Dave Ramsey says to give up employer 401K match to pay down debt

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jrbdmb
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Dave Ramsey says to give up employer 401K match to pay down debt

Post by jrbdmb » Wed Jun 26, 2019 9:11 am

Dave Ramsey now says to give up the employer 401K match to pay down debt:

https://finance.yahoo.com/news/employer ... 14543.html

Rather than just start another Dave Ramsey flame-fest, are there really any circumstances where one should skip the 50% or 100% match on their 401K contribution to get their debt paid down a bit earlier?
Last edited by jrbdmb on Wed Jun 26, 2019 10:28 am, edited 1 time in total.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by GlennK » Wed Jun 26, 2019 9:15 am

Yes, if you borrowed from a loan shark.

Seriously, I cannot think of any reason where paying off the loan from a bank or credit card could beat the 50%/100% match you mentioned.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by vineviz » Wed Jun 26, 2019 9:16 am

jrbdmb wrote:
Wed Jun 26, 2019 9:11 am
Rather than just start another Dave Ramsey flame-fest, are there really any circumstances where one should skip the 50% or 100% match on their 401K contribution to get their debt paid down a bit earlier?
Yes. If your debt carries an interest rate over 50%, skipping an employer match would probably make sense.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by willthrill81 » Wed Jun 26, 2019 9:16 am

Unless you're foregoing the match to prevent an immediate bankruptcy, no, it doesn't make sense to do so.
vineviz wrote:
Wed Jun 26, 2019 9:16 am
jrbdmb wrote:
Wed Jun 26, 2019 9:11 am
Rather than just start another Dave Ramsey flame-fest, are there really any circumstances where one should skip the 50% or 100% match on their 401K contribution to get their debt paid down a bit earlier?
Yes. If your debt carries an interest rate over 50%, skipping an employer match would probably make sense.
Is such an interest rate legal anywhere in the U.S.?
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by anon_investor » Wed Jun 26, 2019 9:17 am

Yes, if you have some crazy interest payday loan of like 200%, but that's about it!

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by ERguy101 » Wed Jun 26, 2019 9:21 am

anon_investor wrote:
Wed Jun 26, 2019 9:17 am
Yes, if you have some crazy interest payday loan of like 200%, but that's about it!
I need to get into this business!

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by wilshuer » Wed Jun 26, 2019 9:21 am

I believe he's said many times it isn't necessarily the math, but the attitude for the reason he states that. Gain the momentum to see debt balances decrease and encourage to continue the payoff process.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by willthrill81 » Wed Jun 26, 2019 9:27 am

anon_investor wrote:
Wed Jun 26, 2019 9:17 am
Yes, if you have some crazy interest payday loan of like 200%, but that's about it!
I still didn't think that interest rates >30% were legal anywhere in the U.S.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Hoosier CPA » Wed Jun 26, 2019 9:27 am

wilshuer wrote:
Wed Jun 26, 2019 9:21 am
I believe he's said many times it isn't necessarily the math, but the attitude for the reason he states that. Gain the momentum to see debt balances decrease and encourage to continue the payoff process.
Agree - consider the audience and it makes perfect sense. If you have a handle on things financially and manage your debt it isn't applicable to you.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Texanbybirth » Wed Jun 26, 2019 9:34 am

Dave Ramsey is kinda like financial elementary school. Hopefully it sets you up for a lifetime of learning and maturing, but it's better than staying in preschool. And you always have those few pearls of wisdom you learn that never change no matter how old you are.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by wolf359 » Wed Jun 26, 2019 9:40 am

wilshuer wrote:
Wed Jun 26, 2019 9:21 am
I believe he's said many times it isn't necessarily the math, but the attitude for the reason he states that. Gain the momentum to see debt balances decrease and encourage to continue the payoff process.
He says something to the effect that if you were good at math, you wouldn't be in debt in the first place.

Personally, I consider the match to be part of my compensation. It's not math and it's not free money, it's part of my pay. So why forgo getting paid just because that part of your paycheck is tax deferred?

Overall, it may work for Dave Ramsey's audience, but Dave Ramsey is not aiming at the typical Boglehead.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Cycle » Wed Jun 26, 2019 9:42 am

That match is free money.

I can see the argument made for buying houses with cash, cars with cash, debt snowball... I agree with those. Turning down free money is really not wise, especially in a tax sheltered account.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by vineviz » Wed Jun 26, 2019 9:53 am

willthrill81 wrote:
Wed Jun 26, 2019 9:16 am
vineviz wrote:
Wed Jun 26, 2019 9:16 am
jrbdmb wrote:
Wed Jun 26, 2019 9:11 am
Rather than just start another Dave Ramsey flame-fest, are there really any circumstances where one should skip the 50% or 100% match on their 401K contribution to get their debt paid down a bit earlier?
Yes. If your debt carries an interest rate over 50%, skipping an employer match would probably make sense.
Is such an interest rate legal anywhere in the U.S.?
I hope not! I was being a little bit glib because Ramsey's advice struck me as so wildly absurd.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by foamypirate » Wed Jun 26, 2019 9:55 am

This definitely isn't new advice from Dave Ramsey.

Unfortunately, it's terrible advice; advice which I followed when first getting started in the adult world, about 10 years ago. I still regret not getting the match on my 401K contributions when I was paying off debt at that time. 5% match, out the window, for about 3 years of my life, before I wised up.

Terrible, terrible advice.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by ruralavalon » Wed Jun 26, 2019 9:55 am

jrbdmb wrote:
Wed Jun 26, 2019 9:11 am
Dave Ramsey now says to give up the employer 401K match to pay down debt:

https://finance.yahoo.com/news/employer ... 14543.html

Rather than just start another Dave Ramsey flame-fest, are there really any circumstances where one should skip the 50% or 100% match on their 401K contribution to get their debt paid down a bit earlier?
I can see no good reason, in the real world, to skip an employer match.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by tainted-meat » Wed Jun 26, 2019 9:58 am

Overall - Ramsey has very good advice. It's important to remember that some of the people that call into his show are so chronically debt ridden that sometimes he oversimplifies his advice.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by NativeTxn » Wed Jun 26, 2019 9:58 am

IMO, the only situation where it would make sense is if your debt was at a rate higher than the "return" on your match. The worst match (not including companies that don't offer a match) I think I've seen was 25% on the first 6% - so, you put in 6% and the company puts in 1.5%. Even in that case, you're getting a 25% immediate return on the first 6% you put in.

I suppose there could be some credit cards that might be that high (or higher? - I can't remember if any recent laws put a cap on CC interest rates) if you're a bad credit risk, but in reality, most people are going to have a much better return through their company match than their highest debt interest rate.

I do believe that behavior is important, so I can at least see the argument (if it is indeed the one Dave's making) that putting that extra toward debt to get it paid off faster can provide momentum and positive reinforcement; however, I don't agree with it personally.

Again, I think the only situation where you should avoid putting in the minimum required to get your company's match is if your debt's interest rate is higher than the "return" from getting the match, which I think is rare in most cases.

But, I also believe that the Dave Ramsey "cult" will have no shortage of people that take that "advice" no matter how bad it may be (as I'm sure there are followers who insist on using 12% return in their planning projections, which is probably an even worse piece of "advice") and stop contributing to their 401k.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by 260chrisb » Wed Jun 26, 2019 9:59 am

Dave Ramsey has always advocated this approach. It's part of the "scorched earth" approach to getting out of debt. Does it make sense for most people to walk away from free money (or to some folks additional comp) to pay off debt? No! His theory is to gain traction and see results even it means walking away from the match or contributing to the 401K at all while in debt. Financially it makes little sense to most but to some it may.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by LongRoad » Wed Jun 26, 2019 10:01 am

I'll offer a (slightly) contrarian point. While I don't think this is good advice in general, and certainly not for the Boglehead agonizing over their 3.49% mortgage, it actually could be a consideration for people with very high interest debt that will be paid off over years.

Considering Dave Ramsey's target audience, compare
$1000 401k contribution + $500 match compounded over 5 years @8% ==> $2204
$1000 CC debt compounded over 5 years @24% ==> $2931

The match percentage isn't directly comparable to the interest rate because it is a one-time contribution.

Again, this would be laughable for most on this board, but there really are people out there in this situation.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Beach » Wed Jun 26, 2019 10:01 am

Dave Ramsey is part psychologist. He understands in order to get somebody out of debt, they need to see quick results. Without quick wins, a person will give up and never change their behavior. It might be terrible advice for Boglehead, but not for the average American drowning in debt.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Independent George » Wed Jun 26, 2019 10:03 am

It depends on context - Bogleheads are a distinct minority in the population, and behavioral hacking is sometimes better for people than what the spreadsheets say. The psychological burden of being deeply indebted often has detrimental effects on behavior - worse performance on the job, alcohol abuse, marital discord, etc. Some people look at a large debt figure, get depressed, and then buy more stuff to make themselves feel better.

For these people, it might indeed be worth giving up a guaranteed 50% gain for a short period if it means you are better able to get your life together. The type of person who could follow a disciplined financial path and optimize based on 0.1% spreads in APY is not the kind of person who will get deeply indebted and face these decisions in the first place.
Last edited by Independent George on Wed Jun 26, 2019 10:07 am, edited 1 time in total.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by sschoe2 » Wed Jun 26, 2019 10:07 am

willthrill81 wrote:
Wed Jun 26, 2019 9:16 am
Is such an interest rate legal anywhere in the U.S.?
Some of the title/payday lenders have interest rates that high or higher and some credit cards come close particularly the subprime and store cards. A better strategy would probably be to do a debt consolidation rather than skip the employer match.
Last edited by sschoe2 on Wed Jun 26, 2019 10:09 am, edited 1 time in total.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Independent George » Wed Jun 26, 2019 10:08 am

For those who didn't click the link, here's what he actually said:
I understand how important it is to take the match in a situation like that, but one of the things I’ve learned over the years is that personal finance is 80 percent behavior and only 20 percent head knowledge. In the short term, the power of focusing on changing your behavior and working hard to pay off debt will supersede the mathematics involved where your company match is concerned.

...

I’d never tell anyone to stop investing, or taking advantage of a company match, for several years. However, if you put it on hold for just a little while and clean up your debt mess—then go back to investing for retirement—you’ll reap many more rewards down the road.
That is a lot more nuanced, and a lot more responsible, than the clickbait title of this thread.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Vanguard Fan 1367 » Wed Jun 26, 2019 10:14 am

I know the owner of a small business, maybe 100 employees. He says that only 10 percent of the employees in this business take advantage of the 401K matching. If that is true then that is crazy. Until just now and this thread every thing I have ever heard or read says that you should take advantage of the free money and enjoy the employer match.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by jrbdmb » Wed Jun 26, 2019 10:15 am

foamypirate wrote:
Wed Jun 26, 2019 9:55 am
This definitely isn't new advice from Dave Ramsey.

Unfortunately, it's terrible advice; advice which I followed when first getting started in the adult world, about 10 years ago. I still regret not getting the match on my 401K contributions when I was paying off debt at that time. 5% match, out the window, for about 3 years of my life, before I wised up.

Terrible, terrible advice.
OK. I'm not surprised that this isn't a new idea from Dave, I guess I'm just a bit surprised that I didn't read about it on here before. (I've certainly read enough on here about his investment advice and his "expected 12% return").

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Taylor Larimore » Wed Jun 26, 2019 10:16 am

GlennK wrote:
Wed Jun 26, 2019 9:15 am

Seriously, I cannot think of any reason where paying off the loan from a bank or credit card could beat the 50%/100% match you mentioned.
Bogleheads:

I agree with GlennK. Foregoing a 401K company match is like refusing free money. With very few exceptions, this is terrible advice.

Best wishes.
Taylor
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by mptfan » Wed Jun 26, 2019 10:17 am

He's not just saying that "now," I've heard him saying it several times before. Has he changed his position on this?

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Jack FFR1846 » Wed Jun 26, 2019 10:18 am

Beach wrote:
Wed Jun 26, 2019 10:01 am
Dave Ramsey is part psychologist. He understands in order to get somebody out of debt, they need to see quick results. Without quick wins, a person will give up and never change their behavior. It might be terrible advice for Boglehead, but not for the average American drowning in debt.
Dave isn't part psychologist. He's a guy who stupidly spent more than he made and made enough stupid decisions that he can draw from experience. He relates to the people out there who do stupid things and require instant results and to feel better. He doesn't care about the math. He focuses on what can make you FEEL better.

To that end....if you have $100k in debt with one zero percent credit card that has a $50 balance, is he going to say to pay that $50 before a 25% $5000 credit card? Yes.....yes he will. Why? Because it FEELS good to get rid of that one debt hanging over your head. Now, when you list your debts, instead of 10 creditors, you only have 9. It doesn't matter that a payment to the 25% interest card could have saved more money.....that would take a long time to pay and when that list of debts comes out next month, if there's still 10 creditors, then you might decide that paying extra didn't help you and you'll go out with the family and blow all your extra money on Outback instead of eating rice and beans.....beans and rice.

People often look at 401ks with exceptional matches and pass because "I don't have the money". They also pass on exceptional ESPPs where they can double their money after the 6 month period because "I don't have the money". People don't do the math. They don't see beyond "I don't have the money".
Last edited by Jack FFR1846 on Wed Jun 26, 2019 10:19 am, edited 1 time in total.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by mptfan » Wed Jun 26, 2019 10:18 am

Taylor Larimore wrote:
Wed Jun 26, 2019 10:16 am
I agree with GlennK. Foregoing a 401K company match is like refusing free money. With very few exceptions, this is terrible advice.
Taylor, I am curious, what are the few exceptions?

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Gufomel » Wed Jun 26, 2019 10:19 am

Independent George wrote:
Wed Jun 26, 2019 10:03 am
It depends on context - Bogleheads are a distinct minority in the population, and behavioral hacking is sometimes better for people than what the spreadsheets say. The psychological burden of being deeply indebted often has detrimental effects on behavior - worse performance on the job, alcohol abuse, marital discord, etc. Some people look at a large debt figure, get depressed, and then buy more stuff to make themselves feel better.

For these people, it might indeed be worth giving up a guaranteed 50% gain for a short period if it means you are better able to get your life together. The type of person who could follow a disciplined financial path and optimize based on 0.1% spreads in APY is not the kind of person who will get deeply indebted and face these decisions in the first place.
I think this is spot on.

Once out of debt, throw Dave Ramsey out of your life for your financial investment/planning advice.

But for the average person who splurged their way to a truck load of debt that they’re buried under, I’m fine with the scorched earth approach if that’s what it takes for the person to get their financial house in order. Pay off your lowest $ debt first even if it’s also your lowest % interest rate. Forgo your company match. If you are either going to stay in debt up to your eyeballs or go scorched earth, then go scorched earth. Dave Ramsey’s method for getting people out of debt has proven to work, even though a spreadsheet says it’s terribly wrong.

On the other hand, if you’re overall financially responsible but got into debt because of something like a huge medical bill then the behavioral aspect is not as important and the spreadsheet-optimal way is probably the way to go. But that’s not the case for a lot of Dave listeners.

Either way, once you’re out of debt, kick Dave Ramsey to the curb because his investment advice sucks.
Last edited by Gufomel on Wed Jun 26, 2019 10:29 am, edited 2 times in total.

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by jrbdmb » Wed Jun 26, 2019 10:22 am

Vanguard Fan 1367 wrote:
Wed Jun 26, 2019 10:14 am
I know the owner of a small business, maybe 100 employees. He says that only 10 percent of the employees in this business take advantage of the 401K matching. If that is true then that is crazy. Until just now and this thread every thing I have ever heard or read says that you should take advantage of the free money and enjoy the employer match.
I am saddened to hear this, but not that surprised, since a recent survey of *working* Americans show that 21% are saving nothing for retirement, and only 26% are saving what experts recommend is needed.

https://www.cnbc.com/2019/03/14/heres-h ... -all.html

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Independent George » Wed Jun 26, 2019 10:22 am

Vanguard Fan 1367 wrote:
Wed Jun 26, 2019 10:14 am
I know the owner of a small business, maybe 100 employees. He says that only 10 percent of the employees in this business take advantage of the 401K matching. If that is true then that is crazy. Until just now and this thread every thing I have ever heard or read says that you should take advantage of the free money and enjoy the employer match.
If you make $27k per year, and have no assets while supporting a family on $26k, do you recommend putting that $1k in net savings into a 401k?

Most Bogleheads would probably say that the 401k can wait until you have built up an emergency fund in this situation. Everything depends on context. Most people should contribute, but not every situation is the same. In context, I actually agree with Ramsey's advice here, even if I would disagree with it in 99% of other situations.

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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by tfb » Wed Jun 26, 2019 10:36 am

I will play the devils advocate. The match is one-time. The match also doesn't necessarily vest 100% immediately. Interest on debt accrues every year. Depending on the interest rate, how long it will take to pay it off otherwise, the probability of staying long enough to see the match vest, etc., it can be better to pay down the debt.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by Taylor Larimore » Wed Jun 26, 2019 10:37 am

mptfan wrote:
Wed Jun 26, 2019 10:18 am
Taylor Larimore wrote:
Wed Jun 26, 2019 10:16 am
I agree with GlennK. Foregoing a 401K company match is like refusing free money. With very few exceptions, this is terrible advice.
Taylor, I am curious, what are the few exceptions?
mptfan:

Frankly, I can't think of any exceptions to taking "free-money." However, I've learned to never say "never" on this forum where we have so many knowledgeable contributors smarter than I am."

Best wishes.
Taylor
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by jrbdmb » Wed Jun 26, 2019 10:38 am

Independent George wrote:
Wed Jun 26, 2019 10:22 am
Vanguard Fan 1367 wrote:
Wed Jun 26, 2019 10:14 am
I know the owner of a small business, maybe 100 employees. He says that only 10 percent of the employees in this business take advantage of the 401K matching. If that is true then that is crazy. Until just now and this thread every thing I have ever heard or read says that you should take advantage of the free money and enjoy the employer match.
If you make $27k per year, and have no assets while supporting a family on $26k, do you recommend putting that $1k in net savings into a 401k?

Most Bogleheads would probably say that the 401k can wait until you have built up an emergency fund in this situation. Everything depends on context. Most people should contribute, but not every situation is the same. In context, I actually agree with Ramsey's advice here, even if I would disagree with it in 99% of other situations.
I guess this would qualify as one of Taylor's "very few exceptions." :(

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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by quantAndHold » Wed Jun 26, 2019 10:39 am

mptfan wrote:
Wed Jun 26, 2019 10:18 am
Taylor Larimore wrote:
Wed Jun 26, 2019 10:16 am
I agree with GlennK. Foregoing a 401K company match is like refusing free money. With very few exceptions, this is terrible advice.
Taylor, I am curious, what are the few exceptions?
Someone with a significant amount of 20+% credit card debt would be an exception. They will come out ahead spending that money paying off that debt as quickly as possible.

We Bogleheads tend to forget that there are a lot of people that are in this situation, until someone makes a post asking how to get out of debt, and we jump all over them about their spending habits (and usually tell them to follow Dave Ramsey). These people Dave Ramsey’s bread and butter.

This advice makes sense for people drowning in credit card debt, but not for someone trying to get out from under a 6% student loan or car payment, which is where most Bogleheads are. Most Bogleheads with debt, anyway.
Yes, I’m really that pedantic.

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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by Nate79 » Wed Jun 26, 2019 10:44 am

He has always said this. Probably for 30 years. People focus way too much on the details and miss the forest. Focusing on paying off the debt as fast as possible, increasing income and selling stuff will far outweigh the small amount of match money. It's really not a big deal as we are talking max 2 years for a majority of the people in debt to get out of debt.

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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by Gufomel » Wed Jun 26, 2019 10:44 am

To everyone saying a 401k match is “free money”, it’s not even remotely free when you’re forgoing paying off debt at 25%. That’s a pretty high cost. Assuming 50% company match, you have to find a way to pay off that 25% rate debt in two years or you end up behind. Most of the people facing this situation won’t pay off that debt in 2 years without attacking it with everything they’ve got.

Forgo company match for 10 years to pay down a 4% mortgage? Obviously not. But to pay off 25% consumer debt because you’ve decided to buckle down and finally get out of the mess you’ve put yourself in? That’s pretty reasonable.

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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by Stinky » Wed Jun 26, 2019 10:46 am

By directing funds temporarily to paying down debt rather than 401(k), Ramsey tries to get folks excited about their financial future.

Hopefully, many of the Dave Ramsey crowd will grow up to be Bogleheads some day.
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by mptfan » Wed Jun 26, 2019 10:58 am

quantAndHold wrote:
Wed Jun 26, 2019 10:39 am
mptfan wrote:
Wed Jun 26, 2019 10:18 am
Taylor Larimore wrote:
Wed Jun 26, 2019 10:16 am
I agree with GlennK. Foregoing a 401K company match is like refusing free money. With very few exceptions, this is terrible advice.
Taylor, I am curious, what are the few exceptions?
Someone with a significant amount of 20+% credit card debt would be an exception. They will come out ahead spending that money paying off that debt as quickly as possible.
I don't agree. An employer match is literally free money, so it's a 100% immediate return as compared to a loss of 20% interest, so I don't see that as an exception.

MichCPA
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by MichCPA » Wed Jun 26, 2019 11:02 am

I can only think of a couple of scenarios:

1) You have a payday loan with 50+% interest

2) It is reasonably possible that you will leave before vesting is complete- I have immediate vesting now but OldCo vested at 20% per year over 6 years on a 50% match. I stayed 3 years so and I only got 20% match on my contributions over 3 years, so I would consider other debt like credit cards in that scenario.

mptfan
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by mptfan » Wed Jun 26, 2019 11:04 am

MichCPA wrote:
Wed Jun 26, 2019 11:02 am
I can only think of a couple of scenarios:

1) You have a payday loan with 50+% interest
Even then, 100% free money beats 50% interest.

MichCPA
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Re: Dave Ramsey now says to give up employer 401K match to pay down debt

Post by MichCPA » Wed Jun 26, 2019 11:05 am

mptfan wrote:
Wed Jun 26, 2019 10:58 am
quantAndHold wrote:
Wed Jun 26, 2019 10:39 am
mptfan wrote:
Wed Jun 26, 2019 10:18 am
Taylor Larimore wrote:
Wed Jun 26, 2019 10:16 am
I agree with GlennK. Foregoing a 401K company match is like refusing free money. With very few exceptions, this is terrible advice.
Taylor, I am curious, what are the few exceptions?
Someone with a significant amount of 20+% credit card debt would be an exception. They will come out ahead spending that money paying off that debt as quickly as possible.
I don't agree. An employer match is literally free money, so it's a 100% immediate return as compared to a loss of 20% interest, so I don't see that as an exception.
You are over simplfying. Not all matches are 100%, not all vest immediately. I mentioned in a post above that at my old co I had a 50% match that vested over 6 years and ended up with basically a 20% match after 3 years. Since the match will be taxed eventually, that is 20-(1*22% tax rate)= 16%/3 yrs= 5.3% per year vs 20% after tax per year on some credit cards.

MichCPA
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by MichCPA » Wed Jun 26, 2019 11:06 am

mptfan wrote:
Wed Jun 26, 2019 11:04 am
MichCPA wrote:
Wed Jun 26, 2019 11:02 am
I can only think of a couple of scenarios:

1) You have a payday loan with 50+% interest
Even then, 100% free money beats 50% interest.
See my response to your post above. Not all matches are 100%. You are over simplifying.

rascott
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by rascott » Wed Jun 26, 2019 11:07 am

I've listened to Ramsey for years. He has always advocated this approach.... Insisting that personal finance is mostly behavioral psychology...... And only a small portion is the math. Also why he advises to pay off debts smallest to largest, regardless of interest rate. He, and everyone, knows that isn't the correct math answer....but his process works on the behavioral side much better....and keeps people motivated.

I've heard him say several times regarding the 401k match that he wants people really pissed off that they are missing it....as a further motivation. Again, bad math, but good psychology.

deltaneutral83
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by deltaneutral83 » Wed Jun 26, 2019 11:09 am

Some of you all need to look at payday lenders and what they charge in interest. Hint, it's above 50%, well above. Also, paying down a 25% credit card is probably a good idea psychology wise at thee expense of a 401(k) match. Most Dave Ramsey listeners don't utilize a 401(k) anyway. There's no point in bringing a Dave Ramsey concept on BH because he doesn't deal with people who struggle with math, he deals with people who struggle with instant gratification issues. You don't hear "Hey Dave, net worth $3 mil, no debt, drive a 12 year old Corolla, paid off house worth $400k etc. etc." like you do here. Different solutions for different problems.

winterfan
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by winterfan » Wed Jun 26, 2019 11:09 am

Stinky wrote:
Wed Jun 26, 2019 10:46 am
By directing funds temporarily to paying down debt rather than 401(k), Ramsey tries to get folks excited about their financial future.
I agree. I would think it would be hard for people mired in debt and hopeless about the future to be excited about a payoff in 30 years.

MichCPA
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by MichCPA » Wed Jun 26, 2019 11:12 am

deltaneutral83 wrote:
Wed Jun 26, 2019 11:09 am
Some of you all need to look at payday lenders and what they charge in interest. Hint, it's above 50%, well above. Also, paying down a 25% credit card is probably a good idea psychology wise at thee expense of a 401(k) match. Most Dave Ramsey listeners don't utilize a 401(k) anyway. There's no point in bringing a Dave Ramsey concept on BH because he doesn't deal with people who struggle with math, he deals with people who struggle with instant gratification issues. You don't hear "Hey Dave, net worth $3 mil, no debt, drive a 12 year old Corolla, paid off house worth $400k etc. etc." like you do here. Different solutions for different problems.
+1, Also important to note many payday lenders affiliate themselves with native american tribes to avoid state interest caps, so usury laws will not apply in many cases. Multiple hundred % loan are a real thing.

Independent George
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by Independent George » Wed Jun 26, 2019 11:12 am

deltaneutral83 wrote:
Wed Jun 26, 2019 11:09 am
You don't hear "Hey Dave, net worth $3 mil, no debt, drive a 12 year old Corolla, paid off house worth $400k etc. etc." like you do here. Different solutions for different problems.
Whereas we routinely have people humblebragging about being worried over their $5M portfolio.

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ruralavalon
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Re: Dave Ramsey says to give up employer 401K match to pay down debt

Post by ruralavalon » Wed Jun 26, 2019 11:20 am

In dealing with hypothetical tax-free questions, we all naturally tend to think of persons in situations similar to our own.

OK, exceptions to prioritizing to get the employer match may include:
1) employer match with delayed vesting;
2) employee buried in credit card or consumer debt at 25% interest; and
3) zero emergency fund.
Last edited by ruralavalon on Wed Jun 26, 2019 11:24 am, edited 3 times in total.
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