Dave Ramsey

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.

How Effective Are The Dave Ramsey Baby Steps?

October 9, 2018 By Amanda Blankenship 1 Comment

Dave Ramsey has been someone people looked to for financial advice for years. In fact, more than 4.5 million people have participated in his Financial Peace University. This program outlines steps to becoming financially free, but how effective are the Dave Ramsey baby steps?

What Are The Dave Ramsey Baby Steps?

Before jumping into how effective they are, you should know there are seven baby steps. Each requires you to take a good look at your finances and helps you map out your way to financial freedom. Here they are …

1. Create a $1,000 Emergency Fund

As with most financial programs, you need to establish an emergency fund before doing anything else. This will keep you from going into more debt when something unexpected happens. Because of this, it is Dave Ramsey’s first baby step.

2. Pay Off All Debt Using the Snowball Method

Depending on how much debt you have, this may seem daunting. Any extra cash you have left over at the end of the month should go towards paying off your debt. Ramsey even goes as far as to say you shouldn’t eat out, don’t do anything entertainment wise that isn’t free, until your debt is paid in full.

3. Get 3 to 6 Months of Expenses in Savings

After you’ve paid off all your debt, you’ll be surprised at how quickly you’re able to save even more cash. Then you can pad your emergency savings with a bit of extra cash. Ramsey generally recommends up to six months of expenses in a savings account. This will help in the event that you or someone in your household find themselves out of work for an extended period of time.

4. Invest 15% of Household Income Into Roth IRAs and Pre-Tax Retirement

Once your savings are up to par, it is time to invest in yourself and your retirement. As a general rule of thumb, Ramsey recommends putting 15% of your household income towards your retirement accounts.

5. Start a College Fund for Your Children

If you have kids, once you’ve started to invest in your retirement, you can begin saving for their future. There is no recommended monthly or annual amount you should put towards this. It is up to your own discretion. However, you do want to keep in mind, if you can prevent your children from holding a ton of student loan debt, you should.

6. Pay Your Home Off Early

Now that your child’s college fund has been padded, you can look to paying off your mortgage early. And, if you don’t have children, this would be the next thing to tackle. You could save yourself thousands of dollars by paying your home off early. Not to mention, it will get rid of the last bit of debt you owe.

7. Build Wealth and Give

So, now you’ve paid off all your debt, accrued savings, paid off your mortgage, and invested in yourself. What do you do now? Ramsey recommends continuing step number four and max out your contributions to retirement accounts each year. You can also look for new things to invest in and build wealth.

Lastly, Ramsey is a huge believer in donating money if you are well off. Find a good organization you’d like to donate to or give to your church. Not only are these donations tax-deductible but they will make you feel great. In fact, Ramsey says it is one of the most rewarding things about being debt free.

How Effective is the Program?

The program has proven to be extremely effective for many people. In fact, there are numerous testimonials on Dave Ramsey’s website about how many families this has helped. One family gave credit to Ramsey’s Baby Steps for helping them paying off $162,000 of debt in just seven years.

Those who have followed the program closely have seen great success, proving Dave Ramsey’s Baby Steps. So, how do you get access to the program and become financially successful like these folks?

Getting Access to the Baby Steps

As previously mentioned, these baby steps are part of Ramsey’s Financial Peace University course. The program is nine weeks long. It walks you through each baby step and how to put them to work in your own life. It generally costs about $129. Occasionally, you can find it on sale. So, if you are interested in starting the program, check Ramsey’s site regularly.

If you’re looking for a cheaper way to get access to Ramsey’s baby steps, you can also look into purchasing his best-selling book The Total Money Makeover. The book shares inspiring stories of others who have become financially free by following the Dave Ramsey Baby Steps.

Lastly, you can also sign up on Dave’s site for a seven-day email series that provides tips on how to work the Baby Steps faster. The email series is 100% free.

All in all, Dave Ramsey has been able to help millions of people climb out of debt and get back on top of their lives financially.

Have you taken the nine-week Financial Peace University course or otherwise followed Ramsey’s Baby Steps? Did you have success with the program?

Why the Stock Market Is a Chance Worth Taking

August 19, 2015 By Will Lipovsky 2 Comments

According to Bankrate.com, Americans invest most of their money into real estate. That makes sense. Real estate can be a good investment. But where do Americans put their money that isn’t invested in real estate? The stock market? No, unfortunately. The majority of Americans keep their excess wealth… in cash.

If that doesn’t depress you – it should.

The problem with cash is it loses value every single day. With inflation hovering around 3-4%, your cash becomes less and less overtime. It’s basically impossible to find a savings account, checking account, money market account, or certificate of deposit that will pay enough interest to fight back against inflation.

What Americans should be doing is investing in the stock market. But according to Bankrate.com, more than half of Americans avoid the stock market altogether.

The stock market wins over cash nearly every single year. Historically, the S&P 500 has gained nearly 12% annually. This is why people like Dave Ramsey use that figure. Does 12% sound better than the measily 1% your bank account gets you? It should.

Getting Started with Investments

Investing can be scary – especially if you watch the news. There’s a lot of negative thoughts surrounding investing. But in reality, it’s how many people get wealthy. It’s hardly worth being pessimistic about. You should be overjoyed! The following are the 4 steps needed to begin investing. None of them steps are too difficult. But feel free to comment below with questions. I’ll answer them.

1. Determine Your Current Net Worth

How wealthy are you? Count everything that has a dollar assigned to it – house, car, existing investments, savings accounts, everything. It’s important to know your entire financial picture before investing. Reason being, it wouldn’t make much sense to start investing if all you have is high-interest credit card debt. You’ll want to tackle high-interest debt before investing anything.

2. How much money can be invested?

For maximum ROI, you’ll want to invest all your spare money outside of your emergency fund. Create a budget and determine how much money that is exactly. You also want to make sure you don’t invest money that you’ll soon need to buy a new car or fund an out-of-state move. Investing is a long-term financial decision.

3. Where should the money be invested?

There’s a lot to consider in this step. First, does your employer have any investment options? 401(k)’s with company match are fantastic. Contribute up to the match! Beyond that, open a Roth IRA and start contributing there. Once that’s filled, you’ll want to open a taxable investment account. This is where the non tax-advantaged money will go. Some popular brokerage firms include Vanguard, Fidelity, and TD Ameritrade. Customer support is good at all three of those firms. They can answer any of your brokerage-specific questions.

4. Create a Habit

In order to get that 12% ROI like Dave Ramsey talks about, you’ll need to dollar-cost-average. This means you put money in at regular intervals. Many people will contribute, say, $150 every 2 weeks into their Roth IRA. What you want to do is set your investments to autopilot. The buy and sell, scream and yell mentality won’t get you anywhere fast. Let’s stick to the 12%.

The Stock Market Isn’t Scary

Day trading may be scary but true ‘buy and hold’ investing isn’t. Buying and holding spreads your risk out greatly. Instead of betting on one company, you’re really just betting that the stock market will grow year after year. That’s a pretty safe assumption.

The stock market is a chance worth taking. Just remember to spread risk, dollar-cost-average, and get on autopilot. It’s time you put your money to good use.

Dave Ramsey’s Net Worth

August 12, 2015 By Will Lipovsky 9 Comments

You’ve heard of Dave Ramsey. He’s the guy who preaches, “Debt is dumb. Cash is king!” on his nationally syndicated radio show. It’s aptly named The Dave Ramsey Show. He is perhaps the country’s most famous personal finance guru – right up there with Suze Orman and Clark Howard.

But just a few short decades ago, he was broke. He lost all his money in real estate. However, just last year, he bought a new house. Brace yourself for the following stats. The living quarters are 13,307 square feet with a garage space of 1,454 square feet. This means his garage is bigger than most homes in Sweden, France, Germany, Greece, Spain, Italy… I could go on.. The house is rumored to have a wall of whiskey barrels in the basement, 18 shower heads in the master bathroom, and an impressive media room. Leann Rimes used to live in the neighborhood.

Dave bought this new house for a cool $5 million. It’s a massive chunk of change. But he stayed true to his beliefs that “Debt is dumb.” The house has no mortgage.

What Dave Ramsey often preaches is that buying nice things isn’t a sin – if you can afford them. He encourages people to buy Tesla’s, Yacht’s, etc. if they can afford to (while still tithing to their church). He says instead of looking at the cost of an item, look at your net worth. Think percentages.

Think of it in terms of vehicles… according to the famous personal finance book, The Millionaire Next Door, most millionaires spend about 2% of their net worth on cars. That’s $20,000. Dave says that a $20,000 is perfectly appropriate for a millionaire. However, a college student shouldn’t dare consider a $20,000 car.

To put Dave’s house into perspective, Dave Ramsey has a net worth of about $55 million. That means his house is less than 10% of his net worth. It’s just over 9%. This means he can easily afford the house. According to Bloomberg, US homeowners have 67 percent of total wealth wrapped up in housing.

How Dave Ramsey’s Net Worth Will Increase

Dave Ramsey’s net worth is $55 million. His home is worth $5 million. We don’t know how much of his worth is wrapped up in his business. We don’t know how much income it generates. But we know his benchmark when it comes to investing. According to Dave, anyone can invest in the stock market and expect a 12% return on their money. For more information on that, read his article titled The 12% Reality.

We can assume that Dave makes at least 12% annually on his money invested in his business, The Lampo Group, Inc. Using 12% as our figure, let’s see what his net worth will be in the future. After all, we want to keep this article up-to-date:

By the year 2016: $61,600,000

2020: $96,928,792.58

2025: $170,821,651.46

2030: $301,046,116.77

2035:

Ah, the beauty of compound interest. The rich get richer. Of course, keep in mind this is back-of-the-napkin math. It simply uses his current estimated net worth + gains of 12%.

Bottom Line

Dave Ramsey is VERY rich. He’s a far cry from his listeners who are typically swimming with sharks. Some say he is profiting off the poor. He charges them money to take his classes or join his forums, for instance. Surely he realizes they shouldn’t be spending money they don’t have. Or, is this okay?

Finally, if you want to get a better sense of what kind of advice Dave Ramsey is selling, consider picking up a copy of The Total Money Makeover. The book outlines some basic concepts about money and is designed similar to a self study course, so you can work through it at your own place. The book has sold more than 5 million copies – so it is worth the read. There are lots of used copies available on Amazon.com and for under ten dollars it is a solid investment in your own financial knowledge.

What Does Dave Ramsey Think About Timeshares?

May 13, 2014 By Jeffrey Strain 16 Comments

Dave Ramsey hate timeshares not investment

While I don’t always agree with the financial advice that Dave Ramsey gives to his listeners, we’re both on the same page when it comes to timeshares. Ramsey doesn’t have a high regard for them, and he believes that people should stay as far away as possible from them. He doesn’t mince his words when it comes to these vacation options and views them as an outright scam. In his own words, this is what he has to say about them: “Timeshares are one of the biggest scams on the market today. Once you are stuck in one, you are stuck in a black hole.”

Below are some of the reasons that he feels timeshares are one of the biggest scams in the vacation industry:

They’re Not Affordable

For the mass majority of people who are targeted by marketers to buy timeshares, they’re not consumers who can really afford one. There are quite a few expenses that come with owning a unit, and these expenses are perpetual. In fact, they can increase over time. Just because the sales person who’s trying to sell you a unit tells you that you can afford it, that doesn’t make it reality. They’re an expensive vacation option, and the truth is that most people’s finances are not in good enough shape to be able to afford one.

They Don’t Make Financial Sense

Even if you have your finances in order and can afford to buy one, Ramsey points out that it still doesn’t make financial sense to do so. The average cost the timeshare is about $15,000 these days. It makes much more sense for you to invest this money than buying a vacation resort unit. The calculations become even worse if you have to borrow money to buy the unit, because you’ll likely end up paying double-digit interest rates to do so. Ramsey points out that if you invest that $15,000 instead of buying a unit with it, it would be worth over $1 million in 40 years.

Terrible Investment

There are still far too many people who believe that purchasing a timeshare is a good investment. Ramsey wants to make it clear to everyone that a timeshare is not an investment. What you’re actually doing when you buy a unit is prepaying your future hotel expenses each year for the rest of your life. Even worse, you’ve prepaid this amount whether you end up using it or not. Combine all this with the fact that they’re a depreciating asset, which will lose its value year after year (much like a car does), and it means that if you do end up buying one, you’re going to end up losing a lot of money in the end.

Selling Them Is Difficult

Another important reason to avoid buying one of these units is due to how difficult they are to sell when you no longer want one. The law of supply and demand rears its ugly head for anyone who owns a timeshare. There are far more people who want to sell than those who are interested in buying. This can mean that in some instances, you won’t be able to sell even if you want to, forcing you to continue to pay yearly maintenance fees.

It can even be difficult to give yours back to the resort, which is what Ramsey suggests owners try to do. Even if you offer it to them at no cost, the resorts have little incentive to do so if they still have inventory, since keeping you as an owner will mean you have to continue to pay the yearly maintenance fee. The bottom line is, when you want to sell, you’re going to have a difficult time, and if you are ultimately successful in selling your unit, you’re going to lose a lot of money doing it. The Federal Trade Commission (FTC) notes that you also need to be careful of the many reseller scams that are out there.

Don’t fall for the marketing tactics which resorts will use to try to convince you that buying a timeshare is a good deal. Take the financial advice of Dave Ramsey, and remember that it’s one of the biggest travel scams out there. Below you’ll find a video with some more of Dave Ramsey’s thoughts about timeshares:

Finally, if you want to get a better handle on your finances, consider getting a copy of Dave Ramsey’s The Total Money Makeover. The book outlines some basic truths about money and is designed to improve your financial habits. The book has sold something like 5 million copies – so it is well worth the read.

If you went against Dave Ramsey’s advice and now own a timeshare that you want to get out of; reach out to Newton Group Transfer at 1-888-549-4154 today. They are standing by to make the resell of your timeshare as smooth as possible.

Debt Snowball: 5 Options

January 5, 2012 By Jeffrey Strain 7 Comments

For anyone trying to get out of debt, the debt snowball method has become the choice of many to tackle their debt. This shouldn’t be a surprise as it is a straightforward and easy to follow method that works. While the basics are the same, there are a variety of different debt snowball approaches that people follow.

The basics of the snowball debt plan are pretty easy to understand. Instead of looking at the long-term goal of trying to pay down all of the debts at once, the person in debt instead concentrate on individual short-term goals of a single debt at a time. They pay as much as they can on this particular debt while paying the minimum amount on the other debts so that they can pay off that particular debt as soon as possible. Once that debt has been paid off, the person “snowballs” all the money they were paying toward that first debt toward the second debt on their list. This continues until all the debts have been paid off.

The controversy comes with what is the best order to pay off these debts. There are a number of ways to go about this and each way has its own benefits and drawbacks depending on each person views personal finances. Just as all people don’t learn the same way, what works best when it comes to personal finances will depend a lot on each person’s particular situation and what will motivate them most because in the end, it’s the motivation to keep going until the debts are gone which is most important. Here are five debt snowball methods that you may want to consider.

Highest Interest

Using the highest interest rate snowball method is the quickest way to pay down all your debt. In this scenario, the person takes all their debts and list them by interest rate from highest to lowest. The debt with the highest interest rate is the first debt tackled, then the debt with the next highest interest rate after that. It would look something like this:

Credit card 1: $2500 28%
Credit card 2: $1500 25%
Personal loan: $2000 14%
Car loan: $4000 11%
Student loan: $15,000 9%
Family Loan: $5000 5%

Smallest Balance

Often referred to as the Dave Ramsey debt snowball approach, this method takes into account that for many people money isn’t all about numbers. dealing with money and debt often comes with strong emotions that play a leading role. In this scenario, the debts are arranged from smallest amount to largest amount with the notion that paying off a few debts quickly can provide the motivation one needs to follow through and eliminate all of the debt. In this case, the debts would look like this:

Credit card 2: $1500 25%
Credit card 1: $2500 28%
Personal loan: $2000 14%
Car loan: $4000 18%
Family Loan: $5000 5%
Student loan $15,000 9%

Despise The Most

Sometimes when you have debt, there are some debts that a person just despises more than any other. For example, even though the credit card interest rates are higher, they have a car loan that they just can’t stand. Maybe it enrages them because the car ended up not being what they expected and each month they have to pay the bill, they seethe inside at having to make the payment. In this case, they would place that loan that they hate the most first and then choose either the Highest Interest or Smallest Balance method after that. In this case, the debt order might look something like this choosing Highest Interest after the despised loan:

Car loan: $4000 18%
Credit card 1: $2500 28%
Credit card 2: $1500 25%
Personal loan: $2000 14%
Student loan $15,000 9%
Family Loan: $5000 5%

Most Important

There are also times when a person has a debt that they feel is much more important to pay off than the other debts for whatever reason. For example, maybe they took a loan from a family member and it’s important for them to pay off that loan as quickly as possible. In this case, the loans that were the most important to the individual to pay off would make their way to the top of the list with the person then choosing to use the Highest Interest or Smallest Balance for any remaining debts where there wasn’t a preference. In this situation, the debt order might appear as follows choosing Smallest Balance after the most important:

Family Loan: $5000 5%
Credit card 2: $1500 25%
Personal loan: $2000 14%
Credit card 1: $2500 28%
Car loan: $4000 18%
Student loan $15,000 9%

Secured Debt

There are some people that have so much unsecured debt that they aren’t sure that they are ever going to be able to pay it off. While the above scenarios don’t give that impression, it might be a bit different if an extra zero was added to all the unsecured loans the person had. If the person feels that they might have to file for bankruptcy or at the very least, work with the credit card companies to possibly reduce and consolidate the debt, it doesn’t make sense to be trying to pay that debt off until those matters have been settled. In this case, the person would want to concentrate on and pay off the secured debts or those debts that wouldn’t be forgiven if they ultimately filed bankruptcy. In this scenario, the debt order could look something like this assuming that the personal loan was not received with any collateral:

Student loan $15,000 9%
Car loan: $4000 18%
Family Loan: $5000 5%
Credit card 1: $2500 28%
Credit card 2: $1500 25%
Personal loan: $2000 14%

In the end, there are a lot of individual circumstances that go into determining what is the best type of snowball method for you. The key is to know yourself well enough that you can choose the one that is likely to keep you motivated the longest so that you can see yourself through the entire debt reduction process. While it’s sometimes easy to say go strictly by the numbers when trying to get out of debt, you need to also take into account your emotions with money and make sure that those are also addressed when you create your snowball debt reduction plan.

Finally, if you want to better understand the kind of advice Dave Ramsey is selling, consider buying a copy of The Total Money Makeover. The book is designed as a self study course, so you can work through it at your own speed. The Total Money Makeover has sold something like 5 million copies. There are lots of used copies available on Amazon.com and for under fifteen dollars it is a great investment in your own education.

(Photo courtesy of Velo Steve)