Any Dave Ramsey acolyte willing to help me?

[SecondCor521]

Hi all,

First, I know that Dave Ramsey is considered controversial by some folks. If that describes you, I'd appreciate you venting/debating/whatever in another thread.

Several years ago I took Dave's 7 baby steps and modified them to my liking. Fundamentally I like his idea of focusing on one goal at a time in priority order, but I am not as strict about paying down debt as I think his plan calls for.

I now find myself curious to see where Dave's plan and my plan would differ when applied to my specific situation. I'd call him up on the radio and ask, but I'm too shy. I'd join his message boards and ask, but they charge money. This board is free.

So if there's anyone out there on this board who figures they can essentially channel Dave Ramsey's plan and help me understand how specifically it applies to my situation, I'd appreciate engaging in a respectful dialog.

Any takers?

2Cor521

 

[Urchina]

I'm game, though I'm by no means an acolyte. I have read his books, I do understand the approach he advocates, so might be able to be a fair sounding board. Others may be better.

If you pass up this offer, I'll understand.

PM me if you want to take it off-board.

 

[Uncle Drew]

While I am not a DR follower, I am fairly knowledgeable about he approaches things. His TV show is usually on in the background when I get home from work.

 

[kyounge1956]

There's a yahoo group FinancialBootCamp@yahoogroups.com

You want disciples, you can find 'em there. They are, as I recall, pretty "Dave's way or the highway" in their outlook. I don't mean they are nasty about it, but I doubt you will get much, if any, support of your modifying the baby steps.

 

[Homebrew]

You might also want to check out:
Living Like No One Else - There's hope in your financial life!

It's free, and it's all about Dave Ramsey stuff.

 

[ziggy29]

It would be interesting to hear where you would differ with Dave's advice and why.

I don't know that I'd call him "controversial," really; most of the stuff is common sense and I'd think most of us would agree with the basic advice about not allowing debt and credit to be master over your personal finance situation. Some people may not agree that all debt is bad 100% of the time or that one should *never* use credit cards or that one should expect 12% in stock mutual funds, but these are really just minor points of contention compared to the bigger picture where I think we'd find wide agreement: consumer debt is a prosperity-killer.

So what is the difference? Some people would snowball based on highest to lowest interest rate instead of lowest to highest balance, for example. I think Dave's advice is largely emotional here, but for many people that is important to feel a "quick win" to get a small balance paid off.

 

[FinanceDude]

Sarah from SC was on Dave's show because of how she and her DH managed to save a lot and pay off a house in 3 years or something. I would PM her for some advice, she's quite nice...............but where has she been??

 

[WhoDaresWins]

Rice and beans, and beans and rice.

 

[CuppaJoe]

Sarah from SC.... I would PM her for some advice, she's quite nice...............but where has she been??

FD, she's working and I believe taking a full load of college classes and doing very well. She'll be back!

 

[Sue J]

I found Dave about 2 years ago and I download the radio podcasts and listen to them in my car everyday. He repeats the first few baby steps all the time so I have those down. His later stuff about college saving and paying off the mortgage don't really apply to us as the kids are done with college and the house was paid off before I found Dave. We were doing the debt snowball and paid off 2 small car loans and a credit card but we had to put it all on hold about 18 months ago because of an expected job loss. We've built up the large (18 month) emergency fund. The job loss recently happened and DH is looking at ERing, so we are still on hold, ready to pay off the last little debt and enter a new phase of life when we see how the job situation vs. pension turns out.

It's kind of like we did the baby steps sideways, but the end result should still be the same.

I never bought the books or took the class or joined the website, just picked it up through the radio show, library books and the tv show.

I'm very glad I found him and his methods. While I don't follow it all 100%, for us, becoming debt free makes the prospect of ER on a COLA-ed pension a real possibility. We do the budgeting but I still use the PenFed CC for the cash rebate.

I may be able to "channel Dave" for you for the first couple of baby steps.

 

[Sarah in SC]

Thanks for wondering, Dude! I'm still snowed under with schoolwork, but I'll bite: I called Dave's show when we paid off our mortgage (now, there's some controversy for ya). I've seen him live and read all his books.

But...I still have a credit card that I pay off every month. Other than that, I'd say I'm a fan of his plan--he was the inspiration for where we are today, financially. Were it not for the (correctly noted) emotional "high" you get from paying off those smaller debts, it is hard to stick around for the big mamas.

I'd be happy to share my thoughts but most reasonable people customize stuff like budgets, diets, financial plans, investing information, etc. I don't think I will ever fully drink anyone's Koolaid.

Graduation in July--woo hoo!

 

[DJRR]

I have been through Financial Peace University and can channel Dave pretty well. We typically part ways in three areas:

1. 401k contributions where your company match is vested - 50% or 100% return is better than paying off even 20% credit cards.

2. Diversification - Dave is 100% stock portfolio through mutual funds.

3. SWR - Dave usually advocates 8-10% per year. Good way to go broke if the return distributions are negative in the early years. Course Dave does not really care since his networth is $10M+. Not advised for normal folk.

 

[ziggy29]

But...I still have a credit card that I pay off every month. Other than that, I'd say I'm a fan of his plan--he was the inspiration for where we are today, financially. Were it not for the (correctly noted) emotional "high" you get from paying off those smaller debts, it is hard to stick around for the big mamas.

Hey stranger! Yeah, I think Dave's rules are intended to consider human nature and not what is strictly 100% financially optimal. The idea being that if you can get that "rush" from paying off one $1,000 debt -- even if it were at a low rate -- you might be more motivated to continue than if you were working on a $25,000 balance at 12% where you don't "feel" the progress quickly.

There's also a good cash flow argument for the lowest-to-highest approach as the sooner you get rid of a smaller debt, the sooner you can apply its (former) payment amounts to the next debt and get it down even faster.

Still, I'm too much of a numbers geek with a technical background to "endorse" paying off a $2,000 debt at 5% before a $10,000 debt at 10%. Still, I do understand the reasoning of it, and if I thought someone would get discouraged easily, I probably would pay off the smaller debt first to keep them "on the wagon."

 

[FinanceDude]

Hey stranger! Yeah, I think Dave's rules are intended to consider human nature and not what is strictly 100% financially optimal. The idea being that if you can get that "rush" from paying off one $1,000 debt -- even if it were at a low rate -- you might be more motivated to continue than if you were working on a $25,000 balance at 12% where you don't "feel" the progress quickly.

There's also a good cash flow argument for the lowest-to-highest approach as the sooner you get rid of a smaller debt, the sooner you can apply its (former) payment amounts to the next debt and get it down even faster.

Still, I'm too much of a numbers geek with a technical background to "endorse" paying off a $2,000 debt at 5% before a $10,000 debt at 10%. Still, I do understand the reasoning of it, and if I thought someone would get discouraged easily, I probably would pay off the smaller debt first to keep them "on the wagon."

I used John Cummuta's program to do different variation. It works as well as Ramsey's for us, and DW liked how he explained it better. I got my copy from craigslist for $10..........

 

[Bimmerbill]

I sort of did the same thing as the OP. I wasn't "gazelle intense" and still use a credit card. I squandered plenty of $ over the past year while paying off my debts. But, got them paid off (all except the mortgage).

DR would say pay off the mortgage, but I have a very low rate, so use the $ for other stuff. I also have a 30 year loan, and DR says 15 year max.

 

[sirion]

I'm in a similar position so I'll be happy to discuss your situation

 

[tinlizzy]

I absolutely cannot budget my money envelope style - it does not work for me.

I use the old fashioned pay yourself first. I max my 401k (no IRA) then have 50% of my take home transferred to savings and pay for monthly expenses with the rest. If I run out of money I have to wait until Friday, no dipping in my savings.

Out of that 50% saved I do use some of the money for big expenses like my property taxes and a vacation. I never had much debt but did have a mortgage for awhile. Paid cash for my car.

That's my method and I like it because I don't feel like I'm on a budget. I'm essentially tricking myself and living paycheck to paycheck. I never have to feel bad about buying lunch or a new outfit (occasionally) because I know my savings came first and now I'm free to spend the rest.

 

[SecondCor521]

OK, seems like there's enough "Dave channelers" out there to give this a go.

Real Debt Help - Get out of debt with Dave Ramsey's Total Money Makeover Plan

Seems simple enough.

As of today I have $2,651.11 in an Alliant Credit Union savings account.

I can go to BS2, right?

2Cor521

 

[Urchina]

As of today I have $2,651.11 in an Alliant Credit Union savings account.

I can go to BS2, right?

2Cor521

Yes, so long as at least $1000 of that money is not yet spoken for (ie, it's not designated for property taxes or a vacation, etc.). This emergency fund is untouchable except for a real emergency.

 

[DJRR]

OK, seems like there's enough "Dave channelers" out there to give this a go.

Real Debt Help - Get out of debt with Dave Ramsey's Total Money Makeover Plan

Seems simple enough.

As of today I have $2,651.11 in an Alliant Credit Union savings account.

I can go to BS2, right?

2Cor521

Yes, assuming you are current on all obligations you can start.

BS1 - Set aside $1,000 in a checking/saving accounts for emergencies.

BS2 - Order all your debts except mortgage from smallest balance to highest balance regardless of interest rate. The total of the regular monthly minimum payments is your "snowball"

Continue to pay the minimum payment for all debts. As debts are paid off take that previous minimum payment and apply it to the next smallest debt in the list. You should only pay extra on the debt you are working on.

You should immediately use $1,651.11 and apply it to the list as far as you can go to jumpstart your plan.

The other key at this step is to do a zero based budget. You should know in advance every month where every dollar you earn is going. Every dollar has a name. Anything extra that you can save from you income should go to the next debt in your list at the end of the month.

If you are really following Dave's plan at this stage you will also get "gazelle intense" and quit contributing to your 401k and college savings, have a yard sale, get additional jobs, no eating out, no vacations, etc. until you finish. Anything to get extra money to throw at your debt. This is probably where most people have the most trouble.

BS3 - when you have paid off all debts except mortgage then you rebuild your emergency fund to 3-6 months.

 

[Sue J]

Good luck to you, 2Cor521.

When we started we felt like $1000 in BS1 was uncomfortably low. Our house is 50+ years old and has the original furnace, our cars are over 5 years old and a few other things made us feel like $1000 EF could be gone in a flash so our BS1 was more like $3500. We had enough income to just re-focus debt repayment on one at a time rather than trying to make substantial payments on everything at once. Between shifting focus and cutting lifestyle we were able to make pretty big debt payments each month. That's the part I really enjoyed, sending extra principal payments in and seeing balances fall.

When you make a budget and then find you can't quite stick to it, realize that this is all a learning process. On the radio Dave always says that it takes 3 or 4 months before you get the hang of it. It's hard to predict what's coming up in a month. If you make the changes to your spending and put all extra money on the debt repayment you WILL see progress.

 

[SecondCor521]

Yes, so long as at least $1000 of that money is not yet spoken for (ie, it's not designated for property taxes or a vacation, etc.). This emergency fund is untouchable except for a real emergency.

Correct. This money is not spoken for.

Yes, assuming you are current on all obligations you can start.

BS1 - Set aside $1,000 in a checking/saving accounts for emergencies.

BS2 ... < snip > ...

Yes, I am current on all my obligations.

It looks like BS2 is where I will start to diverge from Dave's plan.

I'm going to go read what he says on his site and then post back.

2Cor521

 

[SecondCor521]

OK, according to here:

Real Debt Help - Get out of debt with Dave Ramsey's Total Money Makeover Plan

I should list my debts smallest to largest excluding the house:

$7.67 Ex-wife "tab"
$449.81 PenFed VISA
$729.00 FSA account
$13,265.62 Student loan

Here come some questions. How would Dave answer?

1. The first one is money I owe my ex-wife. Basically we are obligated to pay for certain kid expenses (medical copays, etc.) in a certain percentage. Since our divorce we have been able to run a "tab" which we clear to zero by writing a check from one of us to the other when it gets too big. There are on average about 5 items like this a month. The total of all items since 9/21/09 has been $3,287.73. My ex-wife has not asked for the $7.67. Also, in about a week one of us would owe the other money again. Would Dave tell me to write her a check?

2. On the credit card, the above number represents what I owe as of this moment. I have this set up to automatically pay-in-full monthly, so this is just what has accumulated since my last payment. I'm assuming Dave would say to go off the current amount (for the purposes of listing the debts in priority order...I know he'd say don't use credit cards in the first place.)

3. The FSA "debt" is because I am setting aside money in my paycheck for my son's braces, and I already paid the orthodontist and got reimbursed from my employer. I don't think I should really include this because (a) if my job ends I don't owe the money and (b) There's no way to pay it back faster; it's deducted from my weekly paycheck. It's also a 0% loan. What would Dave say?

4. The student loan is a 3.5% fixed rate loan. The payment is $79.24 monthly and will increase to $123.84 in July 2012. If I pay according to schedule, it would be paid off in 2022.

5. I do have a mortgage as well, but I'll leave that out of the picture for now.

I'll resist the temptation for now to discuss my progress on the steps after this one, since I believe he advocates going in order.

So what would Dave say my next step forward should be?

2Cor521

 

[Sue J]

I think he'd say to put $7.67 cash in an envelope and give it to the ex next time you see her. Or just keep running a tab like you are doing. That's not really debt, it's a current expense. You're not really making payments on it.

He'd slap your hand for using PenFed, but we here know it's just your current months charges, not yet billed, right? Not a debt for the snowball in BS2.

Omit the FSA for the orthodontia. It's pre-tax and you don't even see it in your take home pay.

So the $13,265 student loan is your only debt in BS2. Do you have a plan to pay more than the $79.24 this month or next month? And do you know if you can make additional payments online? Or do you have to mail them a separate check?

 

[DJRR]

OK. Here is what I believe he would say:

1. Dave does not believe in owing or lending money to family/friends because it introduces a creditor relationship and "the borrower is slave to the lender". Write the check and keep this current.

2. Cut up your credit card. Make the decision to never use credit again. Use your 1,651.11 to immediately pay this off.

3. This is not a debt. It is cash flow from your paycheck. You are committed to it and there is no obligation if you are laid off. It will automatically be paid from your check.

4. Send in the remaining $1,201.30 after paying off your credit card as a prepayment on your student loan. That will leave a balance of ~ $12,000. Do everything possible to pay this off in no later than 2 years. Preferably one year. Find an extra $1,000 per month and be done with debt forever. You have changed your family tree.

Continue on with the rest of the plan so that you can "live like no one else."

That is Dave's plan. It is not about optimizing float, using other peoples money, borrowing money at cheap rates to arbitrage investments, etc. He recommends an intense focus to wipe out what he considers a spiritual and physical bondage. YMMV, but it does work if applied as testified to and documented by the thousands of people who call in having paid off many thousands of debt.