “beater” cars for cash, because that is what “the average miilionaire does;” that is a statement that he cannot substantiate. You assume that, because Dave has a staff to do research, what he says must be true. Please examine this statement, think about it, and ask yourself whether it truly makes sense.

      With regard to “millionaires” owning used cars: of COURSE they do. The minute you register a car, it becomes a used car. But to suggest, as Ramsey does, that you become a millionaire by buying used cars? Give me a break.

      While i do express some opinions here, I am fully prepared to document those opinions. Ramsey panders to those credulous folk who are desperate for guidance and who are prepared to accept whatever some apparently credilbe person tells them.

      That is the niche Dave Ramsey fillls.

  74. Beyond Weird says:

    My financial success is evidence of the effectiveness of my financial opinions and practices. Comparing my success to Dave the Huckster’s is comparing apples to oranges. I am not a Huckster hawking my wares to the financially retarded who lack self discipline. That’s is how Dave made his money, he did not make it by just following his own plan and driving beaters.
    Rather, a more accurate assessment would be to compare Ramsey Plan follower’s financial success to my success, or Joel’s, or Joe’s, or anyone else who can numerically demonstrate faster wealth creation or growth. Run the numbers… There is your proof and truth.
    Its not about the numbers you say? Well, how’s financial retardation working out for you?

  75. Joe Parsons says:

    Beyond: You and I are pretty much on the same page, but I think part of what Ramsey does very well is to recognize how much of financial management is psychological, as opposed to mathematical.

    I can take issue with his math when it comes to the “debt snowball,” but his thinking is valid with regard to the reinforcement of seeing smaller debts be paid off.

    Depending on the makeup of one’s debt and the mix of rates, there is not a massive difference between his method (smallest first) and the mathematically more sound method (paying off loans first with payments having the highest percentage of the loan balance).

    If Ramsey stuck to his simple core message, I’d be a big fan. Much of it is things I’ve been counseling my clients to do for my whole career. But you can’t build a multimillion dollar media enterprise with cult-like followers by promoting such a simple message. You have to embellish it. Even that would just fine by me, if more of what he teaches were even remotely true.

    One example: “The average millionaire” (according to DR) buys used cars. He teaches people to sell their late model cars if they have loans on them, and buy “beater” cars for cash. The money that used to go into a car payment goes into a sinking fund, earmarked for the next, nicer “beater” car. The car is driven for a year or so, sold for the original purchase price, and a nicer used car is bought for the cash proceeds plus the money accumulated in the sinking fund. this way, over time, that “future millionaire” keeps trading up to a really nice used car–just like a millionaire does.

    Here are the problems: first, the assumption that the “beater” car will be sold for its purchase price. It’s not even worth discussing that ridiculous notion.

    Second, he disregards the reliability and maintenance issue. The simple fact is that a car purchased for, say, $3,000 is highly likely to have an ongoing maintenance demand, and significant risk of needing major repairs at some point.

    Third, cars are significantly more fuel-efficient today than they were ten or fifteen years ago. At around $4.00 a gallon, the difference in fuel costs alone could be very siginficant. If I drive an older car that gets 16 MPG and I drive 400 miles per month, my cost will be around $110 per month. If I have a newer car that gets 30 MPG, the monthly operating cost goes down to $63 per month. that’s close to $50 per month in fuel alone.

    Finally, he disregards opportunity cost completely. If I have saved up, say, $15,000 to buy a “slightly used” car for cash, none of that money can be working for me because it is all tied up in a depreciating asset. If, by contrast, I buy a new car with no down payment and manufacturer-incentive financing, I am making a monthly payment (*gasp* the HORROR), but I have the cash working for me. i won’t bore everyone with the details of how this works out financially, but suffice it to say that buying a new car with financing is not the financially irresponsible move Ramsey would have his followers believe it to be.

    In trying to argue against buying a new car, Ramsey claims (incorrectly) that “A new $28,000 car will lose about $17,000 of value in the first four years you own it.” Put another way, the car will be worth 40% of its acquisition cost after 48 months, he claims.

    Here are some real numbers: A 2007 Honda Accord in good to excellent condition can be had today for around $11,500. It sold new for around $18,000. Do the math, and compare that *actual* depreciation to Ramsey’s claims.

  76. It just depends on the person carrying the credit card…or shall we say “it’s just a matter of attitude”. You can use your credit card either on small or large amount of purchases, either which way, discipline and control on one’s self is significant in prioritizing the “needs” from the “wants”. Being responsible in not spending beyond the means.

    • I completely agree with you. One of the paradoxes of Ramsey’s approach is that, while it requires considerable self-restraint and discipline, at the same time it assumes that no one in his audience possesses those very qualities. His statement, “responsible use of a credit card is not possible,” apart from being ridiculous on its face, is geared, as so much of his stuff is, to those who have already gotten into trouble. It is far easier to swallow the notion that *everyone* has a problem with credit cards than to admit to oneself that the problem is an individual, not a universal one.

      I think the biggest single objection I have to Ramsey’s whole enterprise is that it bears many of the hallmarks of a cult (and yes, I do know exactly what I am saying here); The adherents are focused on the leader (Ramsey) as having greater insight and wisdom than anyone else; the adherents subject themselves to one authoritarian leader; complicated issues are reduced to one simple explanation; they are separated/isolated from others who might somehow shake their belief.

      I find this more than a little troubling.

  77. “COMMENT: Credit cards categorically do NOT make people spend more! This is a categorically false assumption.”
    This can’t possibly be true with college kids. The CC company’s had them out like candy on the campuses hoping to get the students hooked

    • Joe Parsons says:

      Just about anything–revolving credit and alcohol included–can be abused and misused. This does not make either of them bad. I believe we let our young down by not teaching them the responsible and judicious use of credit. Ramsey’s message is that ALL credit cards are evil and WILL be abused. This is utter nonsense, of course, but his many adoring fans buy into the notion uncritically.

      Ramsey has gathered many testimonials, where people talk about how much debt they have paid off since getting onto his program. Some of the numbers are quite impressive–until you realize that much of the debt that is paid off is from the sale of an encumbered asset, like a car. If I sold my nice car at Ramsey’s urging, and that car a $25,000 loan on it, I could brag about paying off $25,000 in debt. It wouldn’t really tell the whole story, though.

    • Beyond Weird says:

      Its the fool, not the tool!

      Personal responsibility, anyone?
      This argument, line of, or lack of, reasoning is about as valid as Skip Wilson’s “the devil made me do it…”

      Booting these predators off campus would be a start, but you can’t outsmart some fools. As soon as you do they go and invent a smarter fool!

  78. The banks screwed ALL of us. I have no problem trying to screw them back

  79. Steve says:

    Dave R is right on the majority of people will float the credit card debt and turning sour for the user.
    Does anyone really know if you or your family spends more than you bring in? If you don’t you should not use credit cards.
    We use an application that effortlessly shows where our money goes to and the net. Bank2Budget.com and it only cost $15. Their slogan is “Know your $Net” and we now get it.
    Treat each other and your neighbor with respect! OK?

    • Beyond Weird says:

      Not sure if a majority will misuse credit cards to the point of trouble. I believe that’s overstating the problem. However, allowing the CC reps on campus is a bad idea. They actually have fundraisers for campus organizations with CC signups. Terrible idea!

      • Joe Parsons says:

        Ramsey does make a number of statements that are ridiculous on their face, yet many accept them as though he were speaking ex cathedra. Two of the more extravagant that come immediately to mind are: “Responsible use of a credit card does not exist” and “The average millionaire buys slightly used cars for cash. That’s how they became millionaires.” I agree with you about the way credit cards are promoted to college undergrads. It is far too easy for late-teen and early-twenties kinds to slap down the plastic without without thinking of cost of the money, or the consequences of getting racking up the credit card balance. On a related note, I have produced a video series, “Homebuying 101″ in connection with my work as a mortgage banker. One of the subjects is management of one’s credit score. If anyone’s interested, it’s at http://www.pfsfundingblog.com/hb101

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