Originally Posted by
zippinbye
Three things Ramsey overlooks, based on my listening to his radio show but not doing his programs:
1) “Credit doesn’t matter if you don’t borrow money.” 100% false! Try getting insurance with a defective credit score! Also, how many prospective employers look at your credit profile? I’m sure there’s a lot more that hinges in credit, but Dave is insane on this issue alone.
2) “Credit cards are bad - cut them all up.” Whaaaat? Pay it off every month and enjoy the benefits of whatever points program you choose.
3) “Taxes don’t exist.” He does not actually say that, but he does not acknowledge taxes either. Following Dave’s line of thinking, a couple making $100,000 a year can live on half their income and pay off $150,000 debt in exactly 3 years. I don’t think so. Federal income tax, FICA and Medicare diminish a lot of that debt-attack power.
Another thing Dave overlooks is how the hell do you buy a house today by just saving and avoiding a mortgage? Understood that once you get the ball rolling with one house, there’s some leverage to be had. But that first home may never happen via disciplined savings in most US markets.
Ramsey seems like a level-headed, nice guy, devoid of malevolence. If you follow his program, you’ll probably do well versus just coasting along. But their seem to be some holes in his philosophy. Rice and beans, beans and rice has its place, but there are more pieces to the puzzle.
As to 1: there's a big difference between having a bad credit score and having no credit score (technically your score is "indeterminable"). Paying off debt and closing all your accounts will end up with no credit score, and while you may get hit with slightly higher rates on some things, for most people that will more than be offset by the interest they won't be paying on debt.
2. Many reasonable people can do this their whole life (I've never carried a balance on my card in my life), but there are also tons of people with tens of thousands in credit card debt, so for them breaking that cycle means more of a cold turkey style approach. Think of an alcoholic won't really kick his habit by still frequenting bars and drinking "responsibly".
3. When he answers calls he does use "big numbers" in his math, but he does factor in taxes. I think that's more of a motivational effort to get people to believe they can get out of debt and to start the process. There are also plenty of callers who make 100k+ who say they've only paid off 2 grand in a year, which is weak on the other extreme.
To the last point, they obviously prefer paying cash for a house but they never expect that from people, that's why they endorse the 15 year fixed mortgage with at least 5% down.