Dave Ramsey Dumping Debt (Class 4a of 13)

This is Dave Ramsey’s signature performance. Most of the class presentations run 50 minutes to an hour. This one is an hour and a half of Screamin’ Dave at the top of his game. He attacks every form of debt we have been taught is not only acceptable but desirable. Then after all the myth busting coupled with more Sturm und Drang than I can express with the written word, Dave offers a way out, The Debt Snowball.

Lending money to a friend or relative is stupid. Borrowing money from a friend or relative is bad because it poisons the relationship. Proverbs 22:7 states: The rich rule over the poor, and the borrower is servant to the lender. Dave believes your subconscious mind knows you are now a servant. If you don’t repay the loan, it will likely destroy the relationship.

Cosigning for a loan almost guarantees you will end up paying for the item. The bank wants to make loans. That is how they make money. If the bank wants someone to cosign they believe the customer is a bad credit risk who will not repay a loan. Usually they are correct. Proverbs 17:18 One who has no sense shakes hands in pledge and puts up security for a neighbor.

Payday loans, car title loans, and similar short term high interest rate businesses exploit the poor. Dave correctly states such businesses are plain evil. Proverbs 22:16 states, "He who oppresses the poor to increase his wealth and he who gives gifts to the rich--both come to poverty."

Next Dave goes after a tax on stupidity, the lottery. Studies indicate most lottery tickets are purchased by the poor, the desperate, and the uneducated. Look at the odds. The chances of finding a winning lottery ticket blowing around a supermarket parking lot are about the same as buying the winning ticket. Proverbs 12:11”He who works his land will have abundant food, but he who chases fantasies lacks judgment.”

Next Dave goes after the great middle class myth; you will always have a car payment. Dave shows by example that paying cash for an older car, then driving it as you pay the equivalent of a car payment to yourself will put you in a very nice late model used car in a couple of years. Dave saves a particular dose of venom for the car lease or fleece as he prefers to call this method of obtaining a car. In a fleece the victim pays top dollar and does not even own anything at the end of the agreement. Some businessmen observe the cost of leasing a car can be deducted as a business expense. Dave counters by pointing out a vehicle purchased for cash can be depreciated giving the business the same tax benefit at a lower cost. Finishing up car myths, Dave rants, never buy a new car unless you are a millionaire. New cars depreciate so quickly in their first three years, the buyer will always come out ahead by buying a two or three year old car (maybe something just coming off lease).

Conventional wisdom states, buy as much house as you can possibly afford with a 30 year mortgage to keep the payments down. Put as little down as the bank will allow. Property values always go up, at least until 2008. Then they didn’t. Dave recommends a 15 year mortgage with as much as 20% down. The savings over the lifetime of the loan are extremely significant. Dave Ramsey considers gimmick loans such as adjustable rate mortgages and balloon mortgages examples of suicidal stupidity. He didn’t even bother to mention some of the things seen in the run up to the current great housing disaster, interest only loans, reverse amortization loans that left the borrower owing more at the end of each month even after making the payment, or 40 year mortgages.

Dave Ramsey’s attitude to credit cards is similar to that of a reformed alcoholic to social drinkers. Dave nearly destroyed his life and his marriage with credit. He does not tolerate credit cards. He considers them as dangerous as crack cocaine. He does not own a credit card but uses debit cards for both business and personal expenses. Dave Ramsey’s company will not accept credit cards. This proved problematic for our church when buying materials for this course. Dave does not want to hear from people who pay off their credit card every month. Dave does not want to hear about frequent flyer miles or other credit card benefits. Dave nearly goes ballistic over the exploitation of college age young folks by the credit card companies.

The use of home equity lines of credit (HELOC) has been pretty thoroughly discredited by the events of the last few years. My generation was told; use all that equity in your house to buy a new car, a great vacation, or even for your stock market investments. When the vacation is over, the car is worn out, and the stock market crash destroyed your wealth, you still have a second mortgage on your primary residence. A second mortgage by any other name is still a second mortgage and it stinketh. Pretending a HELOC or any kind of debt consolidation loan can get you out of debt is foolishness.

Dave Ramsey points out you can’t get out of debt by borrowing more money. One can get out of debt by what Dave Ramsey terms gazelle intensity. Starting with the following passage from Proverbs, Dave shows a video of a cheetah chasing a mother gazelle and her fawn, while he screams about running away from debt, especially credit cards. This, he contends, is the emotional intensity necessary to escape the debt trap.

Proverbs 6 1-5

My son, if you have put up security for your neighbor, if you have shaken hands in pledge for a stranger, you have been trapped by what you said, ensnared by the words of your mouth. So do this, my son, to free yourself, since you have fallen into your neighbor’s hands: Go—to the point of exhaustion—and give your neighbor no rest! Allow no sleep to your eyes, no slumber to your eyelids. Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler.