How many of you are debt free? (Dave Ramsey stuff)

[cody6766]

His model is really simple. It's not a scheme or anything that requires you to spend money on his products. His website outlines his plan and he goes over it pretty much every day on his radio show. He sells tools that you can use to follow his plan, but the plan is basically a set of common sense steps. He calls them babysteps.


Step 1 is to get yourself on a strict budget and put $1000 in the bank as a short term emergency fund
Step 2 is pay everything off, smallest debt to largest debt, other than the house. You live on your budget and throw as much as you can on the smallest debt while paying the min on each other debt. Once it's gone you roll that payment into the next...and so on. He has people work smallest to largest because he's noticed that it helps people feel better about their progress and stay more motivated through the plan. It's not a math thing, it's a behavior thing.
Step 3 is to pile up 3-6 months of expenses in savings as your full emergency fund.
Step 4 is to pay 15% into your retirement
Step 5 is to dump extra into your house to pay it down while saving for kids' college and the like. I forgot exactly how he lays the last few out, but it's close to that.

I'm working a loose version of his plan. Rather than getting super aggressive with the debt snowball, we're paying a lot extra and playing a little. We make enough that we decided we can afford a little play money as long as we're making strong progress on our debts. I owe on a truck and a student loan and my house. The first two should be gone in 2 years.

Give his radio show a listen and you'll see what he's all about. He is on AM 1520 from 1-4, weekdays.

 

[CHenry]

Nah I Dont mind, I work for the state and its public record. We bring home $6k a month after taxes.

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And when all you have is a $1k mortgage payment, groceries utilities, etc, we can cash flow over half of that each month to make extra house payments every few months.

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[Spata]

Meesa debt free.

 

[Jestik]

Thanks CHenry and Subprep. I live alone (Single), and it is just me. I spend what I want when I want, and I don't really have a budget besides "pay the bills". I would like to get my student loans paid off sooner rather than later, but first and foremost, I wanted to get myself an emergency fund set up that would cover me for a few months with ZERO income in case something bad happened to me. Additionally, separate from that, I wanted to have what I call "bail money", i.e. cash to get my sorry butt out of jail if I ever ended up there.

 

[CHenry]

Thanks CHenry and Subprep. I live alone (Single), and it is just me. I spend what I want when I want, and I don't really have a budget besides "pay the bills". I would like to get my student loans paid off sooner rather than later, but first and foremost, I wanted to get myself an emergency fund set up that would cover me for a few months with ZERO income in case something bad happened to me. Additionally, separate from that, I wanted to have what I call "bail money", i.e. cash to get my sorry butt out of jail if I ever ended up there.

Being single can be a Good thing, it means you Dont have "her" debt too. If you have a car payment, sell it and go buy a $2000 civic. Pay those student loans off. If your only working 40 hour a week, get a second job. I worked 2 jobs for the better part of 10 years until I got married. The key to this is bringing income up while knocking out debt. If you can do both, it really goes quickly. And as Dave would say, you shouldn't be seeing the inside of a restaurant unless you work there. Lol

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[vvvvvvv]

Been through the class. Listen on the radio almost every day.

Ironically, during the class I quit my steady job to start my own business.

Do I have debt? Sure, but the interest on most of it is so minimal it doesn't really make much of a difference. However, our household budget is based off of my wife's salary and anything I make that doesn't get re-invested into the business goes towards paying those few debts off. My wife's student loans are the highest interest rates (and I'm the college dropout, so I have no student loans).

One thing I disagree with Dave on is debit vs credit card protection. One year for a business trip, I ended up practically buying out a quarter of a flight from OKC to DFW because of a bug on Southwest Airlines' website. Basically, it was giving random amounts of seat to orders, so instead of two seats, I got 40. With it being done on a debit card, the money came directly out of the bank account. While it only took two hours on hold (and 4 minutes with a person) to get 38 tickets refunded, those refunds couldn't start until the bank acknowledged the transaction, which typically takes three days (I knew this going into the call having worked with electronic credit and debit card processors). It took another four days (thanks to a weekend) for the bank to release the refunded funds. Meanwhile, it had just happened to be during bill paying time, and that meant that I had to work with the bank to waive overdraft and bounced check fees that were assessed during the debacle, as well as work with vendors to waive late fees and assure them that the checks or automatic transactions didn't bounce because I was having actual financial trouble. After that ordeal, I switched to using credit cards that a paid in full each month as a layer of insulation.

I recently had my Skype account compromised (which is another story... because I use unique generated passwords everywhere...) and ~$3K ran up in charges before Skype disabled it for "abnormal activity" (odd that it took that much because I was still on a grandfathered $2.99/yr plan). At first, I tried to resolve it with Skype, but Skype's support is an endless loop where they tell you to fill out a form with 30+ questions about you and your account to verify your identity, have support call you a few hours later, only to ask you to fill out the form again, and so forth. After realizing that Skype has no real support in place, I clicked the "dispute" button in my Amex account on each of the charges. Immediately, they were deducted from my balance due pending investigation. Over the next 60 days, I received calls and emails from Skype requesting information that I didn't know (such as Amex's Swift number - never heard of a Swift number before that), but I just did what Amex told me: I told them to take it up with Amex. Finally the charges got reversed, though I've never been able to regain access to that account (endless "fill out this form" loop). Skype emails me every day since then letting me know that the scheduled charge for that day against my Amex has failed... Using the credit card, I didn't have to pay a dime and it didn't affect any of my other finances.

Plus, another reason I use the credit card is points. I don't spend any more money than I would without the credit card (everything on my business card is a business expense that would have been incurred anyway, and most of it qualifies as double or triple points), and I basically rack up enough points per year that my trip to our biggest industry conference is essentially free - even staying in a Hyatt Regency downtown next to the conference center (though one of those nights is getting "paid" for with Hyatt points).

So yeah, I definitely disagree with Dave about credit cards. But Dave's stuff is geared more towards people who need hand-holding in their financial life, and for those people credit cards would probably be a very bad idea. I also listen to Clark Howard, and his stuff is more geared toward people who are very responsible financially and recognize their own comfort level and shortcomings. The advice from both shows is sound (even if it does seem conflicting at times).

 

[SlugSlinger]

Can I attach a spreadsheet on here?

I want to give you guys some insight on investing the extra money you would be using to pay off your mortgage early. I think most of you will be shocked.

I worked up a spreadsheet to show the following:

Paying $200 extra a month on your mortgage principle and how early you will pay it off. Then start saving at that time for the rest of the 30 years and how much you will have compared to investing for the entire 30 years.

Saving $200 a month and investing it at a modest 10% return in te market (the average return is more like 12% over time)

How much more you will have in 30 years if you invest instead of paying down your mortgage early.

 

[nofearfactor]

Semi fan of Daves.

Im 45, self employed 25 years, extremely frugal (wife will tell you Im a cheapskate or a tightwad= ugly ugly words...), and Ive been in the black more than 20 years now. Working on teaching my children how to become self contained.

 

[Mr.Glock]

Knowing some of you will have a hard time believing. But have never owed one red cent.

 

[CHenry]

I am not a Ramsey disciple but from what I understand, his philosophy is to first know where you are spending all of your money. Second, eliminate all unnecessary spending and apply it your highest interest rate debt. When you get that debt paid off, you move all that money to paying off the second highest interest debt and so on until you are debt free. This is referred to as a snowball effect. Third, once you are completely debt free and have enough money saved to keep you afloat for six months, you can start investing for retirement.

I understand the desire and the psychological benefit to being debt free. Consumer loans, credit card debt and student loans are a bad idea and should be avoided period. What I don't understand is the math. Why would someone who is paying less than 4% interest on their mortgage and getting a tax deduction for that interest be advised to pay off that home before investing in a mutual fund with an almost guaranteed return of 12%? I'm not buying the 12% but I am told that is part of the curriculum.

1. I don't think being wholly vested in the stock market is wise. I understand the historical return, blah blah blah. I think the times we live in are unprecedented in terms of national and personal debt. The market looked really good when we were loaning 110% of home values to people with poor credit history. Real estate values were skyrocketing and new home construction was booming. Our entire economy and the stock market is STILL driven by debt, which Dave will tell you is a bad thing.

2. It takes money to make money. If you can borrow money at 6% and then make 12%-20% in any investment, you would be crazy not too. Furthermore, you would be crazy to pay that money back early if you can continue to reinvest and generate similar returns. Leverage, used in the right way, is no less risky than investing in the stock market and can potentially generate more income with greater tax benefits.

I think Dave's advice is good and applies to 98% of people out there who work for someone else and don't have the stomach to work for themselves or invest in personally managed assets. I also think that for most people who have the opportunity to be an entrepreneur and/or work for themselves, that is generally the best investment they can make. You have to decide which camp you're in. So, I would suggest listening to Dave because he has a lot of good advice. However, his way is not the only way. I would suggest that many highly successful (in the financial sense) people, achieved their success doing many things that are contrary to Dave's philosophy.

With all due respect, from this post you know nothing about Daves teachings. High interest loans being first to get paid off is false. He teaches to list the debts largest to smallest and pay the smallest one first. Then move on to the next smallest. By doing this you see rewards come faster and keeps you motivated. As far as the mortgage, at 4% interest, let's say you pay $10000 in interest per year. If your in the 25% tax bracket you will get a tax break of $2500 so you paid 10 grand to save $2500. Do u see the problem there? LOL.
And. If your like me and married filling joint, the low interest rate I have, I dont pay enough in interest to make itemizing possible and beat the standard deduction of $12500. With mortgage interest, property taxes, donations and whatever else I can scrape together on a long form, I come about $1000 short of deducting more than the standard deduction the IRS allows.
And borrowing money to invest is not only risky, its stupid.
Dont be offended I used to think that was a good idea too.

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