Dave Ramsey approach

[harley]

Quote:

Originally Posted by disneysteve He calls the credit score the "I love debt" score and he's not wrong. So many people worship the FICO score and do really toxic things to try and raise it, like purposely carrying a balance on their credit cards (at high interest) just so they can build a track record of making payments on time in an effort to boost their scores. People even take out loans they don't need just to polish their credit record and increase their scores.

Why would you need to carry a balance on a CC to get a track record of paying on time? Use it, pay it off on time. Every month. You still get the track record and never pay a penny of interest. I don't think carrying a balance gives you a higher credit score. I haven't carried a balance for nearly 40 years and have a 800+ score. Anybody that would do that is already financially stoopid and probably needs to listen to Ramsey.

[Markola]

It’s unusual to get so far toward the end of the month before the regular “Dave Ramsey is a helpful educator and/or a charlatan grifter” debate. Come on people, pick up the pace. We almost missed June’s installment. [emoji897]

[RobbieB]

Yeah, I've never carried a balance on a credit card in my life. Well except when the bill fell off behind the desk. Score over 800 according to Discover card on my monthly bill which I pay in full each month.

Credit cards, I love credit cards. Who is Dave Ramsey anyway?

[teetee]

Quote:

Originally Posted by RobbieB Yeah, I've never carried a balance on a credit card in my life. Well except when the bill fell off behind the desk. Score over 800 according to Discover card on my monthly bill which I pay in full each month. Credit cards, I love credit cards. Who is Dave Ramsey anyway?

So are millions of others but there are more who either don't have the discipline or treat credit cards as emergency fund. They eventually got into recurring debt and become the prey.

I really don't see the bragging right in having high credit scores, not when the main benefit is to borrow money easier and its intended effect (from CC company's perspective) is to get more people into debt (the only way to build your score is to borrow and pay back). It is like loan sharks with candies in hand.

CC companies get their profit from 1. Vendors who provide credit cards as payment, 2. CC reward collectors for putting more stuff on their cards, 3. people carrying balances, 4. Credit worshipping culture that get more people to use CCs. It is such a good business model that there is little to no chance for the consumers to benefit from it except some reward points and miles.

[RobbieB]

My first job out of school, the Co signed me up with direct deposit and a credit card. This was back in 1978. Because I would be travelling and needing to rent cars and hotel rooms. I was 23 years old.

What else you gonna do? carry around 10 grand in cash for a bond?

[disneysteve]

Quote:

Originally Posted by harley Why would you need to carry a balance on a CC to get a track record of paying on time? Use it, pay it off on time. Every month. You still get the track record and never pay a penny of interest. I don't think carrying a balance gives you a higher credit score. I haven't carried a balance for nearly 40 years and have a 800+ score. Anybody that would do that is already financially stoopid and probably needs to listen to Ramsey.

Oh I agree completely. But lots of people don’t know these things. I’ve had many, many people tell me they carry a balance on purpose because they’re trying to raise their score.

Most people aren’t well educated on personal finance. There’s a reason why 60-70% of Americans live paycheck to paycheck.

[mrfeh]

Never listened to him. From reading the dozens of threads about him on bogleheads, it seems his debt advice is pretty good and his investing advice is horrible.

[ERD50]

Quote:

Originally Posted by teetee So are millions of others but there are more who either don't have the discipline or treat credit cards as emergency fund. They eventually got into recurring debt and become the prey. I really don't see the bragging right in having high credit scores, not when the main benefit is to borrow money easier and its intended effect (from CC company's perspective) is to get more people into debt (the only way to build your score is to borrow and pay back). It is like loan sharks with candies in hand. CC companies get their profit from 1. Vendors who provide credit cards as payment, 2. CC reward collectors for putting more stuff on their cards, 3. people carrying balances, 4. Credit worshipping culture that get more people to use CCs. It is such a good business model that there is little to no chance for the consumers to benefit from it except some reward points and miles.

Lots of misinformation in the above.

A high credit score helps in many ways. Insurance companies use it to help determine rates (you can agree/disagree if this is appropriate, but it happens regardless what you or I think).

And it will affect the rate you can get on a mortgage, which many consider good and reasonable debt, and don't abuse it.

edit/add: I think it is also used by landlords, as a legally unbiased way to select tenants. A low credit score could keep you out of a desirable place, you might end up paying more or settling for a less desirable place with a low CC score. Probably some other things too.

I don't think it's totally unreasonable to use a CC as a short term emergency fund. It's easy, no paperwork, and it might get someone out of a bind. Better to get your car fixed than lose your job. Or buy a suit for an upgraded job interview. Sure, in a perfect world, those people would have an emergency fund, but if they are just starting out, and have an opportunity to step up, a loan might be a good investment, even at CC rates.

And even for someone in good financial shape that decides to keep their money working for them (low cash balance), it might even make sense to avoid selling stock and paying cap gains.

Yes, I know, some people won't pay it off quickly and it becomes a drain on them. But CC is a tool, and like all tools can be abused. Don't throw the baby out with the bath water.

"(the only way to build your score is to borrow and pay back)" - FALSE. Unless you are considering the time during the grace period as "borrowing", where you pay no interest/fees, and that is all win-win for the consumer. You get free float, and can time your transfer rather than having an immediate draw on your account. You do not have to pay interest to raise your credit score. I only paid interest once ( a few $ by an error on my part) in over 40 years, and my score is about as high as they come.

I (and many here) have benefited hugely from CC rewards. I put everything I can on the CC, and I get 2~4% on all that. That would mean even more to someone scrapping by, but DR tells them CCs are evil. I guess hammers are evil too (or maybe I should say plowshares, since DR likes to go into sacred territory)?

-ERD50

[ERD50]

Quote:

Originally Posted by mrfeh Never listened to him. From reading the dozens of threads about him on bogleheads, it seems his debt advice is pretty good and his investing advice is horrible.

The trouble with this, they worship DR for helping them get out of debt, then worship his BAD investment advice (and some of his bad debt and CC advice).

What troubles me is, his advice isn't just BAD because we have different view points. He spreads factually BAD information ("average" market returns vs compound annual rate of return - big difference) and I just can't believe he doesn't know it is bad. That tells me there is something devious going on.

And IIRC, when I looked into it, he directed people to high fee FAs, and I'm pretty sure he's getting a kick back. Fine, but he uses factually BAD information in the process.

-ERD50

[teetee]

Quote:

Originally Posted by ERD50 Lots of misinformation in the above. A high credit score helps in many ways. Insurance companies use it to help determine rates (you can agree/disagree if this is appropriate, but it happens regardless what you or I think). And it will affect the rate you can get on a mortgage, which many consider good and reasonable debt, and don't abuse it. edit/add: I think it is also used by landlords, as a legally unbiased way to select tenants. A low credit score could keep you out of a desirable place, you might end up paying more or settling for a less desirable place with a low CC score. Probably some other things too. I don't think it's totally unreasonable to use a CC as a short term emergency fund. It's easy, no paperwork, and it might get someone out of a bind. Better to get your car fixed than lose your job. Or buy a suit for an upgraded job interview. Sure, in a perfect world, those people would have an emergency fund, but if they are just starting out, and have an opportunity to step up, a loan might be a good investment, even at CC rates. And even for someone in good financial shape that decides to keep their money working for them (low cash balance), it might even make sense to avoid selling stock and paying cap gains. Yes, I know, some people won't pay it off quickly and it becomes a drain on them. But CC is a tool, and like all tools can be abused. Don't throw the baby out with the bath water. "(the only way to build your score is to borrow and pay back)" - FALSE. Unless you are considering the time during the grace period as "borrowing", where you pay no interest/fees, and that is all win-win for the consumer. You get free float, and can time your transfer rather than having an immediate draw on your account. You do not have to pay interest to raise your credit score. I only paid interest once ( a few $ by an error on my part) in over 40 years, and my score is about as high as they come. I (and many here) have benefited hugely from CC rewards. I put everything I can on the CC, and I get 2~4% on all that. That would mean even more to someone scrapping by, but DR tells them CCs are evil. I guess hammers are evil too (or maybe I should say plowshares, since DR likes to go into sacred territory)? -ERD50

This is the culture I was referring to. You are so comfortable on doing things by leveraging debt that it become natural to you regardless of risks. Mortgage is considered good debt until 2009 recession happened. Using CC as emergency fund and enter high interest recurring debt because life happens. Earning single digit percentage rewards from buying goods and thought it was a great wealth building tool.

Debt only works when it works. The point is that things work for you, will not work for everyone and this is a fact based on stats (otherwise CC companies won't keep throwing money into marketing them). Using your experience and labeling CC as the correct way for life that applies to general spending style is wrong, not to mention most people buying into CC are already confused between buying power and borrowing power.

[Gumby]

I doubt that ERD50 ignores risk.

[jollystomper]

The reason one can leverage debt to one's advantage is because one has already built up the capital to leverage debt and handle the risks.

According to Lending Tree, the average monthly credit card household debt is around $6,500. That is easy to pay off and leverage when you have the investments and net worth of most of us hear. Much tougher if you have the median/below median income or savings.

The Federal Reserve reported that 39% of Americans do not have enough to cover a $400 emergency. I would bet that most of those have credit card debt that they cannot leverage.

In my view, I would rather error on the side of teaching those with financial issues, or even starting out with their own personal finance, that credit cards are dangerous. I (and most others) are not taught that. I was lucky I learned the hard way, when the damage could still be corrected, and was able to develop the financial discipline.

Once they have the developed the financial discipline many of us in this community have, they will figure out for themselves, or can better learn, or can take more risks with leveraging CC debt.

A related, perhaps tangential issue, is the rush to "have it all". Credit cards are an attractive temptation when starting out to getting it all as soon as possible, rather than developing the patience to save for things. Again, something a lot of the population needs to learn.

[Aerides]

Quote:

Originally Posted by teetee The point is that things work for you, will not work for everyone and this is a fact based on stats ...

And there you have it. No one approach works for everyone, and yet DR has a 100% no-debt rule, regardless of the person or their circumstances. Things that work for most of DR's audience don't apply to all of DR's audience, nor to everyone here.

I like using CC's. I don't use them for debt, and they are zero risk to me because I know what I'm doing, as do most folks here. Whether or not I take a mortgage in the future will be based on math, and benefits, in the scope of my financial picture as a whole.

[ERD50]

Quote:

Originally Posted by teetee ... Mortgage is considered good debt until 2009 recession happened. ... .

This makes no sense. Like DR, you hate all debt so much that it blinds you.

My mortgage was just fine in 2009. I made many tens of thousands over the life of that mortgage by staying invested.

Quote:

Originally Posted by teetee ... Using your experience and labeling CC as the correct way for life that applies to general spending style is wrong, not to mention most people buying into CC are already confused between buying power and borrowing power.

That's an education problem, not a CC problem. Far better to get educated than just ignore a valuable tool. That approach leads to not driving, because some people get into accidents. It's a tool, learn to use it.

Quote:

Originally Posted by jollystomper The reason one can leverage debt to one's advantage is because one has already built up the capital to leverage debt and handle the risks. According to Lending Tree, the average monthly credit card household debt is around $6,500. That is easy to pay off and leverage when you have the investments and net worth of most of us hear. Much tougher if you have the median/below median income or savings. The Federal Reserve reported that 39% of Americans do not have enough to cover a $400 emergency. I would bet that most of those have credit card debt that they cannot leverage. ...

Some of these published stats are a bit questionable. IIRC, there was a thread about that emergency fund (though I thought it was more like $2000?), and according to that methodology, some of the millionaires on this forum would be included, because their definition was whether you had that amount readily available in cash equivalents. When you have the resources, you don't need it in cash, stocks are plenty liquid enough to meet the next credit card billing. There's an advantage to keeping it it invested and keeping your cash balance low.

I did find some data on CC debt, I think some sources include the EOM balance in the debt category, even if it is paid in full each month. Technically, it is debt, but if there is no interest on it, does the tree in the forest make a sound (for the mixed metaphor fans)?

https://www.creditcards.com/credit-c...atistics-1276/

Quote:

The percentage of Americans who pay their credit card bill in full ("transactors") rose 1.5 percentage points to a record high of 33.7%4, according to data from the ABA. The number of transactors hit an all-time high for the second quarter in a row. The percentage of revolvers fell during that same time period, to a record low of 40.7%4 of all accounts. The number of dormant accounts during that period rose a slight 0.1% to 25.6%4.

So since 25.6% are dormant, you have 40.7/(40.7+33.7) = 54.7% of active accounts have a balance past the due date (not sure if this is any given month, a pattern or what?).

Still probably not a good sign, but on the glass nearly half full view, about half do pay it off each month (again, is this for a month, or a year, or what?).

-ERD50

[pacergal]

Like many here, I've listened to Ramsey and Orman. I prefer Suzie. Years ago, there was a show "til debt do us part" by Gail Vaz Oxlade. I liked her too.
Every financial guru/advisor/planner has their own twist, you have to take what they say and create your own financial plan--whatever works to keep you out of overwhelming debt, and save well for emergencies and your future retirement.

[RetiredAt55.5]

Quote:

Originally Posted by Aerides I like using CC's. I don't use them for debt, and they are zero risk to me because I know what I'm doing, as do most folks here. Whether or not I take a mortgage in the future will be based on math, and benefits, in the scope of my financial picture as a whole.

+1

CC's are a great deal if used wisely. They lend me money interest free for 30 days, and they give me between 2 and 5% when I use them. Further, they provide a couple of years worth of monthly statements so I have a record of purchases.

What's the alternative, a debit card or walking around with a pile of cash and change in my pocket?

[jkern]

I like to use Credit Cards because they offer some security. You can challenge the charge if it's incorrect or the product was defective.

One time I replaced my car windshield and the rain sensor didn't work. The Vendor refused to replace the defective windshield. I filled out a claim with my CC and received a full refund.

[Sue J]

Quote:

Originally Posted by pacergal Like many here, I've listened to Ramsey and Orman. I prefer Suzie. Years ago, there was a show "til debt do us part" by Gail Vaz Oxlade. I liked her too. Every financial guru/advisor/planner has their own twist, you have to take what they say and create your own financial plan--whatever works to keep you out of overwhelming debt, and save well for emergencies and your future retirement.

Yes, I loved Gail Vaz Oxlade's show.

Dave Ramsey's main idea is to get people to change their mindset about borrowing. So many people think that living beyond their means is normal and ok. Everybody does it, it's just the way things are. Too much in student loans, buying cars that are much too expensive, overspending because you deserve that thing you think you have to have. And when you have no savings or emergency fund then any little problem goes on the credit card.

So his basic goal is to get people to see that ongoing debt in your lives is detrimental and can be solved. His first 3 steps are basic. Spend less than you make or find a way to earn more. Pay off debt. SAVE. After that it's using that control over your finances to secure your future, retire, etc.

His idea of Financial Peace is pretty solid. Any of us here without debt and especially no mortgage know that feeling. It can be done, even without a big income.

On the rest of his advice, you have to decide for yourself. He tells families to go buy a $2000 car for cash. Around here that's an old, high mileage car in need of repairs. He doesn't understand two child car seats and another booster seat in a sedan. He tells people it's ok to withdraw 8%/yr from your investments because they are making 12%/yr. Lots of big assumptions based on long term historical data that may not apply to the here and now. And his employees have to abide by his "lifestyle" rules. Look that one up if you need to know.

I enjoy his radio show because of the real people stories. But I have a very strong filter for some of the Dave proclamations. I can understand why he thinks all credit cards are evil for everyone but I will still use mine and enjoy the convenience and the perks. Yes, I pay it off every month.

[timbervest]

Quote:

Originally Posted by Sue J Yes, I loved Gail Vaz Oxlade's show. Dave Ramsey's main idea is to get people to change their mindset about borrowing. So many people think that living beyond their means is normal and ok. Everybody does it, it's just the way things are. Too much in student loans, buying cars that are much too expensive, overspending because you deserve that thing you think you have to have. And when you have no savings or emergency fund then any little problem goes on the credit card. So his basic goal is to get people to see that ongoing debt in your lives is detrimental and can be solved. His first 3 steps are basic. Spend less than you make or find a way to earn more. Pay off debt. SAVE. After that it's using that control over your finances to secure your future, retire, etc. His idea of Financial Peace is pretty solid. Any of us here without debt and especially no mortgage know that feeling. It can be done, even without a big income. On the rest of his advice, you have to decide for yourself. He tells families to go buy a $2000 car for cash. Around here that's an old, high mileage car in need of repairs. He doesn't understand two child car seats and another booster seat in a sedan. He tells people it's ok to withdraw 8%/yr from your investments because they are making 12%/yr. Lots of big assumptions based on long term historical data that may not apply to the here and now. And his employees have to abide by his "lifestyle" rules. Look that one up if you need to know. I enjoy his radio show because of the real people stories. But I have a very strong filter for some of the Dave proclamations. I can understand why he thinks all credit cards are evil for everyone but I will still use mine and enjoy the convenience and the perks. Yes, I pay it off every month.

Agree. I think most of the people on his show are lost/ out of control and living for wants rather than needs or need guidance (a "parent") to help them get back on solid footing. They want to feel empowered. But I agree his paid off mortgage and his 12% investment advice are pretty much off the mark.

[FANOFJESUS]

Quote:

Originally Posted by RobbieB Yeah, I've never carried a balance on a credit card in my life. Well except when the bill fell off behind the desk. Score over 800 according to Discover card on my monthly bill which I pay in full each month. Credit cards, I love credit cards. Who is Dave Ramsey anyway?

Here is today's show with Dave. You can rewind to the beginning.

https://www.youtube.com/watch?v=iPYPdipGLrQ