I agree with this

I don't know if hugely inefficient. For most of these people, the difference probably wouldn't be a huge amount. I'm not a Ramsey acolyte, but I was under the impression where if you had like $1000 at 5% and $9000 at 8% he would advocate to pay down the $1000 one first. Realistically the difference isn't going to be huge either way.

Also I think a lot of his pay down your mortgage advice was before mortgages were like 3.5%. Even then, if you are going to him for financial advice you probably aren't savvy enough to beat that rate anyway.

I think you really have to consider who his main audience is, and that he's give extremely broad advice. Just because you post on this board doesn't mean you're some kind of financial wizard either, look at the guy who is carrying $8000 on credit cards because he doesn't want to eat into his investement fund or whatever.

If you are going to pay off the debt reasonably soon, yes, it works out as not that bad of a loss. But credit card debt often times has huge interest rates and can very often be bigger than other debts. You don't have to be savvy to invest in a no load mutual fund with a retirement age, then park the money and don't look at it

Looking at his audience is irrelevant because even for "his audience", there are much better ways to approach things. There are a lot of beginner poker books I'd recommend to new losing poker players, and a lot I wouldn't. It's the same concept. If Ramsey was a "good beginner but poor middle-tier" strategy, it would have it's value. But it's basically a poor beginner (outside of really basic common sense) with no explanation of why it's a good idea other than rationalization of bad strategies, no explaining *why* things make sense, no attempt to even educate people other than treating them like incapable addicts of debt who need an intervention. I think that's a mistake for "beginners" or people recovering from mistakes. There is a limited audience where perhaps it makes sense, although I still think there are better options even for them.

I'm glad you brought up the point of if the debts are to be paid off reasonably quickly, then there really isn't that big of a "loss." The debt snowball portion of the plan averages between 18-24 months according to the statistics he has compiled over a couple of decades. A 5-year or less time horizon in the finance world is considered short-term, so I'd say that even 24 months could be categorized as reasonably quickly.

The second half of the last paragraph is just flat out wrong. If you were familiar with his written materials/course curriculum, you'd know he spends a majority of his time on the "why" he teaches what he teaches.

You continue to spread misinformation about the specifics of a program you clearly know little about.

One of the biggest (and often most overlooked) benefits of the Dave Ramsey plan is that it motivates people to change their bad behavior immediately. This alone is worth more than any possible EV they are giving up because they might NEVER change their behavior otherwise, or by the time they do, they will be in even a bigger hole.

I completely agree with the nits that it is not always optimal, but the key is it gets people to change their behavior that might not otherwise for months, years, or even ever. Also, usually the biggest loans such as student loans and mortgages have a lower percentage rate anyways so his plan almost works by default anyways.

FWIW, mortgages do not fall into the early part of the program. They are addressed later after all other consumer debt is paid, the emergency fund is complete, and retirement funding/college savings is fully underway.

huh I was listening to this guy years before I showed my mother his show, she is now obsessed with him as she should be. The man is awesome

He may explain why he recommends a certain way, but it doesn't teach people to analyze things for themselves. But then again, it appeals to Biblethumpers who want to read a book to tell them how to act but not think about why, so it's not surprising.

If you can pay off the debts reasonably quickly, then chances are you don't have that big of a problem. People with significant debt issues will have a much harder time paying things off in that short of a time period.

But why settle for something that could cost you a few hundred or thousand bucks? Getting people going is a big benefit, I agree. Student loans and mortgages may be bigger, but don't underestimate the size of credit card debt a lot of people can get into. Car loans can often be pretty sizable too, especially for people with debt problems. And even student loans can have fairly sizable interest rates at times. I'm not sure why being accidentally correct is any better than just teaching the actual reasoning and giving people the proper motivation through other gimmicks. I'm not sure Ramsey would even admit that some people would be better off paying off in a different order. He seems to base his advice always on worse case scenarios so that it covers everyone rather than giving different advice for different situations. "If you feel overwhelmed by your debt, do this to get started!" would be good advice. But then again, if you say he is focused on ******s, then yes, taking out any ability to think for themselves is a feature and not a bug.

I'll add that Ramsey's "Baby Steps" are simply a blueprint or road map to reach the end goal. They provide a general guide that many of the followers of the program can adapt their situation to.

He often will deviate slightly from parts of the plan if the particular situation warrants it. It is not written in stone.

BTW, his website is crawling with atheists and non-believers and non-tithers. So that assumption is also flat out wrong.

I certainly agree...though I guess the frustrating part is that he takes people so far and then just leaves them in some nether region. They are much better off than where they were obv, but they can so easily improve by reintroducing credit responsibly....and the fact that they were able to get out of (often) large debts means they almost certainly have the skills to properly use credit. Maybe he should go full on scientology cult style and not tell people about Zenu's Mastercard until they reach OT level 9

Just let TC go. We all agree it's not mathematically optimal. We all agree that it works for a lot of people. TC just believes that there's another method out there that is vastly superior. However, nobody knows of a method that is vastly superior that has worked for a lot of people that weren't already managing their money well, so we don't have anything to compare it to.

I've already named such methods. They don't have someone out pimping them like Ramsey, but that doesn't mean they don't exist.

And something working on a lot of people doesn't mean it's superior. There may be some methods he is superior to with some people, and others where he is not.

As I said earlier, if you just followed Suze Orman, who I'd consider to be a noob investor/personal finance guru type with a lot of suboptimal but simple advice, you'd be much better off in the long run, save some extreme cases of people with severe addiction issues.

Do you believe that avoiding gambling or drinking is a superior strategy to teaching people how to responsibility in using things, just because there are a few drunks or gambling addicts who actually are better off by avoiding things, but a lot could manage things properly without such extreme rules?

Have only skimmed the last 30 posts or so (read nothing before that), but why is everybody granting that paying down a 4% mortgage is 'mathematically incorrect' (whatever that means). You can borrow from an interactive brokers account at less than half that rate. You can indirectly borrow at less than 4% through futures/options markets. Long term treasury rates are less than 4%. Etc etc.

As a rule your mortgage rate is higher than the risk free rate in the market, so you shouldn't purchase a single cent of long term treasuries until your mortgage is completely paid off. Assuming risk free assets should be a non-zero percentage of your portfolio, paying off your mortgage should be one of your priorities.

I think that people who have shown that they gamble or drink irresponsibly should first remove it from their lives. Once they've shown that amount of control then it might be beneficial to ease them back on to it, but for many they will just abuse it again.

You are missing opportunity costs from not having that money in the future. If you ever need to (or would benefit from) taking a loan out for a higher interest rate in the future, you cost yourself money. If your home tanks in value, you have more to lose. If you invest over the long term, you can almost certainly earn more than 4% with very acceptable levels of risk. Assuming things have to be risk free is the first mistake. Life is risky. Perhaps you want to open a business and need the cash. Having liquid assets has value over illiquid ones like a home. There are many reasons to not treat a low interest rate with tax benefits as a low priority.

I agree you shouldn't be purchasing long term treasuries instead of paying down a mortgage in a lot of cases. However, opportunity cost still could exist here if you can easily sell the treasuries if you need cash for a cheaper rate than getting a home equity loan. Depending on the variables, it might not be a mistake.

I think a lot of this depends on the individual, and plenty can just cut back without having to stop completely. If they try to slow down and fail, then it's a good sign to cut it off completely. A lot can be ignorance. A lot of people who don't "ease back on" will relapse as well. There's a reason why things like AA are about equally as successful as having a magic rock to stop you from drinking, using will power, undergoing hypnosis, or any other pseudo treatment. The biggest thing someone needs is motivation to stop with their problem and resources to help them understand things they might be ignorant about.

But financial health is a lot like fitness, in that there a lot of things beginners to do that can help them out and get a lot of benefit, although some things are significantly better than others. There is tremendous value in taking a plan that people will stick with and be able to follow through with even if it is otherwise inferior to other plans.

I, among others, am certainly not granting that paying down the mortgage is bad math. My wife and I invest in excess of 15% of our income in our Roth and 401ks while aggressively paying down our mortgage. When the mortgage is done 24-30 months from now, we will be able to invest closer to 50% and still live a very comfortable lifestyle with plenty of cash for the fun stuff.

Yes, I'm willing to sacrifice some long-term gains in the retirement account now because 1) I can make most of it up later, and 2) we are on track to have more than enough to live a dignified lifestyle in retirement. (I've been investing 15% of my annual income since I was 16 years old -- I'm 42 now. The wife was not so inclined in her younger years and just started really investing since we got married about 9 years ago).

Where are you pulling this from? AA actually works quite well, after a year on average people drop from initially drinking on 80% of days to drinking on 20% of days. It has approximately the same efficacy as heavily studied and evidenced based psychological interventions such as addiction focus cognitive behavioral therapy. While on the other hand, people just trying quit drinking on their own is notoriously ineffective.

He's not saying that AA doesn't work. He's saying that it works as much as having a magic rock. And he's right. It's about the motivation, not because it's a good system.

I agree that liquidity matters, but that's an advantage of the 'snowball' method. My point was that if you're simply looking at risk-adjusted returns, paying down your mortgage is one of your best options if you're looking at it from the perspective of MPT, especially given other alternatives people may have to borrowing at rates closer to the risk-free rate.

Obviously the real world is a bit messier, and there's the question of whether frictions in lending markets mean you should take on as much risk as possible early in your life, but it's certainly not clear to me that paying down your mortgage is bad in all but "extreme" circumstances.

It's probably going to be somewhere between a minor leak and a minor benefit. It's the urging that it's a huge benefit that is what is confusing. But being super enthusiastic about at worst a minor leak isn't really that terrible in itself. There are bigger fish to fry with Ramsey. It's more that he makes you feel super guilty about any kind of debt with almost no distinction at all between how bad the debt is. And since a lot of debt is usually pretty bad to have, at worst it's getting people to be a bit overboard about something that's helpful for people (but perhaps overly enthusiastic about it).

I remember when I was buying my first home I was considering getting a 15 year mortgage. The payments were higher, but I was paying less interest rates and less interest over the lifetime of the loan. I was making decent money at work and fairly good money at poker. The payments for a 15 year loan would have been cake. I was single, had no major expenses at the time, and had plenty of cash sitting around and liquid assets. It seemed like a no-brainer to take the 15 year loan. Fortunately my dad advised me to take the 30-year loan with a slightly higher interest rate. He said I could always pay it off at a 15-year pace, but if things ever came up where I could make better use of the money, I had that option available to me, and the cost wasn't terribly significant. I'm really glad he gave me that advice. I got married, poker died, had a kid, lots of new expenses came up and income dropped. The 30 year loan was extremely helpful in my case just due to increased flexibility. If I had a 15 year loan where I had the strategy of attacking loans as fast as possible, I'd be worse off right now by a lot. When I refinanced the loan after interest rates dropped, even though I was 5 years in, I took another 30 years after that to pay off the loan.

Having that extra money available basically lets me live a bit better now with a super low interest rate where I might have needed more loans or would have taken longer paying new loans (my wife's student loans). I can continue to max out matching 401K accounts and not worry about the extra expenses. The flexibility is huge. I have more money for investment available which is easy to beat my interest rate on in the long term with EV (I might lose, I might win by a lot more). I just see little incentive to pay off low interest rate loans in the face of inflation and the devaluing of the currency where it's a lot easier to pay that amount off in the future.

This is a decent argument under normal circumstances which includes the overwhelming majority of America.

The difference is that you likely overbought in Ramsey's conservative world. Under his guidelines, you would buy this way:

* 15-year fixed rate mortgage
* 10% minimum down (20% highly recommended)
* PITI (& HOA) no more than 25% of net income
* Total loan amount no more than 2-2.5x annual income

Under these ultra-convservative guidelines, if you couldn't weather the financial storm then it probably didn't matter what the payment was (15 v 30).

And lets not forget, the undisciplined masses are rarely going to pay a 15 like a 30 despite their best intentions.

I don't understand why there is a 6 pages thread for a system made for the undisciplined masses on a business, finance and investing sub-forum of a poker forum.

The last 2 points are overly conservative, but not by a huge amount. With those guidelines, you are correct, you should be able to afford a 15 year mortgage. However, it doesn't seem like it's the automatic right choice to go 15 vs. 30. Things change in life and locking that much money into a single asset takes away a lot of flexibility (which might be a good thing for people who are prone to blow the money).

Whether they rarely pay the 30 like a 15 is not really important, it's just you can't ever decide to go the other way (pay a 15 like a 30). That's pretty significant. If the difference between the two is only a minor error, it seems like you want to lean toward flexibility. If the difference is a major error (which I can't understand how it is unless as I mentioned earlier, any extra cash in your pocket will basically be wasted), then you have to make the right choice.

I think it comes down to an extreme opposite view of money from what it gets people on. The target Ramsey audience is going to be someone who basically spent as much money as they got (plus whatever credit they could get) without regard for the future and living in the present. The Ramsey philosophy seems to take that extreme to the opposite end of the spectrum, rather than sacrificing the future for the present, his philosophy will sacrifice the present for the future. However, such a lifestyle tends to lead to extreme frugality and dying with a pile of money you never spend. Both ends of the spectrum can be mistakes. I don't consider someone who basically never is able to enjoy themselves during their life to be doing that much better than the guy who runs up debt having a good time, then files for bankruptcy. In some sense, that guy is the winner, in that he got to live the life without paying for it.

I grew up in an environment of frugality and savings even when my parents had the income to live otherwise. We wouldn't ever buy things that were "overpriced". When we went to the movies, we didn't get food. When we went to the amusement park, we didn't play the carnival games. When we went out to eat, we didn't get appetizers and my parents didn't drink.

It's still stuck into my head to always try to save money and not spend it, but I finally had to realize that was also an error in living, that I must balance enjoying the present and planning for the future. I think most people will tend to overvalue the present, so learning to live counter that is not a huge problem unless taken to extreme ends. I don't think my upbringing is terribly common and it's definitely far more common that people go the opposite way and try to spend too much. But that doesn't mean going to the other extreme isn't also a mistake.

It seems that Ramsey basically moves your addiction from credit to an addiction to frugality.

Kind of my main point.

Tomcollins is so smart, yet doesn't understand why Ramsey does things the way he does them. Interesting....