Author Topic: Dave Ramsey & Credit Rating  (Read 2602 times)

JenniferW

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Dave Ramsey & Credit Rating
« on: September 22, 2018, 09:51:52 PM »
Been watching a few of his shows.  I don't know if I buy this thing about cutting up credit cards.  He seems to assume that everyone will end up buying more than they should when they use plastic vs. handing over the Benjamins.

I just don't feel that way.  I have a combined credit limit of $29,500, yet I am not tempted one bit and have zero balances.  I use the cards and pay off each month.  And when I use them I don't buy more that month than I would if I paid cash.  I still analyze where every cent of mine goes and am always finding ways to save more, finding alternatives.

Anyways, he talks about Credit Rating.. and that it doesn't matter.. because you can do Manual Underwriting to get a mortgage.   However, I recall just last week meeting with my Homeowner's / Auto Insurance guy.  He ran a credit report and said I had excellent credit (792) and that it qualifies me for a much better rate.  Saving quite a bit on rate reductions by having good credit.  If someone that follows Dave's suggestion, and despite being financially independent, they have a worse credit score and end up paying more for homeowner's & auto insurance.   

I dont' understand.

I also like the idea of getting cards when they have great sign up bonuses, like $500 cash back when you spend $3 grand in 3 months.  Would be great to use to buy say something you need like a home air conditioner.. get that $500 off then have 15 months to pay off the balance in full.. interest free.. seems like an awesome deal.

Then there is the travel hacking and that one card where you get 6% back on groceries!

englishteacheralex

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Re: Dave Ramsey & Credit Rating
« Reply #1 on: September 23, 2018, 12:30:58 AM »
What you have to understand about Dave Ramsey is that his advice is mass market. There isn't room for nuance. It's not niche. I've been listening to his show for ten years because it's good in the background for chores--sort of engaging but fine if I miss chunks of it to help the kids or run the blender.

When you listen to the show for a long time you get a sense of how weird we are here in MMM land. Living within your means is unusual. Most people are a train wreck when it comes to money, and the normative cues we are given as a society makes it seem like no big deal. I know this because of all the calls I've listened to over the years on his show. Even the people he praises for doing a good job often seem like ridiculous consumer suckas to me.

The reality is that most people shouldn't go anywhere near credit cards, credit score be damned. The trade offs with the travel points and the churning and the cheaper mortgages etc. aren't worth it because most people don't have self-control with money, are horribly disorganized about their money, and generally believe that life is about consumption and that you should spend every dime of whatever you have access to--credit seems the same as ready money to most people.

And frankly, this stands to reason purely because if the majority of people used credit cards the way we do, credit card companies wouldn't be able to offer all those rewards.

All that said, yeah, if you can use money and credit responsibly, credit cards and an 800 FICO score are convenient, open a lot of doors, and have some nice perks. It is possible to use them well without a downside. It's just unusual--a statistical anomaly--to be able to really beat them at their own game. Even people who pay their balance every month usually wind up spending more with credit cards than they would with cash or a debit card. I don't--I keep such a meticulous budget and track my spending a couple of times a day, so for me, a credit card feels exactly the same as cash. But do you know how few people track their spending? And even fewer have a rigorous, realistic budget based on solid data over several years. Using credit cards in a way that is actually advantageous and doesn't just feel that way because of the points is very rare. I don't really have a problem with the "don't use credit cards" advice because I've learned over the years that he's right--most people suck at using credit cards.


libertarian4321

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Re: Dave Ramsey & Credit Rating
« Reply #2 on: September 23, 2018, 02:55:15 AM »
Dave Ramsey is a zealot who thinks his way is the only way.

He thinks that because, on AVERAGE people who use credit cards spend more, that ALL people who use credit cards, spend more.

Most of his advice is decent.  But his jihad against anyone ever using a credit card is ridiculous.

I assure you, most millionaires use credit cards.  I'm one of them.  Never paid a penny in interest or fees in 32 years.  Not one red cent.  I think of a purchase with cash as the same as a credit card- either way, it comes out of my hide.

For those who have little or no self control (which, frankly, is most folks), Ramsey's advice is great.  For the minority who are naturally frugal and responsible, his advice just makes life more difficult.


Cranky

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Re: Dave Ramsey & Credit Rating
« Reply #3 on: September 23, 2018, 05:33:43 AM »
You are not Dave Ramsey’s target audience.

That said, I don’t much care about my credit rating at this point. My house is paid for. My insurance is cheap, and through the same company we’ve used for 40+ years. I don’t plan to buy anything on credit

Dh and I each have a cc for travel and online use and they are paid off each month.

nereo

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Re: Dave Ramsey & Credit Rating
« Reply #4 on: September 23, 2018, 07:52:34 AM »
As others have said, DR's advice is aimed at those who lack impulse control, cannot handle debt and are his brand of Christian. To say its not the only way is an understatement.

Specifically regarding Credit Rating - your score is no longer used solely for determining your rate on a new loan.  As the OP mentioned, insurance rates are based partially on credit score, and increasingly its used by employers to screen applicants and by landlords to screen potential tenants.  If you own your own home, are FI or have a stable permanent job and a solid driving record your credit score may be immaterial. For others there are many aspects in life where having at least a decent (>680) score is beneficial.  Something DR just doesn't get in his holier-than-thou perch in his $20MM $49MM mansion.

ETA: Corrected to reflect the true cost of DR's most recent mansion.
« Last Edit: September 23, 2018, 10:52:47 AM by nereo »

JenniferW

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Re: Dave Ramsey & Credit Rating
« Reply #5 on: September 23, 2018, 08:41:09 AM »
He seriously has a 20 million dollar mansion? I wonder what state he lives in and what's the property tax there?  Say it was 1% per year. $16,667 per month property tax.  Ouch! That's why if I ever got lucky and won the lotto I wouldn't have more than say a $200,000 homel.  Warren Buffet lives in a home worth under $700k!
« Last Edit: September 23, 2018, 08:42:48 AM by JenniferW »

RWD

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Re: Dave Ramsey & Credit Rating
« Reply #6 on: September 23, 2018, 09:09:44 AM »
This is not a Dave Ramsey forum so don't feel bad about questioning his advice. In fact, you are better off not watching his show or listening to him at all. I disagree with virtually everything he has to say about finances.

nereo

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Re: Dave Ramsey & Credit Rating
« Reply #7 on: September 23, 2018, 10:51:53 AM »
He seriously has a 20 million dollar mansion? I wonder what state he lives in and what's the property tax there?  Say it was 1% per year. $16,667 per month property tax.  Ouch! That's why if I ever got lucky and won the lotto I wouldn't have more than say a $200,000 homel.  Warren Buffet lives in a home worth under $700k!

Sorry, I was incorrect.  DR's home is reportedly worth $49MM.  Here it is:


If you follow his show, you'll see its consistent with his values; extreme extravagance is acceptable (and even desirable) and an appropriate reward for those who God has blessed with extreme wealth.  Just pay cash.  For those of us who buy modest homes with low, fixed-rate mortgages (and don't strive to pay them off quickly, opting instead of maximize tax-advantaged savings) we are wrong and leading lives we cannot afford.

...yeah, i find the messaging just a bit hypocritical, mathematically incorrect and judgemental.  His online disciples (ie the Dave Ramsey forum) are extreme, to say the least.

JenniferW

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Re: Dave Ramsey & Credit Rating
« Reply #8 on: September 23, 2018, 01:44:52 PM »
Yeah I've been watching his show for past couple weeks.  He's kind of crude / rude at times for being a Christian.  A bit juvenile as well.  Although he made laugh a few times with it all.

But imagine following his advice, and paying for everything in cash but make sure to put 15% into retirement.  I don't recall him saying if you are nearing 50 or older (like I am) you may want to consider living a more frugal life and putting MUCH MORE into retirement (like 50%, which I personally am), so you too can also "live like no other".

Also I don't think I recall him giving any budget / frugality advice.  Just to eat "beans and rice".. lol.  I can't even do that because I am a severe type 2 diabetic, and seem to be fairing very well with a ketogenic diet.  Anyways, I am currently reading "The Tightwad Gazette".  Read a lot of other frugality advice including the blog and forum here... been great.   EDIT: Frugal Hedonism was a pretty cool book as well.
« Last Edit: September 23, 2018, 01:50:06 PM by JenniferW »

JenniferW

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Re: Dave Ramsey & Credit Rating
« Reply #9 on: September 23, 2018, 01:55:11 PM »
Another thing, it's interesting how he pushes actively managed mutual funds, then recommends specific financial firms; to me obviously affiliate marketing and Ramsey gets a cut.  After reading JL Collins I simply do not trust anyone with my money, because their interests are above mine.  Who knows what sort of wacky thing they could do where you lose much more money than the S&P 500 index.  Plus their fees are often 1 to 1.5% -- 37 times more than VTI ETF.
« Last Edit: September 23, 2018, 01:57:12 PM by JenniferW »

OtherJen

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Re: Dave Ramsey & Credit Rating
« Reply #10 on: September 23, 2018, 02:00:21 PM »
My impression of Dave Ramsey is that he's probably a useful wakeup call for a subset of people who respond well to his delivery and brand of evangelical Christianity. But there's a reason why his advice is called "baby steps". He's not useful once you get past the "hair on fire debt" phase.

Some people absolutely cannot trust themselves with easy credit and benefit from all-cash. I have several friends like this. Other people—like husband and me—find that credit cards help them to easily track their spending and identify patterns, whereas cash gets frittered away with little accountability. We pay them off in full each month to take full advantage of our cash-back rewards. I think it would be really useful for everyone to figure out which system is best for them.

I always laugh when I see/hear his "beans and rice" advice, which is given almost as if it's a punishment. I'm Mexican-American. Those are staple foods of my diet and I eat them several times per week! If they're a punishment or deprivation, you're a lousy cook! (Obviously, this doesn't apply if you can't eat them for health reasons.)
« Last Edit: September 23, 2018, 02:25:15 PM by OtherJen »

ixtap

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Re: Dave Ramsey & Credit Rating
« Reply #11 on: September 23, 2018, 02:06:55 PM »
Dave Ramsey's target audience is not a group of people who understand maximization. They are folks who struggle to keep their heads above water and need psychological tricks to help them do the better thing. The best practices take a whole different mindset. It is all right their in his own description of the snowball.

JenniferW

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Re: Dave Ramsey & Credit Rating
« Reply #12 on: September 23, 2018, 02:19:58 PM »
I love Warren Buffet.  He's modest and believes in frugality despite being, what the second richest man in the world?  Dave Ramsey's living in a home which cost 100 times more than Warren's, yet doesn't even make 1/100th of what Warren makes.

But I still watch his show from time to time for some reason.. :)

ETBen

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Re: Dave Ramsey & Credit Rating
« Reply #13 on: September 23, 2018, 08:27:21 PM »
Dave Ramsey is a zealot who thinks his way is the only way.


I don’t actually think he’s a zealot. I think he has a schtick that works really well and he will gladly go over the top to keep the $ flowing in. :). Although yes he is probably really religious.