advice about dave ramsey

**maat55** · 04-02-2008, 03:24 PM

Dave's plan is one you have to do with great intencity. You have to sell junk, get a second job on anything you can think of to get debt free quickly. If you choose to get out of debt in your recliner, his plan is not for you.

Dave would tell you to stop saving money and get a second job until you have the debts payed off. You should be able to payoff at least 1500 a month. Selling a car and getting a beater is an option. But you could be done with this in about 28 months or less.

In your position, there's no easy way to get debt free. Your going to have to bust your butt and want it like a quest. But it will be worth it.

**geojen** · 04-02-2008, 04:23 PM

In your position, there's no easy way to get debt free. Your going to have to bust your butt and want it like a quest. But it will be worth it.[/QUOTE]

I never thought it would be easy. My biggest concern was giving up the 3000 in the emergency fund. It makes me very uneasy. Has anyone ever done this without giving up extra savings?

For me, an extra job is not possible--I have to travel for my job and would be unable to commit to another work schedule. Also, I think that 400 dollars extra a month is no small potatoes--we'd pay off 44000 dollars worth of debt in a little over 3 years. How long has it taken other people to pay off a similar amount? Am I way off base in thinking that 3 years isn't that long?

**jIM_Ohio** · 04-02-2008, 05:04 PM

Originally posted by geojen View Post

Okay guys, for those of you who are rabid DR fans, don't get all upset, but here's my thing: I just read total money makeover, and am a bit torn. Here are my numbers:

1800 on home depot card at 0% for 6 mo
1200 on lazy boy furniture at 0% for 12 mo
no other credit card debt

4900 at 4.75% student loan
6711 at 7.0% car loan
8200 at 5.75% car loan
13,000 at 6.8% student loan
8,000 owed to grandparents interest free

4,000 dollars in savings

According to DR, we should drain 3000 dollars in savings to apply to debt. If we did that, we'd wipe out the first 2 debts, and using the debt snowball be debt free (except our mortgage) by 2011. My DH is NOT a fan of wiping out the 3000 to apply to debt. He'd rather leave it in our emergency fund.

Plus, what is the deal with wiping out these smaller loans with less interest first? How about a modified plan of leaving the 3000 in savings, and working on paying off that car loan at 7.0% first?

Ideas?

Also, we just bought our home and are juggling necessary repairs that have to be done this summer as well, which would lessen the amount of money we'd have to put towards debt. (At our current budget, after all expenses and saving 200 a month, we have 750 dollars left over, but this does not include any money for entertainment value or doing things to our home)

Dave Ramsey is an id 10 t.

You cannot go out giving blanket advice- finances are not one size fits all.

In you case I see 3k of bad debt and other debt which is an investment in your finances (student loans and car payments).

I would invest 10% of income for retirement NOW
I would pay off the credit cards NOW
I would keep the EF NOW
I would make an effort to pay back grandparents

If you have a cash flow issue, then you need to solve the debt puzzle. If cash flow is good, you should be looking at living on less than you earn NOW and making sure your money is working for you now. Moderate investments will beat the debts based on interest rates given.

**simpleyme** · 04-02-2008, 05:16 PM

I do not blame you for feeling uneasy about emptying your savings if i were you I would do all other parts of the plan keep your 3K as a EF

**geojen** · 04-02-2008, 05:32 PM

Originally posted by jIM_Ohio View Post

Dave Ramsey is an id 10 t.

You cannot go out giving blanket advice- finances are not one size fits all.

In you case I see 3k of bad debt and other debt which is an investment in your finances (student loans and car payments).

I would invest 10% of income for retirement NOW
I would pay off the credit cards NOW
I would keep the EF NOW
I would make an effort to pay back grandparents

If you have a cash flow issue, then you need to solve the debt puzzle. If cash flow is good, you should be looking at living on less than you earn NOW and making sure your money is working for you now. Moderate investments will beat the debts based on interest rates given.

Thats the thing--we have 44000 dollars in debt, but our cash flow is just fine! I think 750 bucks left over after saving for retirement and putting 200 in our ef is pretty good! Yes, it would be ideal to have no debt, but we are trying to work toward being debt free and be able to sleep at night!

**simpleyme** · 04-02-2008, 05:38 PM

I guess i did not address several points;-)

I am a huge DR fan and think his advice is great and doable for many with lots of consumer debt I think it is wise if you choose to follow it ,tweak it a bit to fit your needs as long as you are paying debt and not getting new debt you are winning
the debt snowball works great you can choose smallest debt or highest rate as long as you are paying

we have been doing repairs on our house with cash slowly as we go, we are very handy and do most work ourselves we will have the house paid off in just a few years and want it to be fixed up before the final payment

best of luck to you on your TMMO

**maat55** · 04-02-2008, 08:34 PM

Originally posted by jIM_Ohio View Post

Dave Ramsey is an id 10 t.

You cannot go out giving blanket advice- finances are not one size fits all.

In you case I see 3k of bad debt and other debt which is an investment in your finances (student loans and car payments).

I would invest 10% of income for retirement NOW
I would pay off the credit cards NOW
I would keep the EF NOW
I would make an effort to pay back grandparents

If you have a cash flow issue, then you need to solve the debt puzzle. If cash flow is good, you should be looking at living on less than you earn NOW and making sure your money is working for you now. Moderate investments will beat the debts based on interest rates given.

I couldn't disagree more, carrying a large amount of consumer debt is bad financially and fisically. Trying to hunt three deer at once is futile. Focusing on getting debtfree first then investing is a good plan for anyone. One size fits all, give me a break.

**maat55** · 04-02-2008, 08:39 PM

Originally posted by geojen View Post

Thats the thing--we have 44000 dollars in debt, but our cash flow is just fine! I think 750 bucks left over after saving for retirement and putting 200 in our ef is pretty good! Yes, it would be ideal to have no debt, but we are trying to work toward being debt free and be able to sleep at night!

More important is how you got where you are. Being debtfree is a lifestyle. You will be in debt forever if you don't change your mentality towards debt. If you want a debtfree lifestyle, DR's plan will get you there quick. If your comfortible with debt you will always be in debt. Good luck.

**JanH** · 04-02-2008, 08:50 PM

I understand your question. We have a bunch of debt to pay off, and people would probably say to get it done with. But, I have lived before with little in the way of emergency fund and I hate it. We have compromised...we are working on paying down debt, but we are keeping at least 3 months worth of expenses in our emergency fund. I cannot go through feeling that way again. Even for the wonderful feeling of being out of debt. We have chosen the longer route. It might not be financially prudent, but we have to do what helps us both sleep at night. And, we have stuck to a budget. So, we are making progress. Just probably not as fast or as sensible as some would think of it.

**poundwise** · 04-03-2008, 03:49 AM

Originally posted by jIM_Ohio View Post

Dave Ramsey is an id 10 t.

You cannot go out giving blanket advice...

No offense meant Jim, but using that logic, no one should ever write a self-help book on any subject.

Ramsey's advice is sound and has helped thousands of people get out of debt and build a future.

Are you correct that plans, whether his or from any other source, may need tweaking or alteration for certain individual situations? Of course. But that's true of any "blanket advice" whether it be for money, health, or love life concerns. It doesn't make Dave Ramsey an "id 10 t."

**jIM_Ohio** · 04-03-2008, 03:59 AM

Originally posted by maat55 View Post

I couldn't disagree more, carrying a large amount of consumer debt is bad financially and fisically. Trying to hunt three deer at once is futile. Focusing on getting debtfree first then investing is a good plan for anyone. One size fits all, give me a break.

DISAGREE- run the numbers for this situation.

A 10% return in 401k will crush the interest rates on the debt, so even though it will take longer to pay off the debt, the reward at end of the tunnel is a much much higher net worth.

I agree consumer debt is bad, but in this case it is far from a problem. $750 extra would pay off 44k in 6-7 years. $500 would pay off in 7-9 years. I carried low interest CC debt while working, and paid off 10k+ in cc debt 3 times over last 11 years, and still have 160k invested (and am debt free). I give the advice that I took myself. Maybe I should write a book too.

OP did not say what 401k contributions/retirement contributions are, but even $250/month invested at 10% return for 7 years is 31k+.

Meaning that if full debt payment is not made, the OP would have 31k in 7 years, (debt would be paid off fully in 7 years with $750 payment), or 44k in 9 years if they pay off the debt with a lower payment and invest.

As time passes, the value of the early deposits will grow exponentially.
If you measure based on net worth, investing early in this case wins (because the interest rates on the debt are low).

If you are trying to measure the satisfaction of paying off debt (which does not have a number associated with it- it is psychogical), then pay off the debt.

**noppenbd** · 04-03-2008, 04:18 AM

After reading this thread, I've got a great idea. I'm going to borrow $20K from my home equity line @ 4.75% and invest it in stocks. With a 10% return I am sure to easily beat the interest on the HELOC!

How can I lose?

**disneysteve** · 04-03-2008, 04:56 AM

Originally posted by noppenbd View Post

After reading this thread, I've got a great idea. I'm going to borrow $20K from my home equity line @ 4.75% and invest it in stocks. With a 10% return I am sure to easily beat the interest on the HELOC!

How can I lose?

I know you were being sarcastic, but... If you can get a HELOC with a fixed rate of 4.75%, that isn't such a bad idea. As long as you have the cash flow to make the payments without touching the investment principal. Yes, the market has been on a rough patch lately, but over time, you should have no trouble at all beating 4.75%. You don't need 10%. You only need about 6%. Remember, the HELOC interest is deductible, so the true cost of that loan is only about 3.6%. If you can earn 6% on your investments and pay 15% capital gains tax, you'd end up ahead of the game.

**disneysteve** · 04-03-2008, 05:15 AM

OP, I agree with everybody. How's that for hedging my bets?

Dave Ramsey gives psychological advice and it is very good advice. His plan gets people motivated to get out of debt and turn around their financial lives. And his system has worked wonders for thousands of people.

However, his advice isn't always the best from a strictly financial standpoint, as Jim alluded to. There are ways to deal with your debt that will result in a higher net worth at the end. For example, paying off debt from highest interest rate to lowest rate is better than paying it from smallest amount to largest amount regardless of rate. Both ways work. Both ways will get you debt-free. Going by debt amount is more motivating because you see the number of debts dropping off faster, but going by interest rate will get you debt-free quicker and at a lower total cost. Ultimately, the method you should choose depends on whether or not you need that psychological boost that comes with seeing the smaller debts drop off the list.

As for your situation, I agree that I wouldn't spend down your EF. $4,000 is a comfortable reserve that will cover most common problems that might crop up.

Despite what I just said about interest rates, I would also focus on the store credit cards first. Even though they are at 0% now, that rate will skyrocket if you don't repay them during the promotional period, so get rid of them and avoid that risk.

I also agree with investing now. One thing that you can NEVER replace is the value of time. If you wait 3 years or more to start investing, you will never end up with as much as if you start now.

advice about dave ramsey