Financial Freedom With Dave Ramsey

Comments

1. Derek Said,

   I’m looking forward to your posts as finances and debt are very close to my heart, as I do have a personal finance blog after all.

   My one issue with Dave Ramsey is that he is a proponent of paying off smaller balances first rather than attacking debt in order of interest rate (highest being first). While I can appreciate that many people need the motivation of paying off the smaller balances first to see progress, you end up spending more in the long run than if you attack in order of interest rate. But that is really splitting hairs as the important thing is to get out of debt.

   To answer your question, we do not have any debt outside of out mortgage - although that was not always the case. The student loans have been paid, all credit cards are now paid off monthly, cars/motorcycle are paid for and we try to live rather frugally. Actually I forgot, we do have some debt on a credit card at 0% and the balance is sitting in my HSBC account earning me interest before the teaser rate expires.

   It is funny how you can fool yourself into thinking you don’t have that much debt but when you really sit down and add it all up, it turns out to be rather significant. Best to you in this process and feel free to ask if you have any questions, having been there and done that - and blogging about it - I might be able to help.

2. Kattikawn Said,

   I’m glad to say that the only debt I’ve accrued is student loan debt. Probably enough to buy a small house. Unfortunately, like yourself, that schooling isn’t doing me a whole lot of good right now, so I’m looking at a really long time before it’ll be paid off.

   Otherwise, I’m thankful I’ve been wise enough to avoid credit cards and car notes. On the flipside, however, I have very little credit to my name due to that. How do ya win?

3. Striker777 Said,

   Shawn, What a great post! Thanks for getting the word out and having the courage to be WEIRD.

   Derek, paying off the smallest balance first is an extremely important part of becoming debt free. It is like a snowball that rolls downhill and gets bigger and bigger. Personal finance is 80% behavior and 20% head knowledge. Feeling like you can not win, as Kattikawn does, is a road block on the road to Financial Peace. These road blocks are removed and traction is gained when you pay off the smallest debt first. The snowball effect gives one a sense of accomplishment and motivation to continue with the plan. I assure you that the small amount of interest that builds on the larger debts will cost a person MORE because they do not feel the plan is working, give up and get more debt.

   Kattikawn, you don’t need credit to win. You need it to loose. I can say with 100% certainty that cash can still be used to buy stuff. You don’t need credit to buy a house. A 20% down payment + 2 years on the job is all you need to get a conventional 15 year fixed rate mortgage with a lender that does “manual underwriting.” However, the mortgage should not be more than 25% of your take home pay. The banks have done such a fabulous marketing job that they have many followers that bow at the all mighty FICO score.

   We should all
   “Live like no one else, so later, we get to Live like no one else.” -Dave Ramsey

4. Thomas De Maesschalck Said,

   I have no debt at all, not even student loan debt because such a loan doesn’t exist in my country. Education is very cheap here compared to other countries but taxes are sky high..

5. Derek Said,

   Striker777, the snowball method applies whether you pay in order of interest rate or balance. As I mentioned, many people need the motivation provided by seeing the smaller balances eliminated but it is important to understand that this is not the most economical way of eliminating your debt from a pure numbers standpoint.

   However, as I mentioned and you confirmed, each person needs to use whatever method that will work for them regardless of whether it may cost them more/less in interest.

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