Dave Ramsey it or keep low interest debt

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Meaty
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Re: Dave Ramsey it or keep low interest debt

Post by Meaty »

hightower wrote: Mon May 21, 2018 2:19 pm To the OP, yes I think you should "Dave Ramsey" the car loans. In my opinion, it is not smart to go into debt for consumer goods such as automobiles. If you wouldn't walk into the dealer and pay cash for the car, you probably are buying too much car. Doesn't really matter that it's low interest or zero interest, it's a behavioral problem. You spent over 60k on cars. Would you have spent the same if you had forced yourself to pay with cash? I mean at 250k/year income, you're not necessarily living above your means. But, why take on debt if you don't have to? It usually results in higher spending. That's why I see it as a behavioral problem.
I think people like to finance cars because it hurts too much to spend that much cash. If you actually had to let go of 60k cash, would you really want that car anymore? I spent 40k on a car this year and paid cash and I HATED letting go of all that money. My wife and I pull in over 350k/yr and it still hurts. I'm planning on driving this thing until it's falling apart! Forcing myself to pay with cash makes me pay attention to the actual cash I'm losing in exchange for a car that will just lose value quickly every year and get chips in the paint and dents in the doors, etc. I had to ask myself how much of my hard earned money am I willing to let go of right now? It definitely kept me from spending too much (Tesla's are super neat, but I'm not spending that much on a car)
When people sign up for a car loan, it seems a lot less painful because they are just looking at the size of the monthly payment, which doesn't seem as bad in the grand scheme of things.
Plus, if someone is okay with signing up for a zero percent car loan, what's to stop them from borrowing $2,000 for a TV? It's zero interest too! And why not buy the nicer computer for $1,800 while you're at it? Before you know it, you have $100k of debt and a bunch of aging electronics sitting around your house and in your driveway that you're still making payments on.
Valid thoughts and ive decided not to borrow going forward. For anything. Given these loans are already in existence though, the decision now is should I divert cash from taxable to payoff these debts? After contemplating the great feedback here, I’ve decided to keep them as I think I’ll net more in taxable and can sleep well knowing I could write a check for the two car loans if needed. Regarding the mortgage, I plan to follow White Coat Investors plan from another thread; essentially save in taxable rather than paying extra monthly payments. This should preserve liquidity until I have enough to payoff the mortgage in full
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dustinst22
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Re: Dave Ramsey it or keep low interest debt

Post by dustinst22 »

Spirit Rider wrote: Fri May 18, 2018 5:15 pm
Meaty wrote: Fri May 18, 2018 4:12 pm 20k car loan - 0%
38k car loan - 1.9%
226k mortgage - 3.625%

Annual income 255k, Fully funded emergency fund (6 months)

Right now I save 86k annually. Should I continue saving as is (via 401k, Roth, taxable) or save less to knock out these very low interest loans? I know the wiki advises keeping all until normal payoff but Ramsey keeps stating millionaires are made following his methods
You need to understand DR's target audience and the fact that he is an absolutest with no capacity for rational discourse. It is his way or the highway. The fundamental fact is that debt is a financial tool like many other tools. DR, Mr. Money Mustache and some Bogleheads use pure emotion instead analyzing the right tool for the right job.

I prefer to look at such things analytically with an eye on behavioral issues. There is a view that you should never finance a depreciating asset. I do not hold that view if the interest rate is very low. However, there is a behavorial caution that very low interest rates causes people to spend more on vehicles than they otherwise would if they were paying cash. I am sympathetic to that and view your $58K of vehicle debt as excessive.

Even though I paid off my mortgage early, it was at 5.24%. At 3.625 I am ambivalent about paying it down. With the Fed projecting two more rate increases this year and 2-3 next year, it is starting to look better and better as an inflation hedge.

Personally, I would take the following middle ground:
  • Continue to pay off the 0% car loan on schedule.
  • Make double payments on the 1.9% car loan to reduce that debt quicker. Make a pledge to never having more vehicle debt than 20% of your income no matter what the interest rate.
  • Consider a payment schedule to knock off your mortgage 5, 10 or 15 years sooner (depending on the term of course).
  • None of these steps should be taken if it results in less tax advantaged plan contributions.
Really great post here, I think it really hits the nail on the head. I thought the same thing -- I'm not so much concerned with the interest rates as I am with the amount of debt you have for depreciating assets, even at your income level. I earn nearly double your income and still shudder at those numbers. I'd be more aggressive -- don't own vehicles that cost more than 10% of your income.
ThePrince
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Re: Dave Ramsey it or keep low interest debt

Post by ThePrince »

hightower wrote: Mon May 21, 2018 2:19 pm To the OP, yes I think you should "Dave Ramsey" the car loans. In my opinion, it is not smart to go into debt for consumer goods such as automobiles. If you wouldn't walk into the dealer and pay cash for the car, you probably are buying too much car. Doesn't really matter that it's low interest or zero interest, it's a behavioral problem. You spent over 60k on cars. Would you have spent the same if you had forced yourself to pay with cash? I mean at 250k/year income, you're not necessarily living above your means. But, why take on debt if you don't have to? It usually results in higher spending. That's why I see it as a behavioral problem.
I think people like to finance cars because it hurts too much to spend that much cash. If you actually had to let go of 60k cash, would you really want that car anymore? I spent 40k on a car this year and paid cash and I HATED letting go of all that money. My wife and I pull in over 350k/yr and it still hurts. I'm planning on driving this thing until it's falling apart! Forcing myself to pay with cash makes me pay attention to the actual cash I'm losing in exchange for a car that will just lose value quickly every year and get chips in the paint and dents in the doors, etc. I had to ask myself how much of my hard earned money am I willing to let go of right now? It definitely kept me from spending too much (Tesla's are super neat, but I'm not spending that much on a car)
When people sign up for a car loan, it seems a lot less painful because they are just looking at the size of the monthly payment, which doesn't seem as bad in the grand scheme of things.
Plus, if someone is okay with signing up for a zero percent car loan, what's to stop them from borrowing $2,000 for a TV? It's zero interest too! And why not buy the nicer computer for $1,800 while you're at it? Before you know it, you have $100k of debt and a bunch of aging electronics sitting around your house and in your driveway that you're still making payments on.
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whodidntante
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Re: Dave Ramsey it or keep low interest debt

Post by whodidntante »

Clemblack wrote: Sat May 19, 2018 8:20 am In my opinion, a person with an annual income north of $100k should never owe money on an automobile. If you can't write a check for it, then you can't afford to buy it. Mortgage debt is the only acceptable debt for me.
It's useful to separate being able to "afford" something versus the decision to take a loan to buy it, assuming you are a rational adult. We are apparently now coming out of a period of anomalously low interest rates, but one of the adaptations I made was to get over my debt aversion, and purposely take on debt that was free, profitable, or nearly free after inflation. It has left me better off today. Not hugely so, but tens of thousands better off. And I'm not so wealthy as to consider that much money a rounding error.
inbox788
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Re: Dave Ramsey it or keep low interest debt

Post by inbox788 »

My recent personal preference was at 1-2%, keep the loan. At 3-4%, I equivocate, and above pay off. Thus I'd keep both car loans as long as possible. As far as the mortgage, it may be less after tax deduction if you still qualify and itemize, so it may be lower than 3% after tax, so it doesn't really matter much what you do really once averaged out over a couple of decades unless you get terribly lucky or unlucky. You'll probably do a little better taking on a little more risk, while keeping the loan, but no guarantee. With rising rates and returns, I may raise my numbers a bit. Just a little market timing.
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Re: Dave Ramsey it or keep low interest debt

Post by pennylane »

ThePrince wrote: Fri May 18, 2018 8:53 pm
pennylane wrote: Fri May 18, 2018 8:06 pm Do people actually take DR seriously? 🙄
Many here, including myself, take Dave Ramsey seriously. Your question, not so much.
Sure, I guess if you have monster Debt and are not so good with finances then his advice would probably resonate. I've followed him for a while, what he says is common sense and his investing advice consists of him plugging away with his "heart of a teacher" financial advisers. Lets keep in mind, the man makes money selling books.

He endorses paying front load fees/commissions and paying advisers high fees. Also advocates buying a house cash.. Sure Davey... whatever you say.
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Re: Dave Ramsey it or keep low interest debt

Post by Grt2bOutdoors »

pennylane wrote: Tue May 22, 2018 8:27 am
ThePrince wrote: Fri May 18, 2018 8:53 pm
pennylane wrote: Fri May 18, 2018 8:06 pm Do people actually take DR seriously? 🙄
Many here, including myself, take Dave Ramsey seriously. Your question, not so much.
Sure, I guess if you have monster Debt and are not so good with finances then his advice would probably resonate. I've followed him for a while, what he says is common sense and his investing advice consists of him plugging away with his "heart of a teacher" financial advisers. Lets keep in mind, the man makes money selling books.

He endorses paying front load fees/commissions and paying advisers high fees. Also advocates buying a house cash.. Sure Davey... whatever you say.
He does give good advice on not going into serious hock for a degree in left handed puppetry. Common sense more people should take heed of.
College loans will haunt you until you die.
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hightower
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Re: Dave Ramsey it or keep low interest debt

Post by hightower »

Meaty wrote: Mon May 21, 2018 2:50 pm
hightower wrote: Mon May 21, 2018 2:19 pm To the OP, yes I think you should "Dave Ramsey" the car loans. In my opinion, it is not smart to go into debt for consumer goods such as automobiles. If you wouldn't walk into the dealer and pay cash for the car, you probably are buying too much car. Doesn't really matter that it's low interest or zero interest, it's a behavioral problem. You spent over 60k on cars. Would you have spent the same if you had forced yourself to pay with cash? I mean at 250k/year income, you're not necessarily living above your means. But, why take on debt if you don't have to? It usually results in higher spending. That's why I see it as a behavioral problem.
I think people like to finance cars because it hurts too much to spend that much cash. If you actually had to let go of 60k cash, would you really want that car anymore? I spent 40k on a car this year and paid cash and I HATED letting go of all that money. My wife and I pull in over 350k/yr and it still hurts. I'm planning on driving this thing until it's falling apart! Forcing myself to pay with cash makes me pay attention to the actual cash I'm losing in exchange for a car that will just lose value quickly every year and get chips in the paint and dents in the doors, etc. I had to ask myself how much of my hard earned money am I willing to let go of right now? It definitely kept me from spending too much (Tesla's are super neat, but I'm not spending that much on a car)
When people sign up for a car loan, it seems a lot less painful because they are just looking at the size of the monthly payment, which doesn't seem as bad in the grand scheme of things.
Plus, if someone is okay with signing up for a zero percent car loan, what's to stop them from borrowing $2,000 for a TV? It's zero interest too! And why not buy the nicer computer for $1,800 while you're at it? Before you know it, you have $100k of debt and a bunch of aging electronics sitting around your house and in your driveway that you're still making payments on.
Valid thoughts and ive decided not to borrow going forward. For anything. Given these loans are already in existence though, the decision now is should I divert cash from taxable to payoff these debts? After contemplating the great feedback here, I’ve decided to keep them as I think I’ll net more in taxable and can sleep well knowing I could write a check for the two car loans if needed. Regarding the mortgage, I plan to follow White Coat Investors plan from another thread; essentially save in taxable rather than paying extra monthly payments. This should preserve liquidity until I have enough to payoff the mortgage in full
I think that's a solid plan
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Re: Dave Ramsey it or keep low interest debt

Post by BradJ »

Dave Ramsey’s advice isn’t perfect, but it’s core principle is, and that is freedom. It’s not about low interest rates or small loan percentage in relation to earnings, it’s at the end of the day that money is all mine (or God’s in my opinion). So the question is not to Dave Ramsey it or not, but what does freedom look like to you? If you are happy paying the loans, by all means do it.....but rest assured you are not free. I have plenty of friends in your same predicament and are perfectly happy paying the loans on a monthly basis.
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Re: Dave Ramsey it or keep low interest debt

Post by djpeteski »

Meaty wrote: Fri May 18, 2018 4:33 pm Thank you both. I realize it’s a heart vs brain issue. My brain says keep it as I’ll likely earn more in my accounts but heart would prefer to payoff
For this reason I would recommend to pay off all your debt. Feelings are real and I can only say that this math guy has discovered that it is far more beneficial to not have the feelings associated with having debt. Being debt free is wonderful and it in my (our) own life we found it far more beneficial to be debt free than the numbers would suggest.

Not having negative feelings may lead you to better and more profitable opportunities. Sure some people don't have those negative feelings, but my wife and I certainly did and it seems so does your heart.

Our own story includes going from having a small net worth in 6/2013 (around 100k), getting married, and starting baby step 2 together. It took us 13 months to pay off all consumer debt, then 35 months (total) to pay off the house, then 49 months (total) to hit the two comma club. Over 900k in net worth generated in just over 4 years. And the story is not over...whatever. We could be worth close to 4 million by the end of 2018. For the record, our household income when we were married was 220k, and is currently 290k.

So what is causing all that to happen? Is it because we removed negative feelings associated with debt from all of our lives? Is it because my wife and I learned to work together, plan, and then carry out that plan? Is it because we were blessed beyond measure by God for doing things his way? I can't say. Would we have been better off if we held on to debt? I can say, for sure, "no".

As DR always say. Pay off the debt. Then if you really don't like it you can always go out and get another car/home loan.
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Re: Dave Ramsey it or keep low interest debt

Post by fireman »

Meaty wrote: Fri May 18, 2018 4:12 pm Right now I save 86k annually. Should I continue saving as is (via 401k, Roth, taxable) or save less to knock out these very low interest loans? I know the wiki advises keeping all until normal payoff but Ramsey keeps stating millionaires are made following his methods
Keep saving "as is" and don't worry about holding the low interest debt. Possibly segregate (actually or just mentally) a portion of your savings against the loans. For example, segregate or earmark $38K of your savings to offset your 38K car loan. You could do the same with the other loans.

On the other hand, like many other responders have said, pay off the loans faster (or now) if they bother you.

As for DR stating the millionaires are made following his methods, saving 1/3 of your relatively high annual income is far more likely to have a bearing on your net worth (i.e., being a millionaire or millionaire+) than is whether or not you pay off this low interest debt.
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Re: Dave Ramsey it or keep low interest debt

Post by Texanbybirth »

Meaty wrote: Fri May 18, 2018 5:36 pm Thanks for all the great responses. I knew I could count on this community to help me think through this from all angles. I think I’ll keep and payoff as scheduled; especially given my online banking account pays more than the weighted APR of the cars

I’ll also ensure I never borrow money again. That should satisfy both my intellectual and emotional sides

Thanks again
Good plan all around! :beer Seems like the rest of the thread devolved quickly.
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Re: Dave Ramsey it or keep low interest debt

Post by deltaneutral83 »

pennylane wrote: Tue May 22, 2018 8:27 am Sure, I guess if you have monster Debt and are not so good with finances then his advice would probably resonate. I've followed him for a while, what he says is common sense and his investing advice consists of him plugging away with his "heart of a teacher" financial advisers. Lets keep in mind, the man makes money selling books.

He endorses paying front load fees/commissions and paying advisers high fees. Also advocates buying a house cash.. Sure Davey... whatever you say.
The first sentence describes well over 80% of the US population, the analysis (and many other BH I've noticed) gives the impression you think it's a corner of the populace or the margins, it's not, its the vast majority (debt). There is a reason Dave Ramsey is not a moderator of the Bogleheads forum and there is a reason John Bogle doesn't host a radio show telling people not to max out their credit cards on junk. Different audiences. Investing 15% of your income into front loaded American Funds with 80 bp avg. ER's over the last thirty years of a career would make 4 out of 5 working folks' lives better than it currently is financially. Is it what I do, no. BH is the top ten % in terms of financial literacy/income. If 90% of the population can't use credit cards responsibly then I think it's fine for someone to rail against them as it helps the greater good. I don't take offense when DR yells at people for this because he's seen financial ruins from them, not the all inclusive beach resorts and flights I get from using them. I would expect BH to understand these metrics and apply it accordingly with little confusion but somehow it doesn't connect.
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Re: Dave Ramsey it or keep low interest debt

Post by GodelianKnot »

BradJ wrote: Tue May 22, 2018 9:56 am Dave Ramsey’s advice isn’t perfect, but it’s core principle is, and that is freedom. It’s not about low interest rates or small loan percentage in relation to earnings, it’s at the end of the day that money is all mine (or God’s in my opinion). So the question is not to Dave Ramsey it or not, but what does freedom look like to you? If you are happy paying the loans, by all means do it.....but rest assured you are not free. I have plenty of friends in your same predicament and are perfectly happy paying the loans on a monthly basis.
By this definition, no one is "free". You'll always have to pay property tax, even if you own your house outright. Furthermore, if you have enough money in the bank to pay off all of your loans, but choose not to, how exactly are you less "free" than if you have no money in the bank and no loans?

I kind of can't believe there are so many Dave Ramsey advocates on this forum. He's all about managing emotional responses to debt, not prudently understanding your financial situation.
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Re: Dave Ramsey it or keep low interest debt

Post by Hoosierdom »

GodelianKnot wrote: Tue May 22, 2018 10:33 am
BradJ wrote: Tue May 22, 2018 9:56 am Dave Ramsey’s advice isn’t perfect, but it’s core principle is, and that is freedom. It’s not about low interest rates or small loan percentage in relation to earnings, it’s at the end of the day that money is all mine (or God’s in my opinion). So the question is not to Dave Ramsey it or not, but what does freedom look like to you? If you are happy paying the loans, by all means do it.....but rest assured you are not free. I have plenty of friends in your same predicament and are perfectly happy paying the loans on a monthly basis.
By this definition, no one is "free". You'll always have to pay property tax, even if you own your house outright. Furthermore, if you have enough money in the bank to pay off all of your loans, but choose not to, how exactly are you less "free" than if you have no money in the bank and no loans?

I kind of can't believe there are so many Dave Ramsey advocates on this forum. He's all about managing emotional responses to debt, not prudently understanding your financial situation.
I have to believe the title attracts a lot of Ramsey people and causes most of the community at large to roll their eyes and move on. The level of analysis on this one is not up to board norms.
NextMil
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Re: Dave Ramsey it or keep low interest debt

Post by NextMil »

I would DR it in a hearbeat for cleanliness sake. Its $58k and no more payments. Why have annoying monthly payments hanging around? Sure you could make a spread, but with your income, who cares about a few extra bucks? I am guessing we are not talking a 30 year amortization schedule, so what are you actually saving?
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Re: Dave Ramsey it or keep low interest debt

Post by pennylane »

deltaneutral83 wrote: Tue May 22, 2018 10:25 am
pennylane wrote: Tue May 22, 2018 8:27 am Sure, I guess if you have monster Debt and are not so good with finances then his advice would probably resonate. I've followed him for a while, what he says is common sense and his investing advice consists of him plugging away with his "heart of a teacher" financial advisers. Lets keep in mind, the man makes money selling books.

He endorses paying front load fees/commissions and paying advisers high fees. Also advocates buying a house cash.. Sure Davey... whatever you say.
The first sentence describes well over 80% of the US population, the analysis (and many other BH I've noticed) gives the impression you think it's a corner of the populace or the margins, it's not, its the vast majority (debt). There is a reason Dave Ramsey is not a moderator of the Bogleheads forum and there is a reason John Bogle doesn't host a radio show telling people not to max out their credit cards on junk. Different audiences. Investing 15% of your income into front loaded American Funds with 80 bp avg. ER's over the last thirty years of a career would make 4 out of 5 working folks' lives better than it currently is financially. Is it what I do, no. BH is the top ten % in terms of financial literacy/income. If 90% of the population can't use credit cards responsibly then I think it's fine for someone to rail against them as it helps the greater good. I don't take offense when DR yells at people for this because he's seen financial ruins from them, not the all inclusive beach resorts and flights I get from using them. I would expect BH to understand these metrics and apply it accordingly with little confusion but somehow it doesn't connect.
Why is why I asked if anyone here actually took DR seriously.
NextMil
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Re: Dave Ramsey it or keep low interest debt

Post by NextMil »

I take him seriously. If it wasn't for him, I would be in a terrible position and no where close to where I am today. Seems silly to me to be so dismissive.
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Re: Dave Ramsey it or keep low interest debt

Post by BradJ »

I sometimes think people thumb their nose at Ramsey because they didn’t think of it first l, and/or for some reason if something is simple it can’t be effective.
GodelianKnot
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Re: Dave Ramsey it or keep low interest debt

Post by GodelianKnot »

BradJ wrote: Tue May 22, 2018 11:59 am I sometimes think people thumb their nose at Ramsey because they didn’t think of it first l, and/or for some reason if something is simple it can’t be effective.
No; it's just that it's bad advice for anyone who's not emotionally controlled by debt.
BradJ
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Re: Dave Ramsey it or keep low interest debt

Post by BradJ »

GodelianKnot wrote: Tue May 22, 2018 12:23 pm
BradJ wrote: Tue May 22, 2018 11:59 am I sometimes think people thumb their nose at Ramsey because they didn’t think of it first l, and/or for some reason if something is simple it can’t be effective.
No; it's just that it's bad advice for anyone who's not emotionally controlled by debt.
I must say, I’m actually jealous of people who don’t overthink debt. I can tell you my reason, my parents told me at 18 I was on my own and they may need to borrow from me time to time. I was raised middle class, by parents who didn’t overthink finances and bit them hard. I pray at times to not overthink debt, but I also pray to value freedom more than anything.

“Freedom to make my own mistakes is all I ever wanted”
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SmileyFace
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Re: Dave Ramsey it or keep low interest debt

Post by SmileyFace »

I'd keep the car loans and pay off the mortgage (without interrupting you tax-advantaged savings). I'm surprised by how many are saying the opposite.
I've gone in to buy a car with cash - after final negotiating if they offer me a 0% loan on top of everything - I take it (and I don't pay it back early - invest the money - even if just putting it in a high-yield savings - and put the loan on auto-pay. If you do lose your job have some have said - you still have the money you were going to use to buy the car....plus interest).
NextMil
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Re: Dave Ramsey it or keep low interest debt

Post by NextMil »

BradJ wrote: Tue May 22, 2018 12:30 pm
GodelianKnot wrote: Tue May 22, 2018 12:23 pm
BradJ wrote: Tue May 22, 2018 11:59 am I sometimes think people thumb their nose at Ramsey because they didn’t think of it first l, and/or for some reason if something is simple it can’t be effective.
No; it's just that it's bad advice for anyone who's not emotionally controlled by debt.
I must say, I’m actually jealous of people who don’t overthink debt. I can tell you my reason, my parents told me at 18 I was on my own and they may need to borrow from me time to time. I was raised middle class, by parents who didn’t overthink finances and bit them hard. I pray at times to not overthink debt, but I also pray to value freedom more than anything.

“Freedom to make my own mistakes is all I ever wanted”
- Mance Rayder
It’s not bad advice. It’s only recently been called into question due to low interest rate environment. We could easily be back into an interest rate environment that would be screaming get out of debt and people would think you would be crazy to hold on to debt. It’s crazy how quickly memory fades, or people are too young to remember. in my case having looked at the history and read the gamut of financial books there is a risk to borrowing to invest even at 0%.
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Re: Dave Ramsey it or keep low interest debt

Post by deltaneutral83 »

pennylane wrote: Tue May 22, 2018 11:31 am Why is why I asked if anyone here actually took DR seriously.
Well, I know several 8 figure BH types that take him seriously so yea. In fact, most of them have at least one crappy WL policy and would have been monumentally better off investing in an S&P index for 30-40 years instead. You ever tried to tell someone with an 8 figure net worth they were making a mistake financially? It usually doesn't go over well, in fact, it doesn't even go over.
GodelianKnot
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Re: Dave Ramsey it or keep low interest debt

Post by GodelianKnot »

NextMil wrote: Tue May 22, 2018 1:15 pm
BradJ wrote: Tue May 22, 2018 12:30 pm
GodelianKnot wrote: Tue May 22, 2018 12:23 pm
BradJ wrote: Tue May 22, 2018 11:59 am I sometimes think people thumb their nose at Ramsey because they didn’t think of it first l, and/or for some reason if something is simple it can’t be effective.
No; it's just that it's bad advice for anyone who's not emotionally controlled by debt.
I must say, I’m actually jealous of people who don’t overthink debt. I can tell you my reason, my parents told me at 18 I was on my own and they may need to borrow from me time to time. I was raised middle class, by parents who didn’t overthink finances and bit them hard. I pray at times to not overthink debt, but I also pray to value freedom more than anything.

“Freedom to make my own mistakes is all I ever wanted”
- Mance Rayder
It’s not bad advice. It’s only recently been called into question due to low interest rate environment. We could easily be back into an interest rate environment that would be screaming get out of debt and people would think you would be crazy to hold on to debt. It’s crazy how quickly memory fades, or people are too young to remember. in my case having looked at the history and read the gamut of financial books there is a risk to borrowing to invest even at 0%.
It's still not good advice in a high rate environment.The debt snowball, for example, pays no heed if one of your debts is at a much higher interest rate than the rest. That is only good advice in-so-far as it's a behavioral assist, or if you have short-term cash-flow issues. It's not a good plan for a financially-responsible person with more total assets than debt. Especially not in a high-rate environment.

And I would love to hear what financial risks there are to borrowing at 0% and investing in US treasuries yielding 2.5%
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Re: Dave Ramsey it or keep low interest debt

Post by DVMResident »

GodelianKnot wrote: Tue May 22, 2018 2:08 pmAnd I would love to hear what financial risks there are to borrowing at 0% and investing in US treasuries yielding 2.5%
If you have collateral in (near) cash, like the car loan example posted above, there is none for all practical purposes.
If you don't have the collateral, there's liquidity risk. Shrug, doesn't sound like an issue for the OP.

Back to the OP, I'd keep those loans on schedule and keep building the nest egg. I like liquidity and looks like you do, too :beer
NextMil
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Re: Dave Ramsey it or keep low interest debt

Post by NextMil »

GodelianKnot wrote: Tue May 22, 2018 2:08 pm It's still not good advice in a high rate environment.The debt snowball, for example, pays no heed if one of your debts is at a much higher interest rate than the rest. That is only good advice in-so-far as it's a behavioral assist, or if you have short-term cash-flow issues. It's not a good plan for a financially-responsible person with more total assets than debt. Especially not in a high-rate environment.

And I would love to hear what financial risks there are to borrowing at 0% and investing in US treasuries yielding 2.5%
You are conflating issues, but if I use your example, someone who is fiscally responsible isn't deeply indebted to many creditors, very difficult for both of those to be true.

You are pretending all of this happens in a vacuum. When you have payment there is always risk. Risk you cannot pay it some month. Risk that the bank screws up, and your zero percent flips to 18% and your 2.5% you are grinding out on the $20k a year, is decimated in a matter of minutes between the higher finance charge, the late payment fee, and the whatever else they decide to tack on. Even if you can get the bank to work with the car finance company and reverse it all, the amount of hours you will spend on it won't be worth the few bucks you squeeze out of the arbitrage it if you are billing out at $225k a year salary. Not to mention the 0% teaser rate more than likely means they are selling off inventory on a new car, that will be discounted much more heavily in a few months when the new models come out or you forewent a cash break on the price.

Nothing in life is free.

Also, I skipped over your original idea, but it absolutely is great advice in a high interest rate environment. It would be absurd to invest when your interest rate is higher than what you are earning in the market.
tesuzuki2002
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Re: Dave Ramsey it or keep low interest debt

Post by tesuzuki2002 »

Meaty wrote: Fri May 18, 2018 4:12 pm I have 3 debts as follows

20k car loan - 0%
38k car loan - 1.9%
226k mortgage - 3.625%

Annual income 255k
Fully funded emergency fund (6 months)

Right now I save 86k annually. Should I continue saving as is (via 401k, Roth, taxable) or save less to knock out these very low interest loans? I know the wiki advises keeping all until normal payoff but Ramsey keeps stating millionaires are made following his methods

Thanks in advance

My advice is to not take on more debt... and pay these off on a schedule to minimize interest paid and keep investing.
PharmerBrown
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Re: Dave Ramsey it or keep low interest debt

Post by PharmerBrown »

NextMil wrote: Tue May 22, 2018 5:35 pm
GodelianKnot wrote: Tue May 22, 2018 2:08 pm It's still not good advice in a high rate environment.The debt snowball, for example, pays no heed if one of your debts is at a much higher interest rate than the rest. That is only good advice in-so-far as it's a behavioral assist, or if you have short-term cash-flow issues. It's not a good plan for a financially-responsible person with more total assets than debt. Especially not in a high-rate environment.

And I would love to hear what financial risks there are to borrowing at 0% and investing in US treasuries yielding 2.5%
You are conflating issues, but if I use your example, someone who is fiscally responsible isn't deeply indebted to many creditors, very difficult for both of those to be true.

You are pretending all of this happens in a vacuum. When you have payment there is always risk. Risk you cannot pay it some month. Risk that the bank screws up, and your zero percent flips to 18% and your 2.5% you are grinding out on the $20k a year, is decimated in a matter of minutes between the higher finance charge, the late payment fee, and the whatever else they decide to tack on. Even if you can get the bank to work with the car finance company and reverse it all, the amount of hours you will spend on it won't be worth the few bucks you squeeze out of the arbitrage it if you are billing out at $225k a year salary. Not to mention the 0% teaser rate more than likely means they are selling off inventory on a new car, that will be discounted much more heavily in a few months when the new models come out or you forewent a cash break on the price.

Nothing in life is free.

Also, I skipped over your original idea, but it absolutely is great advice in a high interest rate environment. It would be absurd to invest when your interest rate is higher than what you are earning in the market.
There is risk with everything we do with money. For every cent we spend, we're one cent closer to running out some day. The Ramsey / anti-debters always take the rigid stance of never taking loans because of the risk. That is how these posts end up with hundreds of responses. These are just like the posts where people ask about buying a new BMW or a $10k watch. There are always the people that are confidant it is a terrible decision.
A lot of us decide how much we want to save first and manage the rest as we go. It's not a decision of borrowing to invest. The investment is the priority and the first line on the budget (priority). Most of the people on this site will save more than they need. "Hope for the best and prepare for the worst". The risk of taking a car loan for most on this site is minimal, especially compared to the risk we create by having money in the first place.
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Nate79
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Re: Dave Ramsey it or keep low interest debt

Post by Nate79 »

Certainly DR is a polarizing topic on BH. But to call those that agree with his anti debt philosophy as unsophisticated (or other derogatory descriptors) is childish at best. No offense to those that think they are smarter, more sophisticated, etc of the DR mentality should understand that there are equally smart and sophisticated investors and personal finance on the DR side. The DR philosophy has more in common with BH finance than many on here like to admit.
GodelianKnot
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Re: Dave Ramsey it or keep low interest debt

Post by GodelianKnot »

NextMil wrote: Tue May 22, 2018 5:35 pm Risk that the bank screws up, and your zero percent flips to 18% and your 2.5% you are grinding out on the $20k a year, is decimated in a matter of minutes between the higher finance charge, the late payment fee, and the whatever else they decide to tack on. Even if you can get the bank to work with the car finance company and reverse it all, the amount of hours you will spend on it won't be worth the few bucks you squeeze out of the arbitrage it if you are billing out at $225k a year salary.
I mean... if this is your view of debt, then I agree, you shouldn't have any.
NextMil
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Re: Dave Ramsey it or keep low interest debt

Post by NextMil »

GodelianKnot wrote: Wed May 23, 2018 8:27 am
NextMil wrote: Tue May 22, 2018 5:35 pm Risk that the bank screws up, and your zero percent flips to 18% and your 2.5% you are grinding out on the $20k a year, is decimated in a matter of minutes between the higher finance charge, the late payment fee, and the whatever else they decide to tack on. Even if you can get the bank to work with the car finance company and reverse it all, the amount of hours you will spend on it won't be worth the few bucks you squeeze out of the arbitrage it if you are billing out at $225k a year salary.
I mean... if this is your view of debt, then I agree, you shouldn't have any.
Yeah, I apply highest best use to it. Why spend your time trying to grind out $40 a month at best, with a risk and hassle factor when you could be billing more hours at work. People stepping over dollars to pick up pennies.
sailfish2
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Re: Dave Ramsey it or keep low interest debt

Post by sailfish2 »

retiredjg wrote: Fri May 18, 2018 8:15 pm
pennylane wrote: Fri May 18, 2018 8:06 pm Do people actually take DR seriously? 🙄
I think many people here think DR is great for helping people get out of monstrous debt. Maybe one of the best.

But I think most would not have great things to say for DR's investment advice.
This. I can only imagine how much lower my 401K and IRA investment account balances would be if I had followed old Dave's advice and waited until I had "kicked Sallie Mae out of the house" (paid off my over 100K of law school student loans) before investing ANYTHING for retirement during my 20s and 30s. My federal student loan is fixed at 3.13%; I did hurry and paid off the higher interest private loans.

Does Dave have value? Yes. Do I wish I had followed some of his advice re consumer debt? (Yes, I am still paying what Dave calls the "stupid tax" in the form of some consumer interest). Of course!

As you can tell, I have listened to DR and found his show to be valuable, cautionary advice to the large percentage of Americans who need it.
BUT I totally disagree with his advice re waiting on retirement investment until debt-free.
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Re: Dave Ramsey it or keep low interest debt

Post by 2tall4economy »

Despite having more than enough investments to pay in cash I took on some debt when I relocated back to the USA after being debt free for years because of the hassle of liquidating. I’ve since paid it all back down again except the mortgage.

The way I look at it the return im missing out on for the capital I have in my cars is minuscule to my overall portfolio. I can’t say the same about my mortgage. Not to mention I would have too much real estate exposure in my portfolio if I paid off the mortgage.

So vote pay off the cars and other debt but not the house
You can do anything you want in life. The rub is that there are consequences.
BigMoneyNoWhammies
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Re: Dave Ramsey it or keep low interest debt

Post by BigMoneyNoWhammies »

teddytimtam wrote: Fri May 18, 2018 4:40 pm I would pay off both car loans today. Like Ramsey says, the borrower is slave to the lender.

It's more of an emotional feeling that you don't owe any money to anyone or bank (besides mortgage). Many people that are math "geniuses" do not ever account for this and always think about rate of returns vs low interest debt.

Look at it this way... if you had both car loans paid for ($58k), would you go BORROW $58k just to invest it? Even worse, would you go borrow $58k just to finance another vehicle?
If the rate on my 2 loans was 0% and 1.9% like those 2 car loans, and given the historical market return after expenses, I would absolutely borrow 58k to invest knowing my rate of return would be very likely outpace interest in the long run.
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