Seems Dave Ramsey is right about debt

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knpstr
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Seems Dave Ramsey is right about debt

Post by knpstr » Mon Feb 27, 2017 6:45 pm

https://hbr.org/2016/12/research-the-be ... -card-debt

Harvard Business Review
We tested a variety of hypotheses and ultimately determined that it is not the size of the repayment or how little is left on a card after a payment that has the biggest impact on people’s perception of progress; rather it’s what portion of the balance they succeed in paying off. Thus focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress – and therefore their motivation to continue paying down their debts. This aligns with other research on the power of small wins to keep people motivated.

 “Pay the smallest debt first” is a straightforward strategy that can be easily communicated and easily applied—and that’s sorely needed by millions of American credit card users.
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Re: Seems Dave Ramsey is right about debt

Post by warowits » Mon Feb 27, 2017 6:56 pm

Ramsey will get you out of debt and ready to start investing. Just don't listen to his insane advice about investing (high fee mutual funds and advisors, which give him a kickback of course).
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

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Re: Seems Dave Ramsey is right about debt

Post by gator1 » Mon Feb 27, 2017 8:13 pm

Agree with the above poster about Ramsey being good at getting people out of debt(if they listen), but gives terrible investment advice. Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?

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Re: Seems Dave Ramsey is right about debt

Post by rralex1 » Mon Feb 27, 2017 8:16 pm

Interesting and not surprising article about debt. Getting out of debt requires sacrifice and delayed gratification over an extended period of time.. And those things are so uncool in today's world..

Debt is what is financially crippling more than one generation today.. Good solid advice.

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arcticpineapplecorp.
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Re: Seems Dave Ramsey is right about debt

Post by arcticpineapplecorp. » Mon Feb 27, 2017 8:33 pm

This part is the big "if":
To the extent that a consumer’s debt accounts have similar interest rates, he or she should concentrate repayments first on the cards or accounts with the smallest debts, paying off those first.
Ah, but what if the interest rates are NOT similar? Then what should one do?

As Rob Berger (Dough Roller Money podcast) has said...There's the debt snowball approach (Dave Ramsey's approach...start with smallest debt rather than highest interest debt) and the debt avalanche approach (tackle debts with highest interest rate first regardless of size of the debt). This Harvard link is saying the snowball approach works better (for most people) for psychological/emotional/motivational reasons. They pay off one small debt, get a sense of progress, and continue paying off the next smallest debt until all debt is gone.

That being said, (for others reading here who may not be familiar with these concepts), the wisest financial way of paying off debt is the debt avalanche approach (pay towards highest interest rate debt first). Mathematically, you will end up paying less in overall interest this way. It may seem to take longer, and not much progress is being made (depending on the size of the debts), but it costs less in the end doing it that way.

Best of luck to those in debt and struggling to find a way out.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Seems Dave Ramsey is right about debt

Post by mckaydw » Mon Feb 27, 2017 9:00 pm

warowits wrote:Ramsey will get you out of debt and ready to start investing. Just don't listen to his insane advice about investing (high fee mutual funds and advisors, which give him a kickback of course).
+1,000,000

Ramsey is great at getting out of debt and motivating to not return to debt. Once you're out of debt ignore Ramsey and start reading Bogle.

Also, I'm becoming increasingly annoyed at the commercialization of Ramsey. Half the show is spent upselling ramsey events, ramsey books, ramsey "personalities", ramsey ELPs, etc.

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knpstr
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Re: Seems Dave Ramsey is right about debt

Post by knpstr » Mon Feb 27, 2017 9:18 pm

arcticpineapplecorp. wrote:This part is the big "if":
To the extent that a consumer’s debt accounts have similar interest rates, he or she should concentrate repayments first on the cards or accounts with the smallest debts, paying off those first.
Ah, but what if the interest rates are NOT similar? Then what should one do?

As Rob Berger (Dough Roller Money podcast) has said...There's the debt snowball approach (Dave Ramsey's approach...start with smallest debt rather than highest interest debt) and the debt avalanche approach (tackle debts with highest interest rate first regardless of size of the debt). This Harvard link is saying the snowball approach works better (for most people) for psychological/emotional/motivational reasons. They pay off one small debt, get a sense of progress, and continue paying off the next smallest debt until all debt is gone.

That being said, (for others reading here who may not be familiar with these concepts), the wisest financial way of paying off debt is the debt avalanche approach (pay towards highest interest rate debt first). Mathematically, you will end up paying less in overall interest this way. It may seem to take longer, and not much progress is being made (depending on the size of the debts), but it costs less in the end doing it that way.

Best of luck to those in debt and struggling to find a way out.
Per the article and abstract:
What repayment strategy is most likely to motivate them to get them out of debt? Should they disperse payments equally across all accounts each month or concentrate payment on one account? Our research suggests that people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest.

Evidence from a field study of indebted consumers with multiple debt accounts and from three experiments shows that concentrated (vs. dispersed) repayment strategies tend to boost consumers’ motivation to become debt free, leading them to repay their debts more aggressively. Importantly, this motivating effect is most pronounced when the repayments are concentrated into consumers’ smallest accounts because consumers tend to infer overall progress in debt repayment from the greatest proportional balance reduction (proportion of starting balance repaid) within any one account. These findings advance our understanding of how consumers repay their debts and help pinpoint the psychological process by which debt repayment strategies affect consumers’ motivation to get out of debt.
There is no debate that the "avalanche" is cheaper overall...if you stick with it. As Ramsey says "if you were interested in math, would you be in CC debt?" However the Ramsey Snowball is the most effective and likely to work.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Seems Dave Ramsey is right about debt

Post by Jags4186 » Mon Feb 27, 2017 9:26 pm

knpstr wrote:There is no debate that the "avalanche" is cheaper overall...if you stick with it. As Ramsey says "if you were interested in math, would you be in CC debt?" However the Ramsey Snowball is the most effective and likely to work.
Yea I agree when it is someone who has $80,000 in debt on furniture and cars and payday loans. But some people who can do math still wind up in debt as a conscious decision. They would be better off paying lowest to highest interest rate as a part of a more comprehensive financial plan.

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Re: Seems Dave Ramsey is right about debt

Post by BrandonBogle » Mon Feb 27, 2017 9:29 pm

The underlying theme in the debt snowball approach vs. avalanche is how it impacts your cashflow. The avalanche makes lots of sense, but without considering one's cashflow, it may not be the best approach -- after all, hopefully someone who is not cashflow limited would not be in debt in the first place (not a foregone conclusion by any means).

So lets say the "minimum payment" is $100 and someone is paying $200. They sacrifice and struggle to pay the extra hundred and when that loan is paid off, they suddenly have that extra hundred to spread around, but also the $100 they originally had committed to the minimum payment. If this individual lives paycheck-to-paycheck (which many individuals do -- hopefully not us Bogleheads, or at least not for long), there is a huge emotional side to suddenly having the cash to absorb an one-time bump in the road.

Basically, this is a very long way of saying it makes lots of sense that psychologically, many of the people buried by debt would be more emotionally motivated by the snowball approach.

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arcticpineapplecorp.
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Re: Seems Dave Ramsey is right about debt

Post by arcticpineapplecorp. » Mon Feb 27, 2017 9:33 pm

knpstr wrote:
arcticpineapplecorp. wrote:This part is the big "if":
To the extent that a consumer’s debt accounts have similar interest rates, he or she should concentrate repayments first on the cards or accounts with the smallest debts, paying off those first.
Ah, but what if the interest rates are NOT similar? Then what should one do?

As Rob Berger (Dough Roller Money podcast) has said...There's the debt snowball approach (Dave Ramsey's approach...start with smallest debt rather than highest interest debt) and the debt avalanche approach (tackle debts with highest interest rate first regardless of size of the debt). This Harvard link is saying the snowball approach works better (for most people) for psychological/emotional/motivational reasons. They pay off one small debt, get a sense of progress, and continue paying off the next smallest debt until all debt is gone.

That being said, (for others reading here who may not be familiar with these concepts), the wisest financial way of paying off debt is the debt avalanche approach (pay towards highest interest rate debt first). Mathematically, you will end up paying less in overall interest this way. It may seem to take longer, and not much progress is being made (depending on the size of the debts), but it costs less in the end doing it that way.

Best of luck to those in debt and struggling to find a way out.
Per the article and abstract:
What repayment strategy is most likely to motivate them to get them out of debt? Should they disperse payments equally across all accounts each month or concentrate payment on one account? Our research suggests that people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest.

Evidence from a field study of indebted consumers with multiple debt accounts and from three experiments shows that concentrated (vs. dispersed) repayment strategies tend to boost consumers’ motivation to become debt free, leading them to repay their debts more aggressively. Importantly, this motivating effect is most pronounced when the repayments are concentrated into consumers’ smallest accounts because consumers tend to infer overall progress in debt repayment from the greatest proportional balance reduction (proportion of starting balance repaid) within any one account. These findings advance our understanding of how consumers repay their debts and help pinpoint the psychological process by which debt repayment strategies affect consumers’ motivation to get out of debt.
There is no debate that the "avalanche" is cheaper overall...if you stick with it. As Ramsey says "if you were interested in math, would you be in CC debt?" However the Ramsey Snowball is the most effective and likely to work.
This forum discusses math quite a bit. But it also discusses CC debt. How do you square those two contrasting ideas?

I put in my 2cents for those who are not familiar with the difference between debt snowball and avalanche. Some people who read here may want to have ALL the facts (psychological and mathematical) to make the most informed decision. A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way. Some newbies here may not be aware of that. This article doesn't make that clear. I thought that might be helpful to them.

By the way, some people find themselves in situations that led them to CC debt (sudden/expensive medical bills, unemployment during the Great Recession and couldn't find work for longer than they had the emergency savings to cover, etc.). And that has nothing to do with whether or not they were good at math. So again, the two (CC debt and mathematical "interest") are not mutually exclusive.

Finally, from the comments Dave has made over the years about the compounding returns of the stock market (12% "average" returns...not compounding average) I think it's Dave Ramsey that might need a refresher in math class.
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reriodan
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Re: Seems Dave Ramsey is right about debt

Post by reriodan » Mon Feb 27, 2017 9:41 pm

You know what they say about broken clocks...

I sometimes listen to his radio program and the guy seems pretty crazy about some things. At one point he was basically saying that people (and he seemed to refer to women) shouldn't go to college because they may just end up graduating college and then be stay at home moms with a useless college degree. :oops:

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Re: Seems Dave Ramsey is right about debt

Post by WhyNotUs » Mon Feb 27, 2017 10:47 pm

Do people really think he invented the idea of paying off the smallest balance first?

Regardless, getting out of debt is a good thing.
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Re: Seems Dave Ramsey is right about debt

Post by Grt2bOutdoors » Mon Feb 27, 2017 10:58 pm

WhyNotUs wrote:Do people really think he invented the idea of paying off the smallest balance first?
No, but he is one of the most successful at capitalizing on it to his own bank accounts benefit. :)
Regardless, getting out of debt is a good thing.
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Re: Seems Dave Ramsey is right about debt

Post by T-Wrench » Mon Feb 27, 2017 11:22 pm

mckaydw wrote:
warowits wrote:Ramsey will get you out of debt and ready to start investing. Just don't listen to his insane advice about investing (high fee mutual funds and advisors, which give him a kickback of course).
+1,000,000

Ramsey is great at getting out of debt and motivating to not return to debt. Once you're out of debt ignore Ramsey and start reading Bogle.

Also, I'm becoming increasingly annoyed at the commercialization of Ramsey. Half the show is spent upselling ramsey events, ramsey books, ramsey "personalities", ramsey ELPs, etc.
Agreed on both points. I'm glad that I started reading Bogle before I got out of debt. I'm currently trying to convince my best friend (firmly in the pro-Ramsey camp) to read Bogle and forget about 12% returns when paying his advisor 2%...

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Re: Seems Dave Ramsey is right about debt

Post by whodidntante » Tue Feb 28, 2017 7:49 am

I don't find his advice on use of credit to be reasonable or well balanced. This is a man who in his first book wrote that he considered killing himself for the life insurance money.

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Re: Seems Dave Ramsey is right about debt

Post by MI_bogle » Tue Feb 28, 2017 9:17 am

Snowball vs avalanche is to some degree just an extension of the asset allocation debates that go around here.

Even if there is an "appropriate" method/allocation for your situation, where if acting rationally, you would do ABC, it's very possible that a person should instead do XYZ, because in general people are not rational beings

We are emotional and irrational beings... so if something is a win emotionally, and will assist us in executing a plan, then that strategy should be pursued. Enemy of a good plan is a perfect plan and all that.

If you do the math, a lot of times you are not saving a ton by doing avalanche, compared to snowball. So if the snowball method only costs a bit in absolute terms, but has a much higher chance of helping the person to stay the course, it absolutely can be the superior strategy

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Re: Seems Dave Ramsey is right about debt

Post by bloom2708 » Tue Feb 28, 2017 9:18 am

reriodan wrote:You know what they say about broken clocks...

I sometimes listen to his radio program and the guy seems pretty crazy about some things. At one point he was basically saying that people (and he seemed to refer to women) shouldn't go to college because they may just end up graduating college and then be stay at home moms with a useless college degree. :oops:
This isn't quite accurate. Dave frequently takes calls from moms who have $100k, $200k in student loan debt. They are now pregnant (or just had a baby) and WANT to be stay at home moms now. The root problem lays in borrowing vast sums early in your life when you don't know anything about what lies ahead. It applies to both men and women. (Cars, Houses and Student Lonas). If you desire to be a stay at home mom, don't borrow $200k to go to law school and then quit working and wonder what to do.

I agree that Dave has great "get out of debt" advice. His investing advice is a bit confusing. He does talk about index funds some now. Before it was 100% stocks in 4 categories, Aggressive Growth, Growth, Growth and Income and International. I never quite understood how those 4 buckets equated to mutual funds you would buy. Small cap, Large cap, Not sure, what type of international?
Last edited by bloom2708 on Tue Feb 28, 2017 2:23 pm, edited 3 times in total.
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Re: Seems Dave Ramsey is right about debt

Post by knpstr » Tue Feb 28, 2017 10:43 am

arcticpineapplecorp. wrote: This forum discusses math quite a bit. But it also discusses CC debt. How do you square those two contrasting ideas?

I put in my 2cents for those who are not familiar with the difference between debt snowball and avalanche. Some people who read here may want to have ALL the facts (psychological and mathematical) to make the most informed decision. A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way. Some newbies here may not be aware of that. This article doesn't make that clear. I thought that might be helpful to them.

By the way, some people find themselves in situations that led them to CC debt (sudden/expensive medical bills, unemployment during the Great Recession and couldn't find work for longer than they had the emergency savings to cover, etc.). And that has nothing to do with whether or not they were good at math. So again, the two (CC debt and mathematical "interest") are not mutually exclusive.

Finally, from the comments Dave has made over the years about the compounding returns of the stock market (12% "average" returns...not compounding average) I think it's Dave Ramsey that might need a refresher in math class.
I fear you are forgetting the reason that the Snowball was found to be more effective is that people stick with it. Is the Avalanche more economical if people "quit" it? Perhaps the best economical way is the one that is successful?

Also, I've made no statement on Ramsey's investing advice, not sure why people are bringing it up in this thread.
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Re: Seems Dave Ramsey is right about debt

Post by LateStarter1975 » Tue Feb 28, 2017 11:00 am

knpstr wrote:
arcticpineapplecorp. wrote: This forum discusses math quite a bit. But it also discusses CC debt. How do you square those two contrasting ideas?

I put in my 2cents for those who are not familiar with the difference between debt snowball and avalanche. Some people who read here may want to have ALL the facts (psychological and mathematical) to make the most informed decision. A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way. Some newbies here may not be aware of that. This article doesn't make that clear. I thought that might be helpful to them.

By the way, some people find themselves in situations that led them to CC debt (sudden/expensive medical bills, unemployment during the Great Recession and couldn't find work for longer than they had the emergency savings to cover, etc.). And that has nothing to do with whether or not they were good at math. So again, the two (CC debt and mathematical "interest") are not mutually exclusive.

Finally, from the comments Dave has made over the years about the compounding returns of the stock market (12% "average" returns...not compounding average) I think it's Dave Ramsey that might need a refresher in math class.
I fear you are forgetting the reason that the Snowball was found to be more effective is that people stick with it. Is the Avalanche more economical if people "quit" it? Perhaps the best economical way is the one that is successful?

Also, I've made no statement on Ramsey's investing advice, not sure why people are bringing it up in this thread.
:beer
It's because people here can't afford to waste any opportunity to flog Dave Ramsey on his investing advice. Any post about him almost always dovetails to his terrible investing advice.
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Re: Seems Dave Ramsey is right about debt

Post by avalpert » Tue Feb 28, 2017 11:56 am

knpstr wrote:
arcticpineapplecorp. wrote: This forum discusses math quite a bit. But it also discusses CC debt. How do you square those two contrasting ideas?

I put in my 2cents for those who are not familiar with the difference between debt snowball and avalanche. Some people who read here may want to have ALL the facts (psychological and mathematical) to make the most informed decision. A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way. Some newbies here may not be aware of that. This article doesn't make that clear. I thought that might be helpful to them.

By the way, some people find themselves in situations that led them to CC debt (sudden/expensive medical bills, unemployment during the Great Recession and couldn't find work for longer than they had the emergency savings to cover, etc.). And that has nothing to do with whether or not they were good at math. So again, the two (CC debt and mathematical "interest") are not mutually exclusive.

Finally, from the comments Dave has made over the years about the compounding returns of the stock market (12% "average" returns...not compounding average) I think it's Dave Ramsey that might need a refresher in math class.
I fear you are forgetting the reason that the Snowball was found to be more effective is that people stick with it. Is the Avalanche more economical if people "quit" it? Perhaps the best economical way is the one that is successful?

Also, I've made no statement on Ramsey's investing advice, not sure why people are bringing it up in this thread.
:beer
But the hypothesized reason it was more effective is because felt the progress more when they saw a greater proportion of an account be paid down.

It seems like this can be used to help trick oneself into seeing progress while not forgoing the clear financial advantage of targeting the higher rate loans first. Creating personalized reporting tools that divide larger accounts into sub-accounts, or presents all accounts as equal-chunks adjusted for their interest rate could have an even more beneficial impact on their behavior and financial outcomes without the added anchor of having to listen to horrendous investing advice...

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Re: Seems Dave Ramsey is right about debt

Post by knpstr » Tue Feb 28, 2017 12:35 pm

avalpert wrote:But the hypothesized reason it was more effective is because felt the progress more when they saw a greater proportion of an account be paid down.

It seems like this can be used to help trick oneself into seeing progress while not forgoing the clear financial advantage of targeting the higher rate loans first. Creating personalized reporting tools that divide larger accounts into sub-accounts, or presents all accounts as equal-chunks adjusted for their interest rate could have an even more beneficial impact on their behavior and financial outcomes without the added anchor of having to listen to horrendous investing advice...
Perhaps, perhaps not. I think it would be a question of how convincingly one could "trick" themselves into paying off the "false accounts" and if they'd get that sense of accomplishment in doing so.

The snowball method is very straightforward and sound advice which has also has the added benefit of now being shown to be more effective given the quirks of human nature.

I also wouldn't go so far to say his investing advice is horrendous. It certainly isn't optimal and I don't follow his advice. But my parents didn't know anything about investing and got hooked up with Edwards Jones long ago and let's just say that they will have no troubles in retirement. Would they have more if they were at vanguard this whole time? Likely. But to say it is horrendous advice for someone to own traditional mutual funds is not a leap I'd make.

full disclosure: all of my paper investments are at Vanguard in index funds. :beer
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Re: Seems Dave Ramsey is right about debt

Post by JupiterJones » Tue Feb 28, 2017 2:20 pm

arcticpineapplecorp. wrote:A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way.
Well, sort of.

People keep contrasting the "snowball" vs. the "avalanche" as if the former is justified by psychology and the other by math. As if it's a given that the snowball method is mathematically inferior, and that you always "pay" a bit of an economic penalty for a purely psychological benefit. But, as BrandonBogle pointed out, there's the issue of cash-flow.

Yes, the avalanche will minimize the total interest paid and maximize the speed with which you pay off all debts. There's economic sense to that, and if those two things are your primary goals, with cash-flow less of a concern, then that may be the method for you.

But the snowball will maximize the speed with which you free up funds. It reduces risk and increases financial options more quickly. That's a perfectly acceptable economic goal to have too. There are lots of cases where we trade cost and/or time for reduced risk (insurance springs to mind). Is that psychology? Some of it, sure, but risk can be valued, so it's math too.

So there's good math in both approaches, it just boils down to what you're choosing to maximize/minimize.

As I've put it here before, it's similar to how pilots will typically take off at an angle that puts as much air beneath the plane as quickly as possible, even if that isn't the angle that saves the most fuel or gets you where you're going the fastest. Altitude equals safety and increases options in the event of an emergency. It's about choosing to minimize risk rather than maximize speed or fuel savings. Paying off loans is gaining "financial altitude" in the same way.
Stay on target...

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Re: Seems Dave Ramsey is right about debt

Post by JupiterJones » Tue Feb 28, 2017 2:34 pm

gator1 wrote:Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?
He only advises tithing (as in giving, literally, 10% of income to your church) for those who, like him, identify as Evangelical Christians. He then will usually go on to say that his own investigation of scripture has led him to the conclusion that this applies to "first fruits"... i.e., right off the top of what you make, before any other obligation, including debt and taxes.

Not being an Evangelical Christian, a thither, or a biblical scholar myself, I'm not really in a position to debate it. And this isn't the forum in which to do it anyway.

My only point is that he doesn't necessarily recommend it for everyone--only those who share his own theological outlook.

Heathens like me are off the hook. :sharebeer
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Re: Seems Dave Ramsey is right about debt

Post by DayOldTacos » Tue Feb 28, 2017 5:24 pm

whodidntante wrote:I don't find his advice on use of credit to be reasonable or well balanced. This is a man who in his first book wrote that he considered killing himself for the life insurance money.
I dont think your comment is reasonable or well balanced either. To give some much needed context to the second half of your comment, he is very open that at a young age he was drowning in debt and didnt think he had a way out. He had a family and was considering a way for them to get out of the mess he made. I think it highlights the thoughts that go through peoples minds when they get deep into debt. They enter some dark times and its not pleasant. Hence why he is so anti-debt, and tries to offer his best advise on ways to get out of debt and stay out of debt.

Going back to the first part of your comment - consider who his main target audience is (people who rack up credit card debt). These people should NOT be using credit cards. I dont think anyone would advocate that someone who cant use them responsibly to use them at all - thats what he is doing, because thats who his target audience is.

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Re: Seems Dave Ramsey is right about debt

Post by MIretired » Tue Feb 28, 2017 5:42 pm

JupiterJones wrote:
arcticpineapplecorp. wrote:A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way.
Well, sort of.

People keep contrasting the "snowball" vs. the "avalanche" as if the former is justified by psychology and the other by math. As if it's a given that the snowball method is mathematically inferior, and that you always "pay" a bit of an economic penalty for a purely psychological benefit. But, as BrandonBogle pointed out, there's the issue of cash-flow.

Yes, the avalanche will minimize the total interest paid and maximize the speed with which you pay off all debts. There's economic sense to that, and if those two things are your primary goals, with cash-flow less of a concern, then that may be the method for you.

But the snowball will maximize the speed with which you free up funds. It reduces risk and increases financial options more quickly. That's a perfectly acceptable economic goal to have too. There are lots of cases where we trade cost and/or time for reduced risk (insurance springs to mind). Is that psychology? Some of it, sure, but risk can be valued, so it's math too.

So there's good math in both approaches, it just boils down to what you're choosing to maximize/minimize.

As I've put it here before, it's similar to how pilots will typically take off at an angle that puts as much air beneath the plane as quickly as possible, even if that isn't the angle that saves the most fuel or gets you where you're going the fastest. Altitude equals safety and increases options in the event of an emergency. It's about choosing to minimize risk rather than maximize speed or fuel savings. Paying off loans is gaining "financial altitude" in the same way.
Right. You made an elaborate general explanation. I was going to post on the small difference of freeing up those required min. monthly outflows (a cash flow consideration). AND the psych. benefit of having less dates on the calendar that they are due.

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Toons
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Re: Seems Dave Ramsey is right about debt

Post by Toons » Tue Feb 28, 2017 5:46 pm

Eliminating Debt.
Inch by Inch
It is a Cinch.
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

gvsucavie03
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Re: Seems Dave Ramsey is right about debt

Post by gvsucavie03 » Tue Feb 28, 2017 6:08 pm

Dave is step one on many financial topics for many people. We did the class and the debt snowball, but "fudged" along the way to pay off a car faster. Still driving it at almost 200,000 miles. Paid off about $70,000.

Now my wife and I have a house on a 30-year note (paying like a bi-weekly) and will pay off early, we have 3 credit cards with balances automatically paid off in full every month (2, 3, 5 and 6% cash back) and index funds inside of our IRA. You can't trust one source, especially with how perpendicular his advice is. As others have mentioned, his show and brand is one huge commercial with a very small amount of content.

sharpjm
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Re: Seems Dave Ramsey is right about debt

Post by sharpjm » Tue Feb 28, 2017 6:15 pm

Awhile back I finished paying off a 10% line of credit loan, then recently I finished paying off a 7% personal loan, and this month I finished paying off a 5% student loan. They were paid off in largest interest rate to smallest, not smallest principle to largest. To me, it "feels good" knowing I didn't waste any money throwing it at low interest loans while paying other banks higher interest each month. I think that people who need some psychological reward in starting with small balances have not fully wrapped their brain around the concept of income - expenditures = surplus or (debt). But like giving a child piece of candy for good behavior, they are given some positive reinforcement early on in the process of the debt avalanche so that the good behavior continues. It really is just psychological conditioning.

avalpert
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Re: Seems Dave Ramsey is right about debt

Post by avalpert » Tue Feb 28, 2017 6:22 pm

knpstr wrote:
avalpert wrote:But the hypothesized reason it was more effective is because felt the progress more when they saw a greater proportion of an account be paid down.

It seems like this can be used to help trick oneself into seeing progress while not forgoing the clear financial advantage of targeting the higher rate loans first. Creating personalized reporting tools that divide larger accounts into sub-accounts, or presents all accounts as equal-chunks adjusted for their interest rate could have an even more beneficial impact on their behavior and financial outcomes without the added anchor of having to listen to horrendous investing advice...
Perhaps, perhaps not. I think it would be a question of how convincingly one could "trick" themselves into paying off the "false accounts" and if they'd get that sense of accomplishment in doing so.

The snowball method is very straightforward and sound advice which has also has the added benefit of now being shown to be more effective given the quirks of human nature.
Well, since the experiments used to conclude that it may be more effective were based on fake accounts I'm not too worried about tricking people with framing - that is kind of what the whole discipline is about. It also suffers from replication issues that would make anyone think twice before asserting it has definitively shown much of anything.
I also wouldn't go so far to say his investing advice is horrendous. It certainly isn't optimal and I don't follow his advice.
I would, his long tiem advice of 100% equities and 8% withdrawal rates is a great recipe for outliving your money and dying in poverty.
But my parents didn't know anything about investing and got hooked up with Edwards Jones long ago and let's just say that they will have no troubles in retirement. Would they have more if they were at vanguard this whole time? Likely. But to say it is horrendous advice for someone to own traditional mutual funds is not a leap I'd make.
Yes, if you save enough that others skimped off your portfolio may not prevent you from a comfortable retirement - just caused you to work longer so you could pay for their retirement's - and when you take a cut for advising people into that, yeah it is horrendous.

gator1
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Re: Seems Dave Ramsey is right about debt

Post by gator1 » Tue Feb 28, 2017 7:36 pm

JupiterJones wrote:
gator1 wrote:Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?
He only advises tithing (as in giving, literally, 10% of income to your church) for those who, like him, identify as Evangelical Christians. He then will usually go on to say that his own investigation of scripture has led him to the conclusion that this applies to "first fruits"... i.e., right off the top of what you make, before any other obligation, including debt and taxes.

Not being an Evangelical Christian, a thither, or a biblical scholar myself, I'm not really in a position to debate it. And this isn't the forum in which to do it anyway.

My only point is that he doesn't necessarily recommend it for everyone--only those who share his own theological outlook.

Heathens like me are off the hook. :sharebeer
I'd love for DR to show proof he tithes 10% of his income. The end.

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knpstr
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Re: Seems Dave Ramsey is right about debt

Post by knpstr » Tue Feb 28, 2017 7:41 pm

avalpert wrote: I would, his long tiem advice of 100% equities and 8% withdrawal rates is a great recipe for outliving your money and dying in poverty.

Yes, if you save enough that others skimped off your portfolio may not prevent you from a comfortable retirement - just caused you to work longer so you could pay for their retirement's - and when you take a cut for advising people into that, yeah it is horrendous.
First, some people want/need that advising. Especially from someone they know in the community and can meet face to face.

FWIW, per Michael Kitces:
Of course, the caveat is that on average, the 4% rule is unnecessary. As noted earlier, given long-term average returns, the “safe” withdrawal rate would be over 6%.

The 4% retirement rule has quintupled wealth more often than depleting principal after 30 years!
However, it's evident you have some very strong opinions
:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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arcticpineapplecorp.
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Re: Seems Dave Ramsey is right about debt

Post by arcticpineapplecorp. » Tue Feb 28, 2017 7:55 pm

gvsucavie03 wrote:Dave is step one on many financial topics for many people. We did the class and the debt snowball, but "fudged" along the way to pay off a car faster. Still driving it at almost 200,000 miles. Paid off about $70,000.

Now my wife and I have a house on a 30-year note (paying like a bi-weekly) and will pay off early, we have 3 credit cards with balances automatically paid off in full every month (2, 3, 5 and 6% cash back) and index funds inside of our IRA. You can't trust one source, especially with how perpendicular his advice is. As others have mentioned, his show and brand is one huge commercial with a very small amount of content.
congratulations on getting out of debt! I'm also glad you went with index funds instead of Dave's Endorsed Local Providers (ELPs). People who don't know better wind up paying too much in my opinion (and more than they need to) with Dave's ELPs which is a source of revenue for him. This is one of the big problems I have with Dave...no, not that he's trying to make a living, but that he's trying to make a living at the expense of those he claims to be helping.

For those not familiar with Dave Ramsey's ELPs, read all about them (and why to avoid them) here:
http://www.doughroller.net/investing/da ... providers/
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

avalpert
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Re: Seems Dave Ramsey is right about debt

Post by avalpert » Tue Feb 28, 2017 8:13 pm

knpstr wrote:
avalpert wrote: I would, his long tiem advice of 100% equities and 8% withdrawal rates is a great recipe for outliving your money and dying in poverty.

Yes, if you save enough that others skimped off your portfolio may not prevent you from a comfortable retirement - just caused you to work longer so you could pay for their retirement's - and when you take a cut for advising people into that, yeah it is horrendous.
First, some people want/need that advising. Especially from someone they know in the community and can meet face to face.
No one needs that advising - it is bad advising and it is awful for people to give it with a straight face - especially from someone they know in the community and meet face to face.
FWIW, per Michael Kitces:
Of course, the caveat is that on average, the 4% rule is unnecessary. As noted earlier, given long-term average returns, the “safe” withdrawal rate would be over 6%.

The 4% retirement rule has quintupled wealth more often than depleting principal after 30 years!
Yes, and average life insurance doesn't pay - if individuals could plan as if they were the average and not a particular case risk management would be much easier and less interesting.
However, it's evident you have some very strong opinions
:beer
I do have very strong opinions when it comes to people who use their position of authority and credibility to push bad advice while making themselves wealthy. If only all good intentioned people had such strong opinions - wee wouldn't have to suffer charlatans the way that we do.

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knpstr
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Re: Seems Dave Ramsey is right about debt

Post by knpstr » Tue Feb 28, 2017 8:28 pm

avalpert wrote:No one needs that advising - it is bad advising and it is awful for people to give it with a straight face - especially from someone they know in the community and meet face to face.

I do have very strong opinions when it comes to people who use their position of authority and credibility to push bad advice while making themselves wealthy. If only all good intentioned people had such strong opinions - wee wouldn't have to suffer charlatans the way that we do.
haha, whatever you say!
:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

LuckBeALady
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Re: Seems Dave Ramsey is right about debt

Post by LuckBeALady » Tue Feb 28, 2017 9:21 pm

Dave Ramsey changed my attitude about debt. I used the debt snowball to get rid of credit cards and student loans, and I learned about budgeting from Dave. Listening to him harp on about the stupidity of debt was motivational, and yes the "debt snowball" was motivational. That was in 2003-04.

I also listened to jimb from this board explaining why stopping 401k investments was foolish and very expensive in the long run. I'm very glad we are out of debt, and I"m also very glad we never stopped tax-deferred investing due to jimb's advice.

And of course, I learned how to invest at the feet of the Bogleheads here. Laura critiqued my plan years ago (possibly under a different user name, I can't remember) and gave me confidence to keep it going.

I'm grateful to the various people who have taken the time to give advice and encouragement. Dave Ramsey does have his place for dummkopfs like me. I have learned so much, both from posting my own questions and from reading answers to the questions of others.

HawkDriver
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Re: Seems Dave Ramsey is right about debt

Post by HawkDriver » Wed Mar 01, 2017 12:32 am

The intellectual snobbery on display here is disappointing. I'm glad many of you are so much more enlightened than the simpletons that listen to DR to try to turn their life around due to financial happenings which were obviously their fault. :shock:

If 90% of his listeners will be better off behaviorally and psychologically by using a debt snowball instead of paying toward a debt avalanche, then you teach to your audience. If you're in the 10%, you don't need DR so don't listen to his show.

The debt snowball shouldn't be considered in isolation. Dave's Step One is to save a starter-emergency fund of $1000...isn't it obvious how important increasing cash flow is with a $1000 emergency fund??

zig25
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Re: Seems Dave Ramsey is right about debt

Post by zig25 » Wed Mar 01, 2017 1:06 am

Dave Ramsey and you bogleheads helped my wife and I buckle down and get enough courage to pay off 48k of student debt over the last 1.5 years and invested in Iras for the first time..without listening to Ramsey first I probably would have never started paying off debt so aggressively or saved a Emergency fund. I have about 26k left to go. Regret the decisions we made for college (private school and social science field)and are paying for it now but we are young and I hope to be debt free soon...at least of the greater then 3% debt.

kjvmartin
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Re: Seems Dave Ramsey is right about debt

Post by kjvmartin » Wed Mar 01, 2017 1:24 am

gator1 wrote:Agree with the above poster about Ramsey being good at getting people out of debt(if they listen), but gives terrible investment advice. Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?
He's right.

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sunny_socal
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Re: Seems Dave Ramsey is right about debt

Post by sunny_socal » Wed Mar 01, 2017 9:16 am

Dave Ramsey has a completely different audience than Bogleheads. We've already established that the BH way is not the norm. Most people in this country would indeed benefit from the DR approach to handling money.

Once you graduate from DR, then you're ready for BH. Ramsey helps you get out of debt, BH helps you invest. Both teach saving.

gator1
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Re: Seems Dave Ramsey is right about debt

Post by gator1 » Wed Mar 01, 2017 6:49 pm

kjvmartin wrote:
gator1 wrote:Agree with the above poster about Ramsey being good at getting people out of debt(if they listen), but gives terrible investment advice. Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?
He's right.
LOL . . . . I can't.

smitty1515
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Re: Seems Dave Ramsey is right about debt

Post by smitty1515 » Wed Mar 01, 2017 8:14 pm

gator1 wrote:Agree with the above poster about Ramsey being good at getting people out of debt(if they listen), but gives terrible investment advice. Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?
I've heard him say to tithe while you are paying off debt but not while going through bankruptcy. Did he say that on his radio show?
Be fearful when others are greedy and greedy when others are fearful. -Warren Buffett

smitty1515
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Re: Seems Dave Ramsey is right about debt

Post by smitty1515 » Wed Mar 01, 2017 8:20 pm

zig25 wrote:Dave Ramsey and you bogleheads helped my wife and I buckle down and get enough courage to pay off 48k of student debt over the last 1.5 years and invested in Iras for the first time..without listening to Ramsey first I probably would have never started paying off debt so aggressively or saved a Emergency fund. I have about 26k left to go. Regret the decisions we made for college (private school and social science field)and are paying for it now but we are young and I hope to be debt free soon...at least of the greater then 3% debt.
Same boat here. We paid off 50k in student loans/auto in 13 months and once we started investing I met a guy on a DR board by the name of FInancialDave that posted on here. He led me to the boglehead approach to investing and although we are not super affluent like some of these folks I read on here we are doing awesome and pegged to hit $1M net worth between 42-44 yo.

I talk to lots of DR followers and the 12% returns, active funds, and financial advisor frustrate me but I cannot hate on him because I think his process to help people get out of debt is spot on. After that it's BH's approach all the way for us.
Be fearful when others are greedy and greedy when others are fearful. -Warren Buffett

zig25
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Re: Seems Dave Ramsey is right about debt

Post by zig25 » Wed Mar 01, 2017 8:38 pm

smitty1515 wrote:
zig25 wrote:Dave Ramsey and you bogleheads helped my wife and I buckle down and get enough courage to pay off 48k of student debt over the last 1.5 years and invested in Iras for the first time..without listening to Ramsey first I probably would have never started paying off debt so aggressively or saved a Emergency fund. I have about 26k left to go. Regret the decisions we made for college (private school and social science field)and are paying for it now but we are young and I hope to be debt free soon...at least of the greater then 3% debt.
Same boat here. We paid off 50k in student loans/auto in 13 months and once we started investing I met a guy on a DR board by the name of FInancialDave that posted on here. He led me to the boglehead approach to investing and although we are not super affluent like some of these folks I read on here we are doing awesome and pegged to hit $1M net worth between 42-44 yo.

I talk to lots of DR followers and the 12% returns, active funds, and financial advisor frustrate me but I cannot hate on him because I think his process to help people get out of debt is spot on. After that it's BH's approach all the way for us.
Ye's I agree with that completely. I am by no means as affluent as probably 90% of the people on this bored. I just try to be frugal with what we have and am starting to save. We are 24 and 25. So I would love to get out of school debt by this year or next....don't feel like sitting around waiting for PLSF...if that will even ever happen.

mesaverde
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Re: Seems Dave Ramsey is right about debt

Post by mesaverde » Wed Mar 01, 2017 9:22 pm

The way that Dave Ramsey puts debt into perspective is often spot on. I show his debt related youtube videos to my high school personal finance classes.
This video is particularly good in that he puts a spotlight on the stupidity of going into debt for a car (depreciating asset).
Your Car Loan Is Killing Your Wealth
https://www.youtube.com/watch?v=NvZJb_ydvUk


I agree with others here about his investment advice... best to avoid it for the reasons already stated.
"Learn from the past, live in the present, plan for the future"

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BrandonBogle
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Re: Seems Dave Ramsey is right about debt

Post by BrandonBogle » Wed Mar 01, 2017 9:46 pm

mesaverde wrote:The way that Dave Ramsey puts debt into perspective is often spot on. I show his debt related youtube videos to my high school personal finance classes.
This video is particularly good in that he puts a spotlight on the stupidity of going into debt for a car (depreciating asset).
Your Car Loan Is Killing Your Wealth
https://www.youtube.com/watch?v=NvZJb_ydvUk


I agree with others here about his investment advice... best to avoid it for the reasons already stated.
I had never seen any Dave Ramsey videos (though have heard about his advice for many, many years). A bit strong (especially for women), but still good advice overall. I hope Bogleheads distinguish about the potential for non-bad debt. I got a car loan to buy my car. I could have written a check for every penny of it if I sold some of my taxable stock holdings and paid capital gains on it. Considering I got 1.49%, I personally feel I made the right choice. Some would sell holdings and pay cash, and while that may not be the most efficient, it is hardly a bad choice (just a "less good" one). Perfectly fine if that is what you prefer.

Hopefully more people learn to get out of debt and stay of debt and not get into debt for such "stupid with a capital S" reasons.

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reriodan
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Re: Seems Dave Ramsey is right about debt

Post by reriodan » Wed Mar 01, 2017 10:38 pm

HawkDriver wrote:The intellectual snobbery on display here is disappointing. I'm glad many of you are so much more enlightened than the simpletons that listen to DR to try to turn their life around due to financial happenings which were obviously their fault. :shock:

If 90% of his listeners will be better off behaviorally and psychologically by using a debt snowball instead of paying toward a debt avalanche, then you teach to your audience. If you're in the 10%, you don't need DR so don't listen to his show.

The debt snowball shouldn't be considered in isolation. Dave's Step One is to save a starter-emergency fund of $1000...isn't it obvious how important increasing cash flow is with a $1000 emergency fund??
Intellectual snobbery for pointing out a snakeoil salesman when we see them? Dave gets people out of debt so he can take advantage of them and line his own pockets. Should we also praise whole life insurance because it may still make people money?

Jimmy Mac 33
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Re: Seems Dave Ramsey is right about debt

Post by Jimmy Mac 33 » Thu Mar 02, 2017 12:28 am

LuckBeALady wrote:Dave Ramsey changed my attitude about debt. I used the debt snowball to get rid of credit cards and student loans, and I learned about budgeting from Dave. Listening to him harp on about the stupidity of debt was motivational, and yes the "debt snowball" was motivational. That was in 2003-04.

I also listened to jimb from this board explaining why stopping 401k investments was foolish and very expensive in the long run. I'm very glad we are out of debt, and I"m also very glad we never stopped tax-deferred investing due to jimb's advice.

And of course, I learned how to invest at the feet of the Bogleheads here. Laura critiqued my plan years ago (possibly under a different user name, I can't remember) and gave me confidence to keep it going.

I'm grateful to the various people who have taken the time to give advice and encouragement. Dave Ramsey does have his place for dummkopfs like me. I have learned so much, both from posting my own questions and from reading answers to the questions of others.


Bingo. Debt - DR. Building wealth - Bogleheads. Unfortunately, I (most people) could have used a high school class on basic finance, saving, DCA, debt cost, retirement planning, etc. And I graduated with a 4.0 at a private university in the midwest - in Marketing. I figured it out at 47.....ugh. My loss - but I will make it up.

Cheers - :sharebeer

HawkDriver
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Re: Seems Dave Ramsey is right about debt

Post by HawkDriver » Thu Mar 02, 2017 1:36 am

reriodan wrote:
HawkDriver wrote:The intellectual snobbery on display here is disappointing. I'm glad many of you are so much more enlightened than the simpletons that listen to DR to try to turn their life around due to financial happenings which were obviously their fault. :shock:

If 90% of his listeners will be better off behaviorally and psychologically by using a debt snowball instead of paying toward a debt avalanche, then you teach to your audience. If you're in the 10%, you don't need DR so don't listen to his show.

The debt snowball shouldn't be considered in isolation. Dave's Step One is to save a starter-emergency fund of $1000...isn't it obvious how important increasing cash flow is with a $1000 emergency fund??
Intellectual snobbery for pointing out a snakeoil salesman when we see them? Dave gets people out of debt so he can take advantage of them and line his own pockets. Should we also praise whole life insurance because it may still make people money?
Snake oil? All the people commenting about how DR helped get them out of debt is akin to snake oil? And you're so sure of his motivation as to assert malintent? And then a straw man argument?

Yes, I'm sticking with my original impression of intellectual snobbery.

avalpert
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Re: Seems Dave Ramsey is right about debt

Post by avalpert » Thu Mar 02, 2017 10:31 am

HawkDriver wrote:
reriodan wrote:
HawkDriver wrote:The intellectual snobbery on display here is disappointing. I'm glad many of you are so much more enlightened than the simpletons that listen to DR to try to turn their life around due to financial happenings which were obviously their fault. :shock:

If 90% of his listeners will be better off behaviorally and psychologically by using a debt snowball instead of paying toward a debt avalanche, then you teach to your audience. If you're in the 10%, you don't need DR so don't listen to his show.

The debt snowball shouldn't be considered in isolation. Dave's Step One is to save a starter-emergency fund of $1000...isn't it obvious how important increasing cash flow is with a $1000 emergency fund??
Intellectual snobbery for pointing out a snakeoil salesman when we see them? Dave gets people out of debt so he can take advantage of them and line his own pockets. Should we also praise whole life insurance because it may still make people money?
Snake oil? All the people commenting about how DR helped get them out of debt is akin to snake oil? And you're so sure of his motivation as to assert malintent? And then a straw man argument?

Yes, I'm sticking with my original impression of intellectual snobbery.
You don't think snake oil salesmen didn't have people who swore it cured them (and may have honestly believed it) - heck, have you spent anytime looking at the alternative medicine industry today?

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reriodan
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Re: Seems Dave Ramsey is right about debt

Post by reriodan » Thu Mar 02, 2017 2:14 pm

gator1 wrote:
kjvmartin wrote:
gator1 wrote:Agree with the above poster about Ramsey being good at getting people out of debt(if they listen), but gives terrible investment advice. Also, I swear I heard him Friday say to Tithe no matter what (including while going through bankruptcy) . . . . lol wut?
He's right.
LOL . . . . I can't.
Reminds me of some of those evangelical shows on TV that try to get people on welfare to donate money to them. I guess to Dave's credit, he gets you out of debt before he starts screwing you over.

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