by "mazda616" (mazda616)
Published 01/05/2017 at 11:08
by "mazda616" (mazda616)
Published 01/05/2017 at 11:08
Tags: Debt
STARS: 2
I agree 7,000% with this article.
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I have a friend at work that has basically devoted her whole life to following Dave Ramsey and preaching it to everyone else. So damn annoying. I’m basically painted as an idiot because I have a car payment.
Forgive me for wanting a reliable car with halfway modern safety equipment for my soon-to-be-born infant son and not being able to pay entirely in cash. I have a 2.99% interest rate and I currently owe $16k on a car that is valued at 21-22k. And of course we have our mortgage. But that’s it. My wife’s CX-5 is paid off as are our credit cards, save for $150.00 on mine that I’m paying off soon.
My friend at work seems to be insistent that all debt is bad and that you should avoid it at all costs. To me, that’s just not realistic. Debt is not bad if you know how to manage your money and don’t live beyond your means. It’s not hard.
"Jcarr" (jcarr)
01/05/2017 at 11:14, STARS: 2
The guy does have some very solid advice, but I agree, his advice is a bit too strict to be really practical. I’m all about shedding debt as quickly and efficiently as possible, but it’s kind of hard to be middle class in today’s world without it.
"jimz" (jimz)
01/05/2017 at 11:16, STARS: 3
If you have to rely on one vehicle then there’s a lot of security in a stable monthly cost and a warranty. People who say you should never finance a new car are people who have never had to worry about an unreliable car getting them fired or busting their budget.
"fintail" (fintail)
01/05/2017 at 11:19, STARS: 4
Live a little. You work for it, enjoy it - not many hearses have luggage racks.
"Jcarr" (jcarr)
01/05/2017 at 11:21, STARS: 2
I agree with taking debt on to gain the security of a reliable vehicle, but I think you can achieve that with a 1 or 2 year old vehicle and take advantage of the depreciation hit. I don’t think I’d ever recommend a brand new vehicle for someone in that situation.
"mazda616" (mazda616)
01/05/2017 at 11:28, STARS: 2
Definitely a lightly used car is smart in that situation. But Ramsey’s opinion is to get a 3-4,000 dollar car and drive it for years while you save up for a new car in cash. He doesn’t account for maintenance or repairs on that $3,000 car or the age/condition of it. Around here, a car for 3 grand is 10-15 years old and is approaching 200k miles.
"Future next gen S2000 owner" (future-next-gen-s2000-owner)
01/05/2017 at 11:32, STARS: 4
Only a sith believes in absolutes.
"Steve" (pankowsj)
01/05/2017 at 11:38, STARS: 1
I did a Dave Ramsey class and took some good things from it...
One of the things I left in the room were his policies on debt and credit.
It’s important to remember that, if you are responsible with your finances, occasional debt can be good. We have a car payment that we could eliminate in 6-8 months if we were really disciplined, but my credit score is only a 700 (compared to my wife’s 800) so we are using our auto loan to build credit, and to keep on a good savings schedule. (And apparently pay for bodywork on the car).
It’s all about controlling “debt.” Don’t spend more than you can afford to pay back, and debt is a powerful tool. Maxing out 6 credit cards while you’re still in college, not an example of controlling debt.
"Smallbear wants a modern Syclone, local Maple Leafs spammer" (smallbear94)
01/05/2017 at 11:45, STARS: 0
Nothing wrong with financing something new/newish. That said, to my mind if you CAN afford to pay up front or at least quicker than is specified in the terms, THEN you’re an idiot*. If you’re not doing anything with that extra cash, PAY THAT MOTHER DOWN. You’re only costing yourself in interest. Save later. The only thing that can go wrong is paying it down completely and then writing it off the next day... and that’s what insurance is for.
*To avoid having this taken the wrong way: of course this depends on your priorities. If you have another optional purchase that you don’t want to wait for, or is a special offer or something like that, and can’t reasonably afford to make a bigger payment because of that... no idiot. I will also concede that your bank balance should always be growing. Nothing wrong with that. But still... there’s a point where you’re putting away too much and should throw it at your debt instead.
But that’s just me. I hate being in debt. I paid in full, up front for my 4-year-old truck. I usually put money on my credit card ahead of time, and have never bothered to ask for my credit limit to be raised from the initial $400. I have another card that would have a higher limit... that I’ve never activated. Etc.
"jimz" (jimz)
01/05/2017 at 11:46, STARS: 2
valid point, especially if it can be had with a (good) CPO/factory warranty or service plan.
"Highlander-Datsuns are Forever" (jamesbowland)
01/05/2017 at 11:47, STARS: 0
His philosophy realy works well if you START OFF RICH.
"Comes over to help work on your car and only drinks beer" (cyclonefan94)
01/05/2017 at 11:48, STARS: 0
Uggh...the Dave Ramsey discussion.
A lot of Dave’s advice is tailored to people who have money problems already, and is tailored to avoid common human pitfalls, and play into human motivations...for those reasons, it’s very good advice for people who struggle to manage money. All debt except house debt is bad: In general, borrowing money on a depreciating asset is not a great thing. In actual practice, depending on the interest rates and personal circumstances, a car loan can be a decent risk tradeoff. Dave advocates no debt except the house because for a lot of people, buying a car on the payment allows them to ignore how much debt they’re building up. Avoid the pitfalls, avoid the possibility of falling into them. Same thing with the debt snowball. Mathematically, it makes the most sense to pay off your highest interest generating debt first (depending on the debt amount or the interest rate, sometimes it’s what you owe most on, sometimes it’s the highest interest rate), in essence, attack the one that’s ‘bleeding’ the most. But human motivation causes us to respond to ‘victories’...getting something paid off. So by going after the lowest dollar amount debt first, you get that motivation easier/quicker/more often, and that gives you motivation to keep going. If you go after the one that’s ‘bleeding’ the most and it takes 10 years to get that first victory, you could well get demotivated after a while.
Think of it this way...Ramsey with money is kind of like drunks with booze. We’ve likely all met people who were drunks and are now evangelical about being a teetotaller. Sure, it’s decent advice to completely stay away from booze, but not everyone needs that level of discipline. Same with Dave....none of it is *bad* advice, but not everyone needs that level of discipline. However, to the people who have been in money trouble, and have gotten themselves back on track using his advice, they think they’re doing everyone a favor by telling them about it. They mean well. Thank them and move on.
"Stephenson Valve Gear" (stephensonvalvegear)
01/05/2017 at 11:51, STARS: 2
I concur. It sounds to me if you are handling your finances wisely and responsibly.
Debt is a tool. If debt is handled properly and wisely, it is a safe, useful tool to have in one’s financial workshop. If it is handled poorly, one can do a lot of damage to their personal finances. Just like a saw that can do fine woodwork, or it can cut off your hand. Be careful with debt, and it will be fine... especially in this era of cheap interest.
I’ve studied a variety of personal finance theories. There are avenues that are ideal; but not always realistic. Some of the personal finance gurus (looking at you Ramsey and Orman) are so far removed from the circumstances of the average person that they forget that reality sometimes has to take priority over their idyllic financial rules.
"Averyrm - GTI YUP" (averyrm)
01/05/2017 at 11:56, STARS: 0
Here’s what bugs me about the Ramsey philosophy. Yes it works for some people, however:
Lets say you buy a 300k house for which you put down 20 percent to avoid PMI.
You get a 30 year mortgage at 3.75%, but are committing to being debt free and pay an extra $1000 a month on it. You save 102k in interest and have the house paid off in around 12 years.
That sounds awesome, right!
But wait! So far this year, I’ve averaged around 7% return on investments - and I’m not smrt.
Save 1000 a month for 12 years at 7%, and you still owe ~$175k on the house, but you have $229k in the bank. Not including the tax savings from the mortgage interest.
"kiwi_matt" (kiwi_matt)
01/05/2017 at 12:02, STARS: 0
What it comes down to is you are choosing to work for years longer just to have a new car. If that’s cool with you then do whatever yo want to do.
"190octane" (admiralcb)
01/05/2017 at 12:05, STARS: 0
I hate blanket statements because every person has their own individual financial situations.
If you’re a car person and you want to drive a nice car and it’s more important to you than spending more money on hobbies or leisure activities, who cares. If you have money saved up for a rainy day and your car payment isn’t breaking you, have fun and enjoy life.
"E90M3" (e90m3)
01/05/2017 at 12:15, STARS: 0
I hate how everyone is like, oh debt is bad, think about depreciation. Life is meant for living. The question you should be asking is, can I afford this. The reason I got my M3 was because it brings me joy and I could afford it no problem. I could have gotten a cheaper car that is arguably a better finical decision, but that’s not what I wanted. I did have to take on some debt to get it, but the joy I get from it easily outweighs anything else.
"mazda616" (mazda616)
01/05/2017 at 12:25, STARS: 0
I’m going to work until lunch th day of my funeral. With the way social security is going, I doubt it’ll exist by th time I’m old. Also, my $300 a month car payment isn’t making me work longer. I end the month with $1,000 extra each month (barring no catastrophes) and I put $300 of that towards my car.
"Bryan doesn't drive a 1M" (bryantakespictures)
01/05/2017 at 12:33, STARS: 0
That applies to new vs used, but not cash vs finance. The math for financing a purchase at a low APR vs paying cash is pretty cut and dry.
"Bryan doesn't drive a 1M" (bryantakespictures)
01/05/2017 at 12:34, STARS: 1
mmmm, a hearse with a luggage rack, a V8, manual, straight-piped... what were we talking about?
"Bryan doesn't drive a 1M" (bryantakespictures)
01/05/2017 at 12:38, STARS: 1
If you compare bank interest of 0.1% vs the loan interest, then yes you should pay off the loan. However, if it’s a 5 year loan at 3%, look at what the returns are in any old index fund over the last 5 years (or almost any 5 years).
Credit cards at 19% are another story...
"kiwi_matt" (kiwi_matt)
01/05/2017 at 12:40, STARS: 0
With the way social security is going, I doubt it’ll exist by th time I’m old
So invest so you’re not dependant on SS. I’ll be fully retired before I’m 50 (and probably semi-retired by 40). Social security doesn’t even factor into my retirement plans.
"Smallbear wants a modern Syclone, local Maple Leafs spammer" (smallbear94)
01/05/2017 at 12:43, STARS: 0
I just generally dislike owing people stuff and can’t understand why you would stay in that state any longer than you had to.
But everyone else is not me.
"KusabiSensei - Captain of the Toronto Maple Leafs" (kusabisensei)
01/05/2017 at 12:43, STARS: 0
I’m basically painted as an idiot because I have a car payment.
And painted as such by someone who clearly does not have a darn clue as to what “cash flow” and “opportunity cost” mean.
Ramsey is for people who have zero self-control when it comes to money.
"mazda616" (mazda616)
01/05/2017 at 12:45, STARS: 0
I’m about to have the most expensive thing in the world (a kid), so my finances have to be re-examined anyway.
"fintail" (fintail)
01/05/2017 at 14:31, STARS: 0
As you are a denizen of the old dead empire now re-located in Canuckistan, right? I’ll guess arrogant oil industry or maybe what passes for tech.
"Jordan and the Slowrunner, Boomer Intensifies" (jordanwphillips)
01/05/2017 at 14:46, STARS: 1
Never taking a loan or having a credit card is a great way to have worse than bad credit.
"mazda616" (mazda616)
01/05/2017 at 15:07, STARS: 1
I mentioned that once, I think, and she said something along the lines of credit itself is bad and you should want a credit score of 0.
Cue my eye roll.
"Jordan and the Slowrunner, Boomer Intensifies" (jordanwphillips)
01/05/2017 at 15:35, STARS: 0
She is going to be in for a shock someday.
"E92M3" (E46M3)
01/05/2017 at 15:45, STARS: 1
This is true. I was once denied a car loan with a credit score of 810, (because I didn’t have enough recent credit activity). At the time I had a mortgage that was paid in full, and a car loan that was paid in full, showing on my report, but because it was 4 years in the past when those accounts were “closed” it didn’t help at all. They told me to go open 2 credit card accounts, charge a lunch on each once a month, pay the balance every month, and to come back in 6 months. Lol
"ranwhenparked" (ranwhenparked)
01/05/2017 at 18:18, STARS: 1
Dave Ramsey’s advice is OK for people that have absolutely zero self control and have spent themselves into a deep pit of unaffordable debt that they need to somehow claw their way back out of.
Everyone else should probably just ignore him. Or at least take him with a couple tablespoons of salt.