Debt

1 in 4 Cancer Survivors Face Financial Hardship

June 7, 2019 By Amanda Blankenship Leave a Comment

One-fourth of cancer survivors under the age of 65 are drowning in medical debt and one-third of them say they’ve stressed about medical expenses at some point in the past. According to the latest Morbidity and Mortality Report, cancer survivors also typically have higher annual out-of-pocket spending for healthcare than those who have never had cancer.

Financial Hardship Hits Survivors Hard

There are approximately 16.9 million cancer survivors living in the United States. The report, which is published each year by the U.S. Centers for Disease Control and Prevention, found financial hardship hits survivors harder than you’d think.

“The population of cancer survivors is growing and many struggle to pay for costs of medical care,” said Donatus Ekwueme, a senior health economist at the CDC. “As a result, some survivors are worried about paying and have problems paying for medical care, and some are even forced to file for bankruptcy.”

The financial burden is only expected to continue to increase in the coming years. Because the number of people diagnosed will increase, so will the financial hardship.

Cancer Survivors Pay Out of Pocket

To construct the report, the CDC, the American Cancer Society, and the National Cancer Institute analyzed data about the out-of-pocket expenses and financial hardships of cancer survivors in the U.S. Those involved in the data analyzed were between the ages of 18 and 64 between 2011 and 2016.

For the average survivor, out-of-pocket spending each year for healthcare was about $1,000. The average American without a history of cancer spends just $622. On top of that, 25.3 percent reported material hardship associated with their diagnosis.

Material hardship, in this case, means ever having to borrow, rack up debt, or file for bankruptcy, as a result of medical costs. Additionally, more than 34 percent report suffering from psychological financial hardship. This means many of them worried about the ability to pay their medical bills and get the treatment they needed.

One-quarter of the individuals involved in the observations also reported struggling and even failing, to pay their medical bills.

More Likely to Seek Follow Up Care

Of course, the care for cancer patients during treatment is exorbitant. However, it also seems cancer patients’ cost of care doesn’t end when they go into remission. Most cancer survivors are more likely to go to the doctor on a regular basis.

In that respect, cancer “seems to be the gift that keeps on giving,” said Dr. Rachel Adams Greenup, a breast cancer surgeon at Duke University.

Greenup, who was involved in the study pointed out, “Cancer survivors, even if they’re cured, they interface with the health care system more frequently — and so it is more costly to them and to the health care system than someone who’s never had cancer. It’s devastating to these patients.”

How Much Cancer Costs

Depending on your diagnosis, treatment could cost between $5,000 (minor skin cancer) to $108,000 (brain cancer). And those figures are only for the first year of treatment. Not to mention, the indirect medical costs like needing the assistance of specialists or complications with their medication.

The cancer survivor’s family takes on a good bit of these medical costs as well. Families are twice as likely to have more than 20 percent of their income taken up with out-of-pocket medical costs.

Insurance vs. No Insurance

Some cancer patients are without insurance. If they are diagnosed without coverage, it can absolutely ruin them financially. Although they spend less altogether, a greater portion of their families’ income than individuals with insurance.

Even survivors who carry insurance reported borrowing money, accruing debt, inability to pay their medical bills, and even filing for bankruptcy.

How to Help

This year, it is predicted that nearly 1.8 million Americans will be diagnosed with cancer. So, how do we help guard cancer survivors from financial hardship?

First, the authors of the report suggest that making health care more affordable will help improve the long-term survival of those who have survived cancer.

Another way to help prevent such tremendous hardship is educating patients by discussing costs before they begin treatments. Doctors play a huge role in providing guidance regarding out-of-pocket expenses with their patients.

It isn’t really surprising that cancer patients face financial hardships. As Dr. Georges Benjamin pointed out, there are other factors to consider as well. “The other thing we know is there is a correlation between health care costs and people’s mental health,” he said. The inability to pay health care bills can increase risk of sadness and depression.

All in all, the best way to cure the financial hardships of those diagnosed with cancer is early detection and prevention. Early detection will lead to easier, less costly treatment and ease the financial burden of the terrible disease.

It should be noted there were some limitations in the CDC report. All data was self-reported. No information was gathered about the stage or types of cancer.

Readers, what do you think about the financial hardships faced by cancer survivors?

Can Senator Warren Really Really Wipe Out $640 Billion in Student Loan Debt?

May 9, 2019 By Tamila McDonald Leave a Comment

As April 2019 drew to a close, Senator Elizabeth Warren revealed an ambitious plan to help American families overcome student loan debt. If the plan was implemented, about 75 percent of Americans with student loans would see their debt vanish. For another 20 percent, at least some of their student loan obligation would disappear. But can Senator Warren really pull it off?

Senator Warren’s Student Debt Cancellation Plan

Senator Warren – who is also campaigning to be the next president of the United States – has a bold plan for tackling the student debt crisis in the United States. She wants to cancel up to $50,000 in student loan debt for any American household earning up to $100,000 a year. For approximately 75 percent of student loans holders in the U.S., that would mean cancellation of all of their remaining student loan debt.

However, 95 percent would at least get some degree of relief. If a household earning less than $100,000 had over $50,000 in debt, the plan would dismiss at least $50,000. For example, if a qualifying family had $65,000 in student debt, only $15,000 would remain after $50,000 worth was canceled through Senator Warren’s plan.

Additionally, partial debt cancellation for households that earn between $100,000 and $250,000 a year would also be available. The value of the cancellation would decrease by $1 for every $3 earned over $100,000. For example, households with incomes of $160,000 would get $30,000 of their student debt canceled. At the $190,000 annual income mark, the family would see $20,000 of their student loan debt wiped away.

Households with federal student loans wouldn’t even have to take action. Since the government has access to their loan and income data, it could be handled without the family having to take any steps. Private student loan debt would also be eligible in the plan, but the government would need to work with borrowers to get the loan details and coordinate the debt elimination with the lenders.

Many lower- and middle-class families struggling with student debt would get some relief, especially since the debt elimination wouldn’t be taxed as income. Senator Warren equated the plan to “an enormous middle-class stimulus that will boost economic growth.” And she didn’t stop there. If her plan was implemented, about 42 million Americans would at least get partial relief from their student loan debt.

Senator Warren’s Free College Plan

Another part of Senator Warren’s policy that could have a massive impact on American families is her plan for universal free college. She wants to make two- and four-year public colleges available without any tuition or fees, significantly limiting how much a person would have to spend while pursuing higher education.

While that plan might not bring the cost of college to zero – as it does not address other expenses like room and board or supplies – to say it would make a substantial difference would likely be considered an understatement.

The Drive for College Degrees

Many Americans believe that a college education is critical for their future success. One 2012 Pew study showed that 94 percent of parents with children under the age of 17 expected their kid to go to college.

Additionally, it is widely known that individuals with college degrees generally earn more than those who stop going to school after receiving their high school diploma. Those who have a four-year degree earn about 26 percent more than those with two-year degrees and college graduates bring in 56 percent more than high school graduates.

Employers are also increasingly seeking out workers with college degrees. One study by Georgetown indicated that 65 percent of jobs in the US would require at least some level of higher education by 2020.

Paying for Senator Warren’s Plan

Most who oppose Senator Warren’s plan first point to the price tag, which is estimated at $1.25 trillion over 10 years for both the debt elimination ($640 billion) and universal free college components. To put it simply, eliminating that much student loan debt and making college free wouldn’t be cheap. However, Senator Warren says she has a plan for that too.

She would like to fund her plan through an “Ultra-Millionaire Tax.” Families with $50 million or more in wealth – a total of about 75,000 households – would be subject to a 2 percent annual tax, which Senator Warren says would cover universal free college and the debt cancellation.

However, many legislators believe that Senator Warren’s plan is just too expensive. Additionally, some think it would be unfair to erase student loan debt when so many others have already paid off their hefty loans.

Concerns about ensuring schools would control their costs have also been expressed. Since 2001, tuition at four-year institutions has risen over 100 percent (including after being adjusted for inflation).

Can Senator Warren Wipe Out Billions in Student Loan Debt?

In her position as Senator, she does not have the power to move ahead with this plan alone. She would need significant backing from Congress and the President to turn this vision into reality, as it would have a massive impact on the budget.

If Senator Warren was elected in 2020 to become the next President, she could also then try to push this plan forward. However, since it would involve updates to the tax code (to implement her Ultra-Millionaire Tax), changes in the US educational system and funding dedicated through the federal budget, putting it into motion without the support of Congress would incredibly unlikely.

Now, if Senator Warren did garner enough support – either while in Congress or if she becomes President – then wiping out that student loan debt isn’t impossible. Similarly, making public college tuition and fee free is technically something that could happen. It’s just important to understand that there is a long road ahead if that is a plan she wants to implement and, without the proper support from other key government officials and legislators, it probably won’t become a reality.

Are you struggling with student loan debt? Do you think Senator Warren’s plan is a good idea? Tell us about your experience an share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Is Putting a 20% Down Payment on a House Realistic?

May 6, 2019 By Cortni Marrazzo 31 Comments

I understand the argument behind the advice of putting at least a 20% down payment on a house purchase. No one wants to pay private mortgage insurance and the idea of getting two different loans to avoid it isn’t that great either. I imagine if you are a previous homeowner and have some equity from a previous house to put down on a new one, a 20% down payment is very feasible, but what about first time home buyers?

Saving Up The 20% Down Payment has Huge Opportunity Costs

In the area that I currently live, the average home price is about $175,000 for a decent starter home. That’s actually a pretty low price compared to where I grew up across the state, where you can’t get a decent starter home for under $275,000. Let’s say someone wanted to buy a home for the first time. A 20% down payment for an average house in each area would be $35,000 and $50,000 respectively (and that doesn’t even include closing costs) Who has that kind of cash readily available? Not many people. So the advice many are given is to save up and wait.

Let’s look at what that would look like. Say you are able to save $500 a month towards your down payment. You are able to knock down your costs and pull aside that much every month. It would take you almost 6 years of saving $500 a month in order to afford the 20% down payment in the less expensive city and over 9 years to afford the one in the pricier area.

What if you were able to save $1,000 a month? Then it would take you 3 years and 4.5 years respectively. But saving $1,000 a month is quite difficult when you are trying to fund a retirement account and live day to day. Especially for up to 9 years. Most first home buyers are younger – probably in their 20s. In the best case scenario, you need to save for 3 years – in the worst case, it would be 9 years (this is assuming you already have a sizable emergency fund to take care of unexpected expenses).

It is even harder when you start looking at this from a market standpoint. House prices will rise. I don’t care what the housing market looks like now – eventually, the values will rise again. Let’s say values rise at a conservative 1% per year. In 3 years, each “average” house will cost at least $5,500 and $8,500 more, respectively. In 9 years, each house will cost at least $16,000 and $25,000 more, respectively.

Everyone who finally reached their 20% down payment goal will now need more money than originally thought for the down payment of a home that is now more expensive. Not to mention the money lost on throwing away rent rather than building equity (however small that amount may be in the first few years). Add to that the tax deductions missed and the missed opportunity to profit from the market’s increasing values. Ouch! Those numbers aren’t pretty. You have to spend money on housing either way – why not get some benefits from it?

Chances are, if you are saving a huge chunk of money each month for a large house down payment, you aren’t contributing the max to your retirement account. Your early investing years are the most critical for your future because of the wonderful concept called compounding interest. You could lose some very valuable interest time by waiting to invest (or increase your investment amount).

It Is Perfectly Reasonable To Buy A Home For Less Than 20% Down

Perhaps there are some people for which putting a 20% down payment on a house is not only possible but also a perfect fit for them. I personally don’t know any of those people and am not one of them. We chose to buy our house with no money down and use our monthly extra to invest more, stock up our retirement fund, fund our emergency savings, and make improvements to our house that will increase the value when we go to sell.

The funny thing is that our mortgage is not outrageous, we are not struggling to keep up with our payments and we are not in jeopardy of defaulting on our loan. The fact of the matter is that there are people who are a high risk to mortgage companies who will likely default on their loan if they get into a house with no money down. But there are also responsible people who will pay their mortgage on time every month who just want to have a choice of what to do with their extra money and how to best use it.

Can You Get A Mortgage For Less Than 20%?

Yes. You can get a mortgage for less than 20% down. The best way to find out if you can do this is to start making calls. You’ll want to talk with a mortgage broker. Probably you’ll want to talk with several. A good starting place might be USAA (they have great customer service) as well as your local credit union. Stay away from the bigger banks, they sometimes have incentives that are perverse (for example, by pushing low money down loans or adjustable rate mortgages).

Begging On The Side Of The Road

May 6, 2019 By Guest Writer 12 Comments

By Brad H.

Have you ever seen those guys on the side of the road at freeway off-ramps or busy cross streets holding up a sign that reads something like “No Job. Hungry. Will work for food or money” and wondered who they were? At least some of them are like me because I was there once.

It was a few years ago when I had gone through a acrimonious divorce and lost my job at the same time. The combined result was that I found myself both homeless and penniless and wondering how I was going to survive.

I made the decision to stand on the side of the road with a sign asking for help. It wasn’t a proud moment, but sometimes you have to do what you have to do. At the time, it was one of the few ways that I could earn money to advance myself to a better place.

Begging on the Side of the Road Isn’t Easy

When I began, I assumed that I would work for the food or money, but it soon became apparent that I would earn most of the money from people generous enough to give me a few dollars. Most days nobody would offer me actual work even though I offered with each donation given. It also became apparent that you could earn a decent amount doing this. I usually left with over $100 in my wallet after a day holding a sign.

I would get work offers from time to time and I always took these when offered them. The work varied, but usually was manual in some way. I always worked for what the person offered and most times this was fair.

Earning money this way came at a price. It doesn’t take long to realize that standing on the side of the road asking for help makes most people really uncomfortable. It may not seem like a big deal, but it takes a lot of energy and stamina to keep going when you know that most people would rather that you not be there and disrupt their drive.

I did not waste the money that people gave to me. I was able to save enough to get an apartment, get a job and get myself back on my feet.

I’m not sure I could have gotten out of debt without the help of others. I ended up doing something that I never imagined I would need to do, but sometimes when life throws curve balls you need to make tough decisions. I would never encourage someone to stand by the road if they didn’t need to, but I would also not discourage someone from doing so if that is what they need to get back on their feet.

Do you have a story about saving money or earning money that you’d like to share? We’d love to hear about it.

Photo credit: Steven DePolo

Who Has the Most Debt In the U.S.? You Might Be Surprised

April 26, 2019 By Christina Majaski Leave a Comment

You’ve probably heard quite a bit about all of the things wrong with the Millennial generation. However, there’s an even bigger financial problem presenting itself among members of an entirely different generation. The generation with the most debt in the U.S. might surprise you.

Who Has the Most Debt?

According to a recent Experian study, members of Generation X – Americans between the ages of 39 and 54 – carry a higher degree of debt across almost all credit products than those of any other generation. This means that the focus on Millennial woes such as student loan debt, a stagnant job market stocked with service sector jobs, and credit card debt may also apply in equal measure to the older generation.

Stefan Stolba of Experian says “And when it comes to credit scores, the average FICO Score for Gen Xers is 687. That’s only 14 points lower than the national average, but it’s a gaping 45 points lower than baby boomers, those ages 55 to 73, who carried the second-most debt of any generation.”

It seems obvious that debt would be at its highest in the mid-20s or mid-30s for most Americans, simply because of skyrocketing tuition rates, relatively depressed incomes, and the trope of many Millennials and Gen Z members still living in their parents’ basements – but the precise opposite is actually true. Peak debt currently occurs at the age of 44 in the United States and remains relatively unchanged for approximately half a decade.

Increasing Debt Loads

At this point, the average American now owes in excess of $135,000 to $138,916 to be exact, and this number stays relatively flat for the next four years. Only on the cusp of hitting age 50, at 48, does this mountainous pile of debt start decline. Even then, the average only dips by several hundred – not thousands, or tens of thousands – of dollars on an annual basis.

The data from Experian seems to solidly indicate that Gen X carries a broader debt load than any other age-based demographic. Sure, Baby Boomers slightly outpace their younger cohorts in the realm of personal loans. However, the men and women of Generation X carry more credit card debt as well as more student loan debt and auto loan debt. The average FICO score of a Gen-Xer is almost 15 points lower than the national average across all data points. And, as anyone involved with personal finance can tell you, bad credit scores can be difficult to shake off.

The aptly named “forgotten generation” has likely been feeling the financial heat in recent years, often turning to credit cards to pay the bills. For many people in their 40s, this is the time for various debt issues to pop up.

Solutions for Managing Finances

Not all is lost, however. There are many options available for those scrambling to make up a shortfall on their budget spreadsheets. Consumer proposals, debt consolidation, and repayment plans are just some of the techniques available.

The first step is to acquire your current credit score, something which is both inexpensive (and sometimes free) and nearly instantaneous in today’s marketplace of technology and wealth-management services. Once you are equipped with the full knowledge of your financial situation — your credit score, bank statements, assets, and liabilities, you can start the journey toward improving your financial health.

Whether you are a Millennial, Baby Boomer, or Generation X, you can get out of debt.

Why do you think Gen X has the most debt?

21 Reasons Dave Ramsey Sucks at Giving Credit Score Advice

February 17, 2019 By Jeffrey Strain 117 Comments

There are huge disadvantages of having no credit score. I actually know this better than most. After living over ten years in Japan, I came back to the US naively assuming that the credit history I had built over there would transfer back to the US. That wasn’t the case and I found myself having to deal with numerous situations without a credit score. From my personal experience of having to deal with all the negatives that come with having no credit score, as well as knowing a number of others who experienced a similar situation to me when they returned, I can say with conviction that Dave Ramsey gives horrible credit score advice.

For those unfamiliar, Dave Ramsey refers to a credit score as the “I-Love-Debt Score” and makes the statement that “the only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectly — without adding too much debt or paying too much off. In other words, stay in debt for as long as you can.” This is patently false as I currently have no debt whatsoever and yet have a good credit score. Others do too.

He then advises that since you are working to become debt free, once you reach that goal you “…don’t need a credit score, anyway, since you don’t plan on using credit!” While this might sound nice, I can attest that even when you are debt free, a good credit score comes in extremely handy. I would even argue that having one is essential if you want to truly be financially savvy since it can save you a lot of money. If you care about getting the most out of your money, a credit score, whether we like it or not, is important to have.

While you may have heard some of the below arguments before regarding why a credit score can be important, my guess is that some of my arguments you may never have considered before. Below are 21 reasons that it’s important to keep a good credit score even if you’re debt free (and why Dave Ramsey sucks at giving credit score advice).

Wasted Time

This one is huge and one that I rarely see mentioned. I can’t over emphasize this point enough, and I would argue for this reason alone, you want to keep a good credit score. Not having one will mean that you will have to spend a lot more time when it comes to numerous financial situations, including any of the ones mentioned below. If you believe that your time is worth something as I do, wasted time can be a huge cost. Even when you are able to get what you want, you usually have to spend a lot more time explaining why you don’t have a credit score even though you don’t have any debt. I had to spend countless extra hours, many being extremely frustrating, sorting out my financial situation which should have been straight forward and simple all because I had no credit history.

Difficulties Even When Successful

Another problem with having no credit score is that even when you successfully get what you want, it’s much more difficult to get it than if you had a good credit score. Not having a credit score often means going through several layers of management until you can reach someone who will approve what you need. The fact is that for most entry-level employees, if anything isn’t exactly correct, they can’t approve it. That means that people who don’t have credit scores have to work much harder to get things than others that have a good credit score can get without any hassles.

Poor Customer Service

This is another aspect of not having a credit score that is often not mentioned, but the reality is that if you have no credit score, you don’t get treated nearly as well in many situations as you do when you have a good credit. When institutions look up my credit these days, they always seem to come back with a smile and an attitude that they are willing to do anything they can to help me. When I had no credit score, they always came back with concerned looks and a demeanor telling me that it was going to be difficult to help me even if they did the best that they could. The fact is, having a good score means that you will get better treatment from anyone who looks it up.

Lack of Financial Flexibility

Having a good credit score gives you a lot of financial flexibility that isn’t available for those with no credit score. When you have a good credit score, there are many financial institutions that want to work with you. That’s not the case when you have no credit score. Having a quality credit score means that you can get a much better deal when it come to virtually any financial transaction than you could get with no credit score at all. When the unexpected happens and you need to get funds for something that you had never anticipated, you simply have more flexibility in getting them than you do without a score to your name. This include the flexibility of financially helping out others if you choose to do so.

Increase Large Transaction Risks

One of the things that I immediately realized when I was still trying to get a credit card (which I was having trouble doing because I didn’t have a credit score) was the additional risk that came when making large purchases. I have always put the purchase of my airline tickets on credit cards because years ago I had a ticket on an airline that suddenly went bankrupt. Since I had made the purchase with a credit card, the credit card company refunded the amount back to me since I never received the service I had paid for. Had I not paid with a credit card in that instance, I would have simply lost the money. I had to make a number of large purchases upon arriving back in the US and although I was able to make them in other ways, I felt a bit uneasy knowing that if things went wrong, I really had no protection simply due to the lack of a credit rating.

Emergency Cash

Having lived through the Great Hanshin Earthquake (along with a number of smaller natural disasters), I know the importance of having access to emergency funds. When these disasters happen, it’s often impossible to get access to money that you have in your bank account (in the case of the Hanshin Earthquake, it was over 2 weeks before I had access to those funds). It helps to have cash in the days immediately after the disaster when many of the electronic transaction systems are down, but it also helps to have a credit card. During that time, my credit card was a lifesaver in securing a hotel room and other needs when I needed to spend thousands of dollars to get out of the city and find other lodging, but still didn’t have access to my bank accounts. Living in an area of the US where I knew a similar disaster could take place, I found that I needed to keep a lot more cash on hand in case of an emergency. I ended up losing interest on the cash I took out of the bank account plus there was the risk that it might get stolen, or in an emergency I wouldn’t be able to get to where I kept it in my house. Even with a large amount of cash on hand, I still felt my financial preparation was far from adequate had a true emergency happened. That is not the case now that I have good credit and credit cards.

Debit Cards Have Drawbacks

It’s often argued that there really is no need to have credit cards if you have a debit card, but in my experience, there are some definite drawbacks to this argument. I had a friend who had his debit card stolen and his account compromised. While he eventually got all the money that was taken out of his account back, his account ended up being frozen for a few weeks while an investigation took place. During this time, he had no access to any of his banking funds. As mentioned above, in an emergency you might need to access more funds than are in your debit card account with no way to transfer additional funds to it. It also doesn’t cover you with large transactions like an airline ticket refund if an airline goes bankrupt.

Difficulty Getting Security Clearance

One of my friends who came back after living overseas for a number of years landed a great job, but the job required security clearance. The lack of a credit score turned out to be a major stumbling block for him to get his clearance. He eventually did, but it took a lot of time and effort since his lack of one sent up a red flag, and even ended up meaning much more scrutiny in other areas of his life as well to get the clearance. Again, if you consider time and aggravation as a cost, then there is a definite one when you don’t have a score to your name.

Difficulty Getting an Apartment

I remember talking with one apartment manager when returning to the US that told me as soon as I mentioned that I didn’t have a credit score that I wouldn’t get approved for an apartment in his complex. He explained that there was high demand for the apartments so it simply wasn’t worth the risk to management even though I had a good explanation as to why I didn’t have one. While I did eventually find an apartment, the lack of a score caused some type of issue at each complex I looked at, making the entire process much more difficult than it ever should have been, and definitely much more so than if mine had been good.

The Possibility of Divorce

Nobody ever thinks they are going to get divorced when they first get married, but the truth of the matter is a high percentage of couples do. If you go into a divorce without a credit score, this can cause a number of issue both during and after. When people believe that they will never have to take out another loan when they become debt free, they are probably at a point where they never think they will get divorced either. The problem with divorce is that it can be an extremely expensive process and can quickly wipe out any savings and emergency funds that you might have had. Once divorced, financial circumstances can greatly change to where loans you thought you would once never need, might be needed to bridge gaps until you can create a new budget for your new reality. Hiring lawyers, finding a new job, getting a new place to live all become more difficult without a score in an already stressful time.

Difficulty Getting Loan Approval

If there is ever a situation when you need a loan, not having a credit score will make it many times more difficult to secure it than if you have a good credit. The thing is, even if you anticipate never needing to get another loan again, circumstances change and life could place a wrench into your best laid plans. Even if you are debt free at a moment and don’t anticipate ever needing a loan, that can quickly change if you unexpectedly lose a job and are unable to find a new one as quickly as you hoped. Life throws curve balls from time to time and if you are thrown one without a good credit to your name, recovering from it can be a lot more difficult than if you had it.

A More Expensive Mortgage

If you need to take out a mortgage, you will end up paying much more if you don’t have a credit score. The problem is that no credit score is equivalent to a bad credit score to most lending institutions. If they have no records that you can pay off your debts, they assume the worst and assume that you can’t. This means no score is the same as having a terrible score in the eyes of lending institutions. While you still may be able to secure a loan (and you may not), you will end up having to pay a larger interest rate to do it which can mean paying tens of thousands of dollars more over the lifetime of the loan.

Difficulty Securing Utility Services

When I needed to get utilities in my name after returning from Japan, I couldn’t just call and have them turned on like I expected. Several required me to pay a deposit in order to put the service in my name since I had no credit history of paying these bills in the past. It makes for an extra step in the process, it takes more time to get the service and you lose the interest that you could have earned from the money that you must give as a deposit.

Trouble Getting a Cell Phone Contract

Upon my return to the US, I was actually denied the first cell phone contract I tried to get due to no credit history. I was eventually able to secure one, but I ended up having to pay a deposit to do so much like I had to when it came to the utilities. While the deposit wasn’t a huge amount, I did lose the interest that I could have been earning on it. Far more frustrating was the extra time and headaches (and the costs associated with them) caused by not having a score that would have never come into play if I had a good one.

Possible Negative Effect on Job Opportunities

One thing that many people fail to realize is that as many as 70% of companies will check the credit history of a candidate for a job before they hire. With so many qualified people in the job market these days, it’s often the little things that end up determining who gets hired. A lack of a credit score compared with someone with the same qualifications that has a stellar one could be the difference in who gets the job. Similar small details can make the difference on promotions within certain corporations, especially for sensitive positions. If you lose a job or are passed over a promotion, that can mean thousands of dollars in lost income.

Pay More for a Car

There have been a number of surveys over the years that show that some car dealers have a tiered system on how much they mark-up a car depending on the credit score of the individual buying the car. Those who are deemed the least credit worthy, which would include those with no credit score, can be charged as much as 3.5% more for a car than those with top scores. This has nothing to do with the interest rate on a car loan, but the actual amount that is charged for the car. That means that even if you don’t need a car loan, you can potentially end up paying more for a car when you don’t have a score.

Another way that lack of a score can cost you more, as pointed out by Anni in the comments, is that you can often get dealer discounts by financing a car worth thousands of dollars, then pay off the car loan soon after. I know that this situation arises because I did it once for one of my car purchases. I had the cash to purchase the car in full, but there was a deal to save $2000 through the credit section of the car maker if I agreed to finance the car, so it made good financial sense to do so. I took the $2000 discount and the loan, but as soon as the $2000 credit came through, I paid off the entire loan. The key here is that to take advantage of these car maker financing discounts, you have to qualify for them, and if you don’t have a credit score, you’re not likely to do so.

A More Expensive Car Loan

If you do need to take out a car loan, you will end up paying thousands of dollars more in interest charges with no score than you would with a good one. Interest rates for those with good credit are usually in the low single digits, while those without will pay double-digit interest rates on the exact same loan. While you may not think you will ever need to take out a loan again, something that you never expected like a divorce or a lost job could result in you needing to get one.

More Expensive Insurance

The insurance industry is in the business of assessing risk. They look at a wide variety of things to determine the risks of the individuals and families that use their services. One of the things that they look at is your credit score. Having one that is poor makes you a higher risk than an individual who has one that is high. The problem is that having no score doesn’t allow them to determine whether you are a higher or lower risk, so they will always make the assumption that you are a higher risk when the risk is unknown. What that all means is that if you have no score, you will end up paying more for life insurance, car insurance and homeowners insurance than you would if you hade a good score.

Difficulty Getting a Credit Card

One of the things that Dave Ramsey says is that you don’t want credit cards, but this is only true if you can’t control yourself. The truth is that credit cards are only a disadvantage if you don’t pay them off fully each month. Once you are out of debt and have built an emergency fund so that there is no need to put expenses on your credit card that you can’t pay off in full each month, credit cards are actually a financially savvy tool to use. They give you insurance in many transactions you may not have otherwise, they may provide additional insurance for you with certain purchases such as airline tickets and car rentals, and they can even pay you cash back for purchases you would otherwise make. The problem is that if you ever find yourself in a situation where you need a credit card, but you don’t have a score, it can be extremely difficult to get one. Even when you do, you can expect to have a very low credit limit that will take years to grow to where it can be useful for larger purchases. I know because the only credit card I could qualify for when I returned was with a bank that I had been with for over 20 years, and they still would only give me one with a $500 limit to start.

Difficulty Getting School Loans

If you ever decide to go back to school, having no score can make it difficult to secure loans. Again, many assume that they will never need to go to school again, but further education might be the only way to secure a job if you happened to lose the one you have. If you can’t qualify for student loans from your school or federally funded loans to pay for your education, you will have to turn to private loans which have interest rates much higher and can end up costing you thousands of dollar more for the same education.

Difficulty Getting Business Loans

If at any time you decide that you would like to start a business, not having a score can hurt you financially in trying to secure a loan for the business. When banks give business loans to individuals, they want to see that they have a track record of paying out the other loans that they have taken out. With no score to your name, that record doesn’t exist and you become a greater risk to give a business loan to. With no score, you might not be able to qualify for one at all without putting up a large amount of collateral, and even if you do, you are likely to pay a higher interest rate on the loan than if you had good credit. You will definitely have a much more difficult time securing the loan which can mean many more hours (if not days) trying to get the money you need.

Dave Ramsey gives lousy credit score advice because he fails to take into account that life can get messy in ways that we never anticipate. In addition, he doesn’t take into account the costs associated with the extra time and aggravations that can come with not having a score. If it were true that you needed to always remain in debt in order to have a good credit score as he states, I might give him some slack, but the fact is that this statement is patently false, I know because I’m currently debt free with a good score. While I’m certainly not saying that all the advice that he gives is bad, the advice he gives regarding credit scores sucks.

Finally, if you don’t like my analysis and want to see what Dave Ramsey has to say, think about getting a copy of his book The Total Money Makeover. The book is an combination of educational handbook, inspirational coaching guide and self study manual. It has sold something like 5 million copies – so its a good example of his best work.