Dave RamseyT

[Newby]

Credit cards for some are like a shot of whiskey for an alcoholic

They don't know when to quit . . .

For those who can NOT control their spending, cut up the cards and go cash or debit card.

For most, the mortgage is the best loan you will ever get. Master Card, Visa , GMAC won't give you 30 years at 6% to pay off your loan. If someone is willing to lend you money for half your life at 6%, take it and hold on as long as you wish.

The folks who are bent on paying off their mortgage when other things are not secure (like LIQUID savings) are messed up.

Two things in life are not liquid. Your home & your 401(k).

The only way to get money out of your home is to borrow it or sell it.

If you borrow, you owe someone interest.

If you sell it, where will you live?

Taking money out of a 401(k) is just as bad. Taxes & penalties mean you have to borrow $10,000 to net $6,000 AND you have to pay back the $10,000 + interest.

Leave money in your home. Leverage your equity to buy more property if you can.

I want to refi so bad I can't stand it. We have enough equity to buy several rental properties and generate a significant monthly income.

Wifey won't agree so we are sitting on dead money. Bums me out.

I don't understand the logic in your thinking. Keep a loan against the house so you won't have to borrow against the house if you need money later? I don't like it.

My plan has always been to pay everything off. Then build up cash with the money you would be making payments with. When that builds up, invest in more property (just like you said.) I'm not about being too leveraged. I like to sleep at night.

I think one thing that has kept me successful in sales is the fact that I don't NEED to make a sale to pay the bills. I think people can smell it when you are desparate.

Just live below your means and pay off ALL debts as you can. That part Dave Ramsey and I agree on. Much of the rest of what he says is BS.

 

[Chris235]

Keep it simple

What I've heard of Ramsey and read in his book seems to basically keep it simple. Let's face it, when somebody has their spending like some people do, it needs to be simple. I think he has kind of a cookie cutter approach with some things, but then again it's genral information and not specific toward each person and their situations. As far as paying off the house and then saving; from what I've heard him say, he says to pay off all your bills, othere than the house first....after saving a small $1000 emergency fund....then build a full 3-6 months emergency fund....then put a percentage of what you make into a retirement account, kids college fund, etc....then after you do all that and you are taking care of all that, put any extra money you have toward paying off your house. I've heard him say a few times he doesn't like the idea of paying off your house without savings because he's seen a lot of broke 70 y/o that don't have a payment on their house.

 

[SME]

I will confess that I use the cash system. Mostly because it helps my marriage. About 2 months into my marriage my overly analytical husband was hounding me about every purchase. (He just didn't understand $30 pedicures) So we sat down created a budget and decided what amount I would get every week to spend on whatever I want. He knows that I will pull that amount out every monday and I know that every bill will be paid and the savings funded. It's a great system, and I have a very happy marriage.

For our mortgage we are considering buying a smaller house with a 15 year mortgage so that we will have more income to fund college for my son if we need it. We have a savings for him but with the rising cost of college it may not be enough. And if we don't need it then we will use the equity to buy a property for him to live in when he goes to school. Interest rates are so low that a 15 year mortgage is very reasonable and will save us a ton in interest.

 

[somarco]

I don't understand the logic in your thinking. Keep a loan against the house so you won't have to borrow against the house if you need money later? I don't like it.

You don't have to like it, or understand it.

Nothing wrong with being debt free. Look at it this way.

If you own a home worth $300,000 and have a $200,000 mortgage. Say your home appreciates at 6% per year.

Next year your home is worth $318,000. Your return the asset is 6%. But your return on EQUITY is 18%.

What if you could LEVERAGE that equity?

Take $50,000 out to buy a rental home somewhere.

Your personal residence is still increasing at 6%.

Now you have a second home that is not only increasing at 6% but is also creating additional tax breaks and (hopefully) a positive cash flow.

The biggest problem most people have in money management is not being liquid. They have most of their money tied up in their home and other non-liquid assets such as retirement plans.

When you learn the principle of leverage, and real estate is the only thing you can effectively leverage any more, you increase your return on investment and create real wealth.

 

[SME]

The flaw in that logic comes when the housing market decreases and now you have negative equity instead of positive.

 

[Crabcake Johnny]

We took the cash advice years ago after racking up credit card debt. True freedom is keeping your paycheck and giving as little as possible to creditors. We pay for everything with debit cards and have cash reserves for emergencies. Now we're addicted to never getting another credit card bill.

The key for my wife and I was coming to realize that buying crap didn't make us any happier. Never again with a car payment either. I'm in the process of saving to buy a car now....and I will when I have 100% of the cash.

 

[bluemarlin08]

I had same experience John. Lots of cc debt 1200 a month in car notes, NEVER again. Cash for everything We are saving now for 2 cars. We have experienced what happens when life throws curves at you, better to be out of debt and be able to withstand the storms.

 

[Crabcake Johnny]

6 years ago we got screwed really bad. My career took a nose-dive and we have two car payments and four credit cards. We got into a financial jam and had to use the cards to pay some bills. But the time I got back on my feet it took over 2 years to dig out. Nothing like being past due on credit cards as they proceed to call you from 8am to 9pm every day.

Nothing sucks worse then a car payment. Add up that interest after a 5 year loan. Or figure out how much you lost on that $40,000 SUV after 5 years. The allure of getting that new car wears off on me quickly and now I'm stuck with $350 a month on a depreciating piece of ****. I'm looking for someone now for around $10K. I have good friends of mine with two car payments but they can't drive it to meet us for dinner because they can't afford it. Ironic.

 

[J.R.]

The flaw in that logic comes when the housing market decreases and now you have negative equity instead of positive.

The only way you can get negative equity is if you have a leveraged the property to the hilt and/or market rents decrease in the area. The average person does not have much control over the latter, but the former is easily manageable with sound financial planning.

Fact is, single family homes produce horrible returns as a rental property unless you are focusing on long term (5-10+ years).

Fact is that people need to buy a house or rent something out when they cannot afford a house. When the market goes to crap like it is now in some areas, people will rent until the cycle repeats itself. Basic laws of supply and demand and graduate level formulas.

 

[SME]

In Phoenix you keep hearing about people who pulled out thier equity and now can't sell the house because they owe more than it is worth in the current market. Trust me I've heard all the supply and demand formulas in existance.