Anyone listen to Dave Ramsey yesterday?

[tonilea]

Well, I have to say that what we have learned from Dave Ramsey has changed our lives. We took the Financial Peace University class through our church back in Feb. We were struggling to pay our bills. It was certainly poor management on our part - and poor use of credit cards. We committed ourselves to "doing it Dave's way" for the duration of the 13 week class. I can't tell you how thankful I am for all we learned. As it stands now, we will be debt free by the end of the year - including our home. By the 20th of last month, all of our household bills for July (except two - gas & dish) paid.

Without DR & FPU we would still be just treading water, but now we have a bright financial future.

I didn't agree with everything in the class when we started, but once we committed to following the plan - I have seen first hand how successful you can be. Dave encourages people to work hard and manage their money well.... why would that be out-dated advice?

Seems odd. Jewelry financing, in our experience and DH's knowledge, is one of the hardest things to get approved. We were able to finance a 15K car, but not a 2K ring. So if you can get approved, in our experience and DH's knowledge, you pretty much CAN afford it.

Wow, I can see financing a home or even a car - though I won't ever again.... but really, if you have to finance jewelry - you really can't afford it.

 

[Jon99]

Dave encourages people to work hard and manage their money well.... why would that be out-dated advice?

Some of it is just bad advice, such as not taking advantage of awards programs, stop contributing to your 401K until your consumer debt is paid off or not paying the highest APR cards off first.

He rails against all of these companies talking advantage of the poor, weak and uneducated, but then he does the same thing!

 

[wdwcoltsfan]

What is the reasoning for not contributing to your 401k and not paying off the highest APR card first?

These two don't seem to make any sense.


Rachel

 

[perd]

What is the reasoning for not contributing to your 401k and not paying off the highest APR card first?

These two don't seem to make any sense.


Rachel

Focus and intensity. Dave says to focus all your attention and money on one thing at a time. First on getting an emergency fund set up, then on getting debts paid off, then on funding 401K. If you are putting money into 401K and chipping away at your debts but not really getting anywhere because your interest rate is so high you are barely making minumum payments, then you feel like (and are) just treading water. Plus, if your 401k is getting you a 12% return but you are paying 20, 25, 30% interest in credit cards, isn't it best to get rid of the credit cards first and stop paying all that interest? And then once you have freed yourself from that, you can start putting money into 401K.

And not paying the cards with the smallest balance first helps psychologically because you see that you are knocking out debt and making some progress. If you start with the highest interest debt and it is $15,000, it will seem like forever to get through that one debt. But if you knock out the small ones fast and move on up to the bigger ones, you feel like you are making some progress. Give you the motivation to keep going.

I have tried it the other way - contributing to 401K while trying to pay off debt and also paying the highest interest debt off first. It didn't work very well because we were using some money for 401K, some for debt, and the debt wasn't going down that fast and the 401K wasn't going up that fast. Now we are doing it Dave's way and making some progress. And I just canceled the Disney vacation with free dining we were going to take in September. I kept hearing Dave nagging at me. Instead of paying Disney I am going to focus on paying off all our debts and hopefully next year we can go and enjoy it even more with no debt hanging around our necks!

 

[tonilea]

Some of it is just bad advice, such as not taking advantage of awards programs, stop contributing to your 401K until your consumer debt is paid off or not paying the highest APR cards off first.

He rails against all of these companies talking advantage of the poor, weak and uneducated, but then he does the same thing!

I realize that some of his advice just doesn't sound quite right - and like I said before starting - I had reservations, but you just can't argue with the kind of success we have had. What we learned in that class has taken us from living paycheck to paycheck-robbing Peter to pay Paul-stressful lifestyle to one of we have savings for emergencies-will be debt free in 07-living within our means-peace.

What is the reasoning for not contributing to your 401k and not paying off the highest APR card first?

These two don't seem to make any sense.

It really doesn't seem to make sense, but I can't tell you how good it feels to get the first credit card paid off and then roll that amount up to the next one. We started out with 13 accounts of various types (credit cards, doctor bills, this and that) we are now down to three cc accounts, and we are steamrolling through them! It feels great. If we had paid the highest interest one off first and it took a long time to feel success... I can't honestly say we would have stuck it out.

 

[wdwcoltsfan]

Okay, I can understand the psychological aspect of paying off the smaller balances.

I just don't know if I could ignore my retirement, especially with the importance of compound interest. I guess it may depend on how long it would take to pay off the debt. I understand that a 401k may be earning 10-12% and that credit card interest rate is considerably higher, but if the employer matched funds and that amount started compounding year over year---I don't know.


Rachel

 

[tonilea]

Okay, I can understand the psychological aspect of paying off the smaller balances.

I just don't know if I could ignore my retirement, especially with the importance of compound interest. I guess it may depend on how long it would take to pay off the debt. I understand that a 401k may be earning 10-12% and that credit card interest rate is considerably higher, but if the employer matched funds and that amount started compounding year over year---I don't know.


Rachel

It is a short term thing. If you are following the DR plan, if it will take more than three years to pay off your consumer debt - not including your home (and in some cases, gigantic student loans) then you need to down size - get rid of some of your toys and so forth. For us it was only going to be a year before we were/are debt free. He also says NOT to withdraw from your retirement to pay off debts.

To be honest, all I was contributing to my work retirement was $10 a pay period. That was all we could swing (I work part-time), so I didn't stop contributing. Another choice would be to lower your contribution to only what your employer matches.