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Dave Ramsey, bad debt, debt reduction - why I think Dave Ramsey makes no sense

Mon Jan 22, 2007 12:01PM | By Tony

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I haven't heard about Dave Ramsey, until recently when I read about him on few money and personal finance blogs. I went to his website, and that was a true revelation. Dave Ramsey sells tapes, CDs, training courses, books and subscriptions. I couldn't find anything constructive out there. Mr. Ramsey is for sure knows everything from each sort of insurance to each type of investing, and everything in-between. And I thought Suze Orman was bad.

By the way on that picture with the headphones, he looks so much like Jim Cramer from Mad Money.

A lot has been argued about debt reduction. Ramsey's approach is paying off "the smallest debt first to create the greatest momentum in your debt reduction" instead of "the debt with the highest interest rate". I like the scientific aspect of it - momentum. The only problem with that is the momentum will be rather negative, as the rest of your debt will get momentum all right, dragging you into even more debt.

You must start with the debt which is hurting you the most - the highest monthly payment, not tax deductible, etc. One approach is the debt pyramid or debt tree. Use your common sense.

Another idea, Dave Ramsey pushes is that the debt is bad, period. Which is a shear nonsense. Student debt, mortgage debt, car loans are good and necessary. Even credit card debt used wisely is the greatest tool to acquire some valuable assets like land or gold, and pay off other debts. That is the large topic on its own.

Dave claims that debt consolidation is bad. Of course using debt consolidation through AmeriDebt and the likes is plain stupid. But if you know how to consolidate your debts, it will work just fine, as long as you do it smart.

Bankruptcy is the worst nightmare too. According to Dave Ramsey, it "is a gut-wrenching, life-changing event that causes lifelong damage. Avoid bankruptcy if at all possible." Hahaha, bankruptcy was a cakewalk for everyone to start over fresh, free and clear. Chapter 7 - the liquidation, used to be a magic bullet, and that is why the rules got changed.

Anyway I can go on, but don't read too much into Davis Ramsey advice. Instead, live a bit below your means.

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