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!

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.

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.

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.