For all of you that have attended Dave Ramsey’s Finance Peace University classes, I’m sure that you remember his list of so-called “myths” about debt. Read more for some that made me giggle..
Myth: If you pay off your credit card each month, you get the free use of someone else’s money.
His reasoning was that most people don’t pay off their cards every month, and that even if you do, most people spend more money on credit cards than when paying cash. I don’t know about you, but I find that cash spends easier than credit to me - I must be the exception? As you can see, I obviously hadn’t been paying off my cards every month, but that won’t be the case in the future for me.
Myth: You need a credit card to rent a car, check into a hotel or buy online.
Myth: You should get a credit card to build your credit.
Discussed this one in yesterday’s post. I, for one, still think that your credit score is important.
Myth: You can get a good deal on a new car at 0% interest.
He goes to say how the car loses 60% of it’s value in the first four years. Sure.. but you also don’t have any repair costs, etc. I still think you can do fine with a used car, but have no problem with buying a new car at 0%.
Myth: Car payments are a way of life. You will always have one.
I’ve discussed this one in a couple posts. In some cases, you can come ahead with keeping your money in the bank and having car payments. I’ve also never heard anyone say that it’s “just a way of live” to have payments. Have you?
Myth: Debt consolidation saves interest, and you have only one payment.
First of all, it was pretty clear that he was discussing debt consolidation via a home equity loan. Obviously, that’s dumb — let’s roll unsecured debt into a secured one!! In any case, he then goes to discuss how you end up consolidating some debts that have a lower interest rate into the loan, and your overall average rate goes up. I’m curious — *why* would you consolidate lower interest rates into a higher interest rate loan?
Myth: Debt is a tool and should be used to create prosperity.
Sure, you shouldn’t get yourself into debt up to your eyeballs. But it is certainly possible to use debt as a tool to help you build wealth — like with the car payment example.
Now, for a few I completely agree with…
- Myth: If I loan money to a friend or relative, I am helping them.
- Myth: By co-signing a loan, I am helping a friend or relative.
- Myth: Cash advance, payday loans, rent-to-own, title pawning and tote-the-note car lots are needed to help lower income people get ahead.
I think a lot of the things Ramsey says are, if you want to get right down to it, are not the most financially “correct” way to do things. On the other hand, they tend to work.
For example, you talk about using debt to your advantage through car loans, credit cards and so forth. I think for someone who is good at managing money that can be somewhat true, however, it assumes that you’re disciplined enough to follow through on that plan to make money. Most people aren’t that disciplined.
I think ramsey just highlights a lot of the thinking that gets people into trouble in the first place, and moves people down the path of responsibility, saving and wealth.