Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Ramsey is a little to "all credit/debt is evil" for me. When I heard him say you shouldn't have a CC just to make life convenient sometimes like for renting a car or making travel reservation..he lost me.
But as arrieros81 and others have said, he's OK to get SOME ideas from, but definitely NOT all.
Re: home loan (and someone can correct me if I'm wrong:
-- for normal usage sure home loan and mortgage COULD be the same thing. Personally I think most people say mortgage to be clear.
-- there is a HELOC, home equity line of credit. A line of credit frame that draws against the EQUITY in your home it's a LINE OF credit to use or not use, available for a certain time frame, but can re re-need or re opened.
-- there's a home equity LOAN... you get an actual loan for a set amount with set payments and time frame to pay it back
That's great you've become interested in personal finance. Not everyone here likes him for various reasons, but I don't think he's a bad source for when you're just starting out and learning the basics.
He's a horrible source if you're just starting out. His particular brand of dogma works well for woxy's customers though. Ramsey propagates a ton of misinformation, specifically about credit. You can basically count on anything he says that's specifically about credit as being totally wrong. Why he does it is anyone's guess. Personally, I think it's a scare tactic. What he's doing is trying to scare people away from credit. In that sense, he's basically lying but with good intentions. I'm not a big fan of that approach. It has it's niche. If lying about credit makes the person who is month to month not run down to Best Buy and put a 60" TV on a 24% interest installment plan, I really don't know that I can say it's wrong. I'd prefer a more honest approach but maybe the ends justify the means. That's not my situation, however, so the DR lies don't really impress me. I understand how compounding interest works. I don't need to be scared away from 24% interest rates, nor do I own a 60" TV to begin with. If you're someone who isn't capable of being responsible, intentionally making your life more difficult by cutting up credit cards probably ultimately makes it better. I've never been more miserable than when I was month to month. For most of us, however, it's not an either/or. I have several credit cards. I have not paid interest on them in years. I just get the best of both worlds.
I'll also admit that I'm not religious, so people who confound everything with God do annoy me. That's nothing to do the quality of his advice though. I just find him annoying.
He's a horrible source if you're just starting out. His particular brand of dogma works well for woxy's customers though. Ramsey propagates a ton of misinformation, specifically about credit. You can basically count on anything he says that's specifically about credit as being totally wrong. Why he does it is anyone's guess. Personally, I think it's a scare tactic. What he's doing is trying to scare people away from credit. In that sense, he's basically lying but with good intentions. I'm not a big fan of that approach. It has it's niche. If lying about credit makes the person who is month to month not run down to Best Buy and put a 60" TV on a 24% interest installment plan, I really don't know that I can say it's wrong. I'd prefer a more honest approach but maybe the ends justify the means. That's not my situation, however, so the DR lies don't really impress me. I understand how compounding interest works. I don't need to be scared away from 24% interest rates, nor do I own a 60" TV to begin with. If you're someone who isn't capable of being responsible, intentionally making your life more difficult by cutting up credit cards probably ultimately makes it better. I've never been more miserable than when I was month to month. For most of us, however, it's not an either/or. I have several credit cards. I have not paid interest on them in years. I just get the best of both worlds.
I'll also admit that I'm not religious, so people who confound everything with God do annoy me. That's nothing to do the quality of his advice though. I just find him annoying.
You have to look at things from the context of the OP. He's young, and living in a very religious area of the country, and associates with people who thank god and literally mean it that they got approved for a loan.
I think Dave Ramsey is better than nothing. He fills a particular niche.
If you can get 0.9% on the loan and put the money in CD's and money markets earning an average of 1.5% or 2%, you can technically come out ahead.
See, that's the problem: the vast majority of people who lease cars don't have the money to pay for it in cash, and so the money they aren't paying upfront is not going into CDs and money markets. If you need a car and have $30,000 in saved up in cash, then why not just buy a car for $30,000, and then, since you don't have to save up for a car any more, you can take the money would be saving and start putting it into an investment of your choice. Better yet, pay cash for a $4,000 used car, put the $26,000 into an investment of your choice and continue to put money into it with the extra money you'll have now that you don't have to save up for a car anymore.
Quote:
Also if you have a mortgage at 3.75%, and you get offered car financing at 0.9%, why would you not take it and pay down your mortgage? Seems you're leaving free interest savings on the table.
Huh? A home mortgage costs a lot more than a car, so I can't envision a scenario in which that would make sense. The only scenario in which it would make sense would be if you're close to paying off your house, but are for some reason in danger of being foreclosed and you have enough cash to pay off the house but are in urgent need of a new car.
The math doesn't add up on "using" debt to finance one's living. A car is not an investment (unless it's some classic or rare vehicle), so how would it ever make sense to "finance" a car, for example?
I finance my car, because at .9% interest on the car loan I come out ahead by investing the money I have in cash instead of buying the car outright (assuming the market doesn't plummet). a few online banks offer .9% on regular savings.
That's why not everyone likes DR. Debt, if you can manage it responsibly and wisely, can be a useful tool.
The math doesn't add up on "using" debt to finance one's living. A car is not an investment (unless it's some classic or rare vehicle), so how would it ever make sense to "finance" a car, for example?
Agreed. However, it's not a bad way to buy a home.
See, that's the problem: the vast majority of people who lease cars don't have the money to pay for it in cash, and so the money they aren't paying upfront is not going into CDs and money markets. If you need a car and have $30,000 in saved up in cash, then why not just buy a car for $30,000, and then, since you don't have to save up for a car any more, you can take the money would be saving and start putting it into an investment of your choice.
The point is that you can earn more than it costs to borrow the money if you take the loan.
According to NerdWallet, you can get 1.25% on a 1-year CD, 1.31% on a 2-year, 1.55% on a 3-year, 1.85% on a 4-year, and 2.25% on a 5-year.
So what you do is this: you take a 72-month car loan at 0.9%. Then you take the cash you would have paid for the car, and you put one year of payments in an online savings account at 0.75%-1%, another year of payments in a 1-year CD, another in a 2-year CD, etc. and put the proceeds of each CD as it matures into the savings. In this way, you always are covering the car payments with the money you would have used to buy it in cash. Since your weighted average interest is in the neighborhood of 1.5%, you are technically "gaming" the system and earning an arbitrage profit for doing nothing except some clever banking.
Now this is not for everyone, of course, but with advanced planning and cash, it can absolutely be done.
Quote:
Originally Posted by DavidRudisha
Better yet, pay cash for a $4,000 used car, put the $26,000 into an investment of your choice and continue to put money into it with the extra money you'll have now that you don't have to save up for a car anymore.
This is a consumption decision, not an investment decision. To this I ask, what is the purpose of having more money? Ultimately money is like a screwdriver. When you buy a screwdriver, you (in a philosophical sense) don't actually want a screwdriver - rather, you want to screw and unscrew, and the screwdriver is simply a means to that end, it is not an end goal in itself.
The same is so for money. Each dollar can be used in a multitude of ways, but the goal is not to live in a tent and die with $30 million in your brokerage account. Each dollar should be put to its most valuable usage. For some dollars this is an emergency fund, for others a retirement fund, for others food, for others insurance, etc.
Quote:
Originally Posted by DavidRudisha
Huh? A home mortgage costs a lot more than a car, so I can't envision a scenario in which that would make sense. The only scenario in which it would make sense would be if you're close to paying off your house, but are for some reason in danger of being foreclosed and you have enough cash to pay off the house but are in urgent need of a new car.
You save money by taking a lower interest debt in place of a higher interest one. let's say you are buying a $25k car, and have $25k in cash set aside. You could (1) Pay cash for the car, or (2) put $5k down and finance $20k.
If you go with option 2, this frees up $20k which can be used to reduce the mortgage principal by that amount. So in the first year, for example, you save approximately $750 in mortgage interest at 3.75%. Meanwhile you pay car loan interest of less than $180.00 at a rate of 0.9%. This is a savings of around $570.00 for "clever banking tricks"...
I enjoy Dave Ramsey...he is not talking to most of the people on this forum but most people live paycheck to paycheck without a clue what to do with their money but spend it. He is totally against debt...all debt and that is a view you can agree with or not but IMO Ill take no debt and a cleaner financial life.
I think ALOT of people can learn from him if you really don't know what to do your finances. The baby steps are easy and they are there to get people motivated to look at their finances. Alot of people put their head in the sand.
He is just one of many financial guys out their. Apparently more people like him than hate him cause he has sold quite a few books and is on 500 radio stations. Just like anyone don't take his word as gospel but IMO if you use his plan it work hurt your finances.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
