Where I Agree and Disagree With Dave Ramsey and My Debt Story

Where I Agree and Disagree With Dave Ramsey and My Debt Story

Danny Brown Graduation May 2007
At my graduation in 2007

I graduated from college in 2007 with just under $27,000 in student loans. Before I even got my diploma, I added another $12,000 in debt for a brand new car (2007 Hyundai Sonata, manual). I didn’t know much about personal finance back then. I just thought debt was a part of life.

My first and second jobs out of college took me out to Missouri and Kansas, respectively. I saw some billboards along the sides of the roads with Dave Ramsey telling people to get out of debt. Curious to see what he was teaching, I started listening to his radio show. I found out he was a Christian. Intrigued, I went to the bookstore and read his book, The Total Money Makeover, in one day. Reading that book changed my life and sparked my interest in personal finance.

I kept listening to his radio show, and as he helped more and more people get a handle on their debt with his no-nonsense advice, I was motivated and inspired to get rid of my debt as fast as possible. He doesn’t teach sophisticated ways to manage money. Everything he teaches is simple and basic, so anyone can apply his principles. In fact, he calls it “God’s and grandma’s ways of handling money.”

Applying his principles, I was able to pay off my car in just over 1 year and pay off my student loans in just over 2 years. The car was originally on a 5 year plan, and the student loans were on a 10 year plan. If I had made minimum payments, I would still be paying on student loans today!

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For those of you who aren’t familiar with Dave Ramsey, here are his 7 Baby Steps (in my own words):

  1. Build up a starter emergency fund of $1,000
  2. Pay off all debts except the mortgage (if you have one). This includes any credit card debt, car payments, student loans, etc.
  3. Fully fund your emergency fund with 3-6 months of expenses.
  4. Invest 15% of your income into retirement.
  5. Start saving for your kids’ college (if you have kids).
  6. Pay extra on your mortgage until it’s paid off.
  7. Build wealth and give.

Note that Baby Steps 1-3 should be done in order, but Baby Steps 4-6 can be done simultaneously. It’s also important to note that Dave places an emphasis on the importance of giving, and that giving should be a part of your budget from the very beginning, not just at Baby Step 7.

I have a lot of respect for Dave Ramsey, and I give him credit for teaching me how to get out of debt and how to be a better steward of my money. However, personal finance is personal, so I don’t follow 100% of what he teaches. Here’s where I agree and disagree with Dave Ramsey:

What Dave Ramsey teaches: When paying off debt, pay off your smallest balance first, regardless of interest rate (while maintaining minimum payments on other debts). When the smallest balance is paid off, attack the next smallest debt, and so on. This is what he refers to as the debt snowball.

I mostly agree. Although it may not make sense mathematically, seeing a debt disappear can provide the extra motivation we need to keep pushing on toward our goal. People are motivated by small victories. Using this method, most people can pay off their debt in a short period of time, and the interest you’d be saving would only be a negligible amount. However, if you are dealing with large balances or very high interest rates, I do believe that attacking the highest interest balance can save a good deal of money. It will just require a little more focus and motivation to stay on target.

What Dave Ramsey teaches: Don’t ever use credit cards.

I disagree. I use credit cards, so I can’t say I agree with this statement. I understand why Dave tells people not to use credit cards. As of May 2016, 38.1% of US households had some sort of credit card debt. The average American household had $5,700 in credit card debt. Research has shown that people tend to spend more when using credit cards versus using cash. However, I think that if you pay off your balance EVERY month and use credit cards responsibly, there are some worthwhile benefits such as hotel and travel rewards. Also, some credit cards provide additional benefits for free such as rental car protection, trip insurance, extended return periods, extended warranties, no foreign transaction fees, and more.

What Dave Ramsey teaches: Don’t invest anything in retirement until you finish Baby Step 2. Forgo the employer match and focus on paying off your debt.

I disagree. The employer match is free money, and I think you can still pay off debt while participating in the employer match. I can understand that having that extra money will bring about the end of Baby Step 2 that much quicker, but intentionally forgoing the employer match seems like a waste to me.

What Dave Ramsey teaches: Don’t ever get an adjustable rate mortgage (ARM).

I disagree. If you’ve been reading my blog, you know that I have a 7/1 ARM. As a realtor, I never recommend an ARM to anyone. It carries a LOT of risk, especially with rates being so low these days. However, personal finance is personal, and I chose to use an ARM to my advantage. I think an ARM is viable if you know you are moving or selling in a few years or if you plan to pay off the mortgage before the adjustable period begins. I plan to pay off the mortgage in 5 years or less. Read about it here.

What Dave Ramsey teaches: Don’t borrow money for college.

I agree and disagree. Most parents will tell their kids that education IS a great investment. I don’t believe that is an entirely true statement. Education CAN be a great investment, but I think it is really what you make of it. These days, the cost of education is skyrocketing, and it is becoming harder and harder to get your money’s worth. Here’s my honest opinion.

  • Going to a lower-tier law school on student loans will NOT be worth it in most cases. Just take a look at the number of law school graduates drowning in hundreds of thousands in debt with little hope of repaying. Google it. They’re filing lawsuits against their schools.
  • Going to an expensive school on student loans and getting a degree with low demand in the marketplace will likely have a LONG, LONG payback time. Taking out $80,000+ to go to a “brand name” school might sound like a good idea, but if you’re starting with an income of about $40,000-$50,000, you may be paying student loans for a while. Don’t forget to factor in taxes, rent, transportation, food, insurance, and everything else.
  • Racking up student loans of over $200,000 for another degree after undergrad (medical, law, dental, business, pharm, grad, etc.) might NOT be as easy to pay off as you think even with a higher income. You better really like what you will do or you will end up regretting your decision.

All of these statements assume that you are taking on a large amount of student loans and are not getting any help from anyone (e.g. parents) to pay them off. If you are getting help, make sure to thank whoever is helping you and be grateful that money doesn’t have to be a factor in whether or not you can go to school or where you want to go. I have been talking to a lot of young people lately where finances play a huge role in deciding if or where to go back to school. Getting an extra job and living below your means can speed up the process of paying off student loans.

For me, I am glad I went to college and got a degree in chemical engineering. I got a good amount of free money but also had to take on some student loans. I made some great friends, and I learned to how to think critically and how to learn. I learned how to work hard. My degree also enabled me to get a job as a patent examiner, which ended up being a good fit for me and my lifestyle.

What Dave Ramsey teaches: Giving should be the first item in your budget.

I agree. Dave prioritizes giving, even if you don’t have much. I think we shouldn’t wait to give until we can “afford it” or we’ll never be able to afford it. I think giving helps us to be more intentional with our finances. Knowing that I’m working with a smaller amount makes me manage my money better. Giving brings out the best in people. It can be a lot of fun having the power to change people’s lives in a positive way.

This post is not meant to bash Dave Ramsey. In fact, my hope is that you’ll explore what he has to teach whether or not you have any debt. I just wanted to share my experience with debt and how Dave’s teachings helped me get out of debt. I still have my mortgage, of course, but I’m working on that. I also wanted to show that personal finance is personal, and you should do what works for you.

What is your debt story? What were some of the things that influenced how you handle your personal finances?




8 thoughts on “Where I Agree and Disagree With Dave Ramsey and My Debt Story

  1. Great entry! I’ve been thinking about money more lately… Particularly how to not make it my god (being content with much and little) and how to be wiser with what I have. I recently became debt free, and it feels great. I have my parents and husband to thank for that! My influences were a few things. One, a paradigm shift that I do not have to and probably shouldn’t drag out and live with this loan. I think the safety net/security desiring side of me caused me to prioritize saving more than eliminating debt. After talking with Mike, I realized I could be saving more by paying it off more aggressively. Simple, right? But I guess I just needed a new perspective. Two, greater urgency to have my finances in order as we think about growing our family… So just wanting to be prepared. And three, the crossroads study on debt! It’s crazy to think how I was so stressed about my loans when I decided that go to school and now Ive paid it off. God provides.

    Unrelated to this, I have a question about investing in education, particularly grad school. Could you give an example or case where you felt it might be wise or fitting to take out a lot of loans for grad school? What factors or considerations should line up? I’m not sure about engineering but I think we live in a time where higher education is almost necessary to get a career. Most undergrads don’t know what they want to do later in life after college and many careers (teaching, healthcare, etc) require grad school. So sometimes even if it requires a lot of loans for someone, the alternative of not going to grad school doesn’t look great for his/her future. What advice would you give to newly grads or mid-career changers in this regard?

    Thanks !

    • Hi Jenn! Congratulations on becoming debt free and getting rid of your student loans. I think we start to think about money more when we realize how hard it is to earn money and how much we have to spend every month on taxes, housing, transportation, and food. As to your question, I think it may be fitting to take out a lot of loans for grad school if you are very sure you want to go into a certain field of study AND there is a good chance that you can repay your loans in a reasonable amount of time after you graduate. If you don’t have outside financial support, you will have to factor in return on investment. Some other factors I might consider are: Do I want to get married / start a family? Will I have time for that if I go to school? Is there a more affordable way to get educated in that field? Do I have to go to the best school I get in to even if it is the most expensive or can I get a similar education at a more affordable school? Many times, people go to grad school because they aren’t sure what they want to do with their life. This is a really bad reason to go to grad school. I think recent grads should get some work experience to see what the working world is like and to see if they really enjoy a certain field before considering grad school. Too many kids graduate from undergrad and jump into med/dental/law/pharm/grad school because their parents tell them to, even though they may be going into a field that they won’t really enjoy. I would advise recent grads and mid-career changers to start learning and spending time in the field they are interested in during off-hours. When you work at something because you want to and not because you have to, I think you may be one step closer to finding your passion.

  2. Do his principles apply to any amount of debt/income? If I were to follow steps 1-3 before going on to 4-6, I would never reach 4-6. I feel i need to get some sort of start on retirement/childrens funds because if I were to focus the majority of my funds paying off my sizeable student loans, it’ll be too late to invest in my children at a young age.

    • Hi Ji! Yes, his principles apply to any amount of debt/income, but personal finance is personal, so you can definitely do what suits you. If you want to make sure you save a little for retirement/children’s fund, you can start now even though you have debt. However, for most people who focus on steps 1-3, they can finish within a few years. If you are dealing with a large amount of debt, it may take you a longer time, but I don’t think it should take more than 10-15 years. If you are debt free except the mortgage by the time they are going to college, you will be in a much better position to help them. If I were in your situation, I think I might participate in any employer match (if any) but hold off on any other investments and focus on the debt. If you have a loan at 6.8%, for example, you are “earning” a 6.8% return on your money when you pay your debt down. Getting a guaranteed inflation-adjusted real return of 6.8% is hard to come by these days, once you factor in taxes. Make your debt a priority first, and I think you will have time before your kids go to college to save up a little for them too.

  3. Great post. I agree with you over Dave. I think he takes his approach because he knows many people cannot control debt. I use credit cards for everything and pay them off each month. I get enough points every year to take a free vacation or as I’ve done several times, trade my points in for gift to fund holiday gifts for my family.

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