Paying off the mortgage is superior for many, many people because it is a "forced savings". Sure, it would be financially more profitable in the longer run to forgo the guaranteed 3-4% of paying down the mortgage debt in lieu of 6-8% investment returns. But for many people that money that they intend to invest instead of paying down mortgage never gets (or stays) fully invested.

4% risk-free return paying down debt can be very good for lots of less sophisticated/less disciplined people.

Its not like I would dump huge lump sums in my mortgage, maybe about 100/200 a month additionally or something. Ill have some extra 'advantages' as Im not getting any tax cuts on my mortgage and I dont think I have the steel nerves it takes to invest that money.

Make sure you pay off all other debt first before you even think about overpaying the mortgage.

Great question. Our original plan was to pull the trigger in 2-3 years which is why we were going to just pile up cash. My wife just lost her $75k/year job, so the plan is temporarily on hold. Depending on what her next job pays, we may do as you suggest and invest the money in the market as long as the time horizon is 5 years+.

Thanks for the bolded point above - this is the part most people simply ignore while criticizing the plan for being less than optimal.

The difference between Ramsey and a "real FA" is that Ramsey takes the risk factor associated with debt much more seriously. Mortgage-free houses rarely get foreclosed on just as paid-for car don't get repossessed. When the **** hits the fan, being free of any and all debt is a pretty sweet place to be.

In case you didn't read the entire thread, the steps are as follows:

1. $1k starter emergency fund (reduced the chances of taking on new debt)
2. Payoff all non-mortgage debt
3. Return to starter EF of $1k and increase it to 3-6 months of expense
4. Begin investing 15% of gross income in mutual funds
5. Begin college savings (typically for kids and if applicable)
6. Additional payment towards the mortgage start now
7. Build wealth

And all these steps are predicated with setting up a zero-based budget.

I agree with that.

In my opinion, the biggest differentiator between Ramsey's approach and that of traditional FAs is that Ramsey focuses primarily on the behavioural aspects of personal finance rather than focusing on crunching numbers for optimal interest rates, payoff dates and such.

E.g. as much as you can (mathematically correct) criticise going smallest debt instead of highest interest rate first, he understands that the motivational kicks of knocking debts off a list are much more likely - and valuable in dollar terms - than saving a few bucks on interest and failing to get to the end.

Having said that, his plan is pretty polar. If you do everything exactly as his plan lays it out, you will do very well. But if you just use, say, half of his plan and keep doing other things very differently, you can get yourself into a massive pinch.

Thanks, I did read the entire thread including this but the list seems very US centered (which makes sense). I also have some issue's with #1. If its ok Ill give a rundown of my financial state here;

Im renting a house with my GF atm and also took out a mortgage on a studio I bought so I could rent it out. Its kind of iffy since Im not living there but I figured it was worth the gamble and its paying off so far. The private loan is an old loan Im paying off whenever I can, its basically my parents who loaned me money when I was in pretty deep **** some years ago and I've worked it down to this.

Debt:
2.5k creditcard loan, 14%
4k bankloan @ 13,7% (Was a 24month loan for 5.7k, have 15 months left)
96k mortgage @ 3.5%
7.5k student loan @ 1%
5.1k private loan, no interest

Income:
750 a month through salary (after all non debt bills, its 100% 'disposable')
350 a month from renting out (after all bills, 150 of this is my mortgage payment)

Savings:
0

The list:
1. $1k starter emergency fund (reduced the chances of taking on new debt)
- It feels bad to save 1k when I have my CC loan out there, especially since I have some room in my income to cover sudden expenses

2. Payoff all non-mortgage debt
- Working on that

3. Return to starter EF of $1k and increase it to 3-6 months of expense
- Its impossible for me to lose my job, I feel like that should be reflected in the amount saved here ?

4. Begin investing 15% of gross income in mutual funds
- For me that would be around 350 euro's a month, sounds like a lot. Is the money easily retrievable from these funds or does that cut into your bottomline ?

5. Begin college savings (typically for kids and if applicable)
- No kids and school is very cheap where Im from

6. Additional payment towards the mortgage start now
- Ok

7. Build wealth
- This sounds really simple, do you build wealth in your mutual funds or some other way ?

The two debts at 13.7% and 14% should be treated as "hair on fire" situations and be paid off first and ASAP.

This and how the hell did you get a student loan rate at 1%. I would personally never pay an extra penny on that one.

Are there situations where Ramsey recommends bankruptcy?

According to his website, sometimes it is the only way.

It actually fluctuates around 0.5%/0.8% (brag). Anyone in school can get these from the state where Im from. Depending on whether you graduated or not they also remit (?) a part of the debt. There is a minimum to pay every month based on income though. Im paying the minimum atm. Could you explain in a nutshell why its bad to pay that one off ?

The Fed targets inflation to be around 2% per year, so the principal of the loan should actually shrink in real terms. So any investment should perform better than taking that money and paying down the debt rather than investing.

And beyond simple rate of return, having an asset can be more valuable than having less debt. There might be a time where you would really like to be able to get an unsecured loan for 1% interest, and saving rather than paying down that debt gives you basically that option. Lets say you lose your job at some point, or have some other financial emergency. Would you rather have less debt (at 1% interest) or would you rather have an investment you can cash in if needed? Having the asset gives you a lot more options and flexibility, no one is going to give you an unsecured loan at 1% when you're unemployed (or ever), but you can give yourself one if you save and invest rather than pay off the low-interest loans early. But you have to be committed to saving, otherwise paying down the debt would be better for you financially then spending it on a nicer car or a vacation.

Also how can you never lose your job?

I work for the government in a country very protective of its employees so unless I smack my boss or something Im never getting fired.

Thanks Senorkeed btw, that was very informative and clear. I dont have much choice wrt the mandatory part but Ill take all the time I have.

On top of that the interest is deductible for most people so the interest rate is even lower. I always hear about people with super low loans which makes me mad as the only ones I could get were for 6.8%.

A lot of FAs charge 1% (or less) of the assets they manage. Making it impossible not to be able to afford them.

Having your house foreclosed on is a lot less of an issue for someone who is disciplined. Example: if someone has $50k left on the mortgage they can either pay it all off (or pay a little extra each month) or invest the money then if things do get crazy they can then decided to pay off the mortgage or to continue to slowly pay it down.

The $1k starter emergency fund is a small buffer between you and taking on more debt. It's an amount that can handle a lot of "emergencies," but isn't some bloated amount to inhibit you from getting after the consumer debt.

The 3-6 months fully funded emergency fund isn't simply there in the event of a job loss. There are all kinds of big dollar stuff that could happen: medical, total your car, long distance travel for a funeral, etc. Life happens and this pile of cash keeps life from throwing you back into debt.

Retirement of 15% is a widely accepted standard in the US. The money can be accessed (at least in the US) but could be subject to penalties and taxes depending on how the money was invested. Ramsey only recommends accessing retirement funds before retirement to avoid bankruptcy or foreclosure. Otherwise, it's hands off. His investment strategy has you investing in mutual funds - no singles stocks, precious metals, penny stocks, etc.

As far as your personal situation, is there equity in the rental property you bought? You have about $19.1k in debt which isn't terrible if you get after it. But I'd probably liquidate the rental, use any proceeds to reduce debt, and worry about buying my own home to live in when the time is right. Ramsey is strongly against buying rental property with debt.

The most common time he recommends it is when the creditor essentially forces it buy suing you. There are other situations where the debt load is so high relative to the person's income that the numbers just won't work. It's not common for him to recommend that other than a last resort, but it does happen from time to time.

It's not bad to pay that one off. It does fall last in your debt snowball because it's the biggest. And it conveniently has the lowest interest rate as well, so that's a bonus for it being last in line.

I'm guessing his suggestion that it's bad to pay it off is that you could invest the money you'd use paying off that debt and earn a return above 1.0% (or whatever it is). Of course, he didn't factor in the risk associated with debt.

It's not a large amount of money either way. Follow the plan and get rid of this debt forever THEN move on to investing.

Agreed - and remember, paying the house of early is AFTER you've begun investing 15% of gross income for retirement.

The plan is to liquidate eventually (obviously) but I bought it less then a year ago and can only sell when my current rental contract expires or when the renter moves on. I wanted to hold onto it for +-5 years and sell it because the area its in is upcoming but still in that transition phase of all the crappy housing and industrial getting torn down. Im just going to hammer down on the debts I think, I have a (to me) substantial part of my income that can be spend on my debts. Ill keep all the money I make from the rental in a different account so I can build up an emergency buffer while fully dedicating that 700+- a month to filling up the highest interest credits. Ill forget about putting extra money in my mortgage for now.

Btw, if you wouldn't put any money in a pension plan in the US, what would that leave you with ? (When can you retire, how much money $ or % do you get ?)

Where Im from there is quite a chunk (around 15% iirc, split between employer and employee) that is payed towards my pension. I guess I'd have to take a look at what that gives me at the end of the ride. It should pay for 70% of my average salary or something but Im not very into that whole subject, Ill look it up.

Yeah Im probably going to have to pay it off anyway, I just realized that my mortgage interest/limit is tied to the student debt as well so if I'd want to move to something else that could well bite me in the ass.

Terrible advice.

These student loans are government funded and only have to be paid back if you are earning above a certain threshold. If you lose your job or are long term ill etc then you will never have to pay these back and they are do not hang over you like student loan debt in the USA.

These should be paid back at the absolute minimum pace.

The initial emergency fund is stupid too, just put every penny you have for the next few months into clearing those credit card/bank loan debts. These are your number 1 priority now and you should be cutting back really hard for a few months until they are gone. These are your biggest leak by far.

After that you are in a good position. Again the USA#1 guys don't know about your sweet euro pension, so the 15% you are saving there for retirement is already a great start. Just make sure you are saving the amount that gives you the highest employer match with that, if you can add any extra which will increase the amount the employer does then do it.

After your cc/bank loan is paid off you should save up a few months emergency funds for a buffer. Yes your job may be secure but as others have said big expenses can still pop up, or you may just want to take a last minute holiday etc and it's a leak putting this on a cc(and not paying it off before any interest is due)

After that look at a longer term investment plan for your free cash. I personally wouldn't lock anything else up in a pension and would be keeping this liquid, does your country have investment tax shelters (ISA in UK) in which you can save a certain amount each year which will never be subject to tax on dividends or capital gains? If so look to max that out also soon and build from there. People can give more specific investment advice (diversified index funds ldo) when you reach that step.

You are in a really good position now to build up some decent assets for the future, now is the time to set this up and have a dedicated plan. Then when you decide to have kids in the future you are in a great position.

Thanks Onitsuka, all in all I think I got some good advice and understand my situation a bit better. I also have a more positive outlook on the future I guess, I accrued a 40k debt when I was 20ish and have been working/relapsing to get to the point where Im now. Its good to see that not everything is hopeless. I probably shouldn't have invested in RE in my position but I did and I hope it can keep me on a straight path. Thanks for all the comments/help again.