Ok MM. Explain the DR hate to me

[LauraMoser]

I've read TMM, and we have followed it pretty loosely in the past. We plan to get back to following it "loosely" as soon as I land a PT job, which is hopefully soon.

I personally think his basic debt payoff methods are good, but not always practical. His radio show is nothing if not inspirational for those looking to get out of debt. And the strict cash system makes sense and works well in most aspects.

If I were looking for investment advice though, I don't know that he'd be the first person I'd look to for guidance. I haven't really read or heard much from him in that area. And IMO, he's more focused on getting out of debt.

So just out of curiosity, what is it that MM doesn't like about DR?

[Deleted]

he's inspirational, but I disagree with only having 1k for emergencies (that's one brake job) and stopping 401k while paying off debt, (partly because you'll miss the match and partly because human nature being what it is, some people will never get out of debt and then they'll have no retirement either)

[thatgirl2478]

Good question - I was about to ask the same.

I agree with his principles for the most part. If you get rid of all your debt, it frees up your income to do other things (like saving for retirement / kids college / travel etc) and frees up your mind so you don't HAVE to worry about financial issues if something were to happen (job loss, death, etc).

[LoveTrains]

I disagree with him on the following items:
-not caring what your credit score is
-paying off smallest balances first, regardless of the interest rate
-not saving for retirement while paying off debt

[thatgirl2478]

Jan 9, 2013 14:24:43 GMT -5 @septimus said:

he's inspirational, but I disagree with only having 1k for emergencies (that's one brake job) and stopping 401k while paying off debt, (partly because you'll miss the match and partly because human nature being what it is, some people will never get out of debt and then they'll have no retirement either)

1 k in savings and no 401k are really only recommended when you're in the debt snowball mode so you have the maximum amount of cash available to throw at the debt.

You have to look at your own situation too! If you have a lot of debt and not much $ to throw at it, it's going to take you a while to pay it off - so you should probably have a little more e fund.

The assumption with his set of practices is that you'll get out of debt relatively quickly and then won't go back into debt.

[LauraMoser]

Jan 9, 2013 14:26:28 GMT -5 LoveTrains said:

I disagree with him on the following items:
-not caring what your credit score is
-paying off smallest balances first, regardless of the interest rate
-not saving for retirement while paying off debt

See, I get where he is coming from on this one. I know I myself work best on the principal of seeing an accomplishment of paying off a debt, even if it is the smallest one. I know it won't save me the most money spent in interest if I don't pay off debts according to interest rates, but I also know I'm more likely to fall off track/give up without feeling at least a small accomplishment here and there along the way.

But from a purely money standpoint, I totally understand why you disagree with that.

[thatgirl2478]

Jan 9, 2013 14:26:28 GMT -5 LoveTrains said:

I disagree with him on the following items:
-not caring what your credit score is
-paying off smallest balances first, regardless of the interest rate
-not saving for retirement while paying off debt

If you follow his philosophy, you won't NEED a credit score because you won't be using/applying for credit.


Paying off the smallest balances first is so you can score a quick win, it's psychological rather than financial. It's a 'reward' to keep you moving forward.

I don't 100% know what DR says about retirement & debt payoff. I know for SOME people he recommends cutting 401k contributions until the debt is paid off. That makes sense IF your debts are small and you can have them paid off in a year or two by stopping 401k contributions temporarily. However, I don't think he has a problem with saving up to your employers match while in debt pay off mode. Step 4 just says 'Save 15% for retirement' it doesn't say that you were saving zero before hand.

[Deleted]

I don't hate him. I also haven't read his book(s) so my thoughts should be taken with a grain of salt.

I have no issue with the 1k efund. I think that's a good start and unless you're so buried in CC debt that you no longer have access to credit, I think most people are going to do better paying off high interest debt vs. stockpiling cash for a rainy day. I know for us, if we had an emergency, we have plenty of access to credit that we could put something crazy on a credit card if 1k really didn't cover it. Of course that doesn't help much with paying the mortgage, but basically any health issue, car repair, house repair, etc that would come up can be paid for with credit. And the chances of those things happening are low. The chance of staying in debt and gaining tons of interest if you keep saving vs. paying off debt are 100%.

I don't agree with stopping 401k. I think that if you are getting a match, you should NEVER pass that up under any circumstances. Maybe if it was a choice between that or being homeless?

I also think it makes more sense to pay off higher interest balances first.

And I never want to be in a position where I can't use credit. I think it is unrealistic for most people to save up enough money to buy a house or even a car outright with cash. To me, that would be like setting my goal at being a millionaire within the next 5 years or wanting to lose enough weight that I could be a size 0. It's an unattainable goal and I'd quit long before I got very far.

[hulley]

I don't like the idea of only having $1000 in savings, especially for families and/or homeowners. I am a renter and I've still had emergencies that would have killed us had we only had $1000 in the bank. When I owned my own home, I regularly put out several thousand for repairs there.

I also don't like the pay off the smallest balance idea, but I can understand the feeling of success there. I think it's easier to build on small successes, and feeling that "I did it" can spur more dedication to paying off debt.

I agree with PPs that not saving for retirement is not a good idea for most people. I suppose if you are very young then it might not be such a bad idea, but when I was paying off debt after my divorce, I would have missed out on so much $$ if I'd pulled out of my investments via 401K. I tripled my 401K balance that year, mostly due to market gains. I couldn't do that right now.

[LoveTrains]

Jan 9, 2013 14:33:06 GMT -5 thatgirl2478 said:

Jan 9, 2013 14:26:28 GMT -5 LoveTrains said:

I disagree with him on the following items:
-not caring what your credit score is
-paying off smallest balances first, regardless of the interest rate
-not saving for retirement while paying off debt

If you follow his philosophy, you won't NEED a credit score because you won't be using/applying for credit.


.

I disagree. Credit scores are used for plenty of other things besides just obtaining credit. They are also used in a) getting jobs (see recent article in NYT about how you can lose out on a job because more and more places are checking credit scores before making an offer) or b) insurance rates.

In many states your insurance rate for your auto or home insurance depends on your credit score. The higher your score, the better your rating.

[thatgirl2478]

Jan 9, 2013 14:43:04 GMT -5 LoveTrains said:

Jan 9, 2013 14:33:06 GMT -5 thatgirl2478 said:

If you follow his philosophy, you won't NEED a credit score because you won't be using/applying for credit.


.

I disagree. Credit scores are used for plenty of other things besides just obtaining credit. They are also used in a) getting jobs (see recent article in NYT about how you can lose out on a job because more and more places are checking credit scores before making an offer) or b) insurance rates.

In many states your insurance rate for your auto or home insurance depends on your credit score. The higher your score, the better your rating.

Good points. I know he's touched on the no credit score and renting situation - he advocates finding a landlord who is understanding of the DR plan... good luck with that one.

I have a good score, so I often forget just how much it's used for.

[schrodinger]

Jan 9, 2013 14:39:34 GMT -5 @buckybells said:

And I never want to be in a position where I can't use credit. I think it is unrealistic for most people to save up enough money to buy a house or even a car outright with cash. To me, that would be like setting my goal at being a millionaire within the next 5 years or wanting to lose enough weight that I could be a size 0. It's an unattainable goal and I'd quit long before I got very far.

This is a part of DR that I take a huge issue with. His advice for getting out of debt is great, but his advice for accumulating wealth is terrible. To ignore the role that credit plays in cash flow/wealth accumulation is huge. Its easy for him to say "you should never need credit" because he's probably got huge cash reserves. But for the average, middle income household, having a mortgage is the only realistic way to manage cash flow to save/invest for retirement.

[SJ]

I don't hate Dave Ramsey. I think his program is great for people who are really struggling, have limited financial knowledge, and need a lifeline. I have seen people really turn their lives around following his teachings, and that is great. It is NEVER bad to become more informed and intentional about your finances. I think it is absolutely better than nothing.

FPU was very beneficial for my BIL/SIL and I am glad we went through it with him.

However, I disagree with him on the following points:

-I think my biggest issue with him is that I see no reason to obsess about low interest debt. Your money can do far more powerful things for you than pay off 3% loans. I would be much happier if baby step #2 was "pay off all debt charging over 10%" because I think for many people today, it is very foolish to delay saving for retirement for so long. If you have $200K of student loans, and you don't save for retirement until they are gone, you will be way too late.

-not caring what your credit score is- it is crazy to think most average Americans who follow his plan will never need to borrow money for anything ever again. I am a landlord and would never rent to someone with a score of zero.

-paying off smallest balances first, regardless of the interest rate. Just not financial smart, although I understand the emotions

-I disagree with him socially and religiously on matters like SAHM's, etc.

-We had one of his "endorsed" providers come in to talk about insurance. The guy was a total joke and I was running circles around him on everything from tax law to investment rates to actual insurance rules.

[pamela]

There is also hate because he refuses to change his advice based on individual situations. He's very consistent in his advice and hammering home his baby step plan, no deviations. Also, this board is not really his target audience and that is forgotten. He targets those who are so deep drowning that they can't see straight and need a concrete plan and hope. Most would have never had $1k in one place ever so that is a huge improvement in itself for them. He's commented that he doesn't recommend higher because it would scare people off that they could never do it and instead of being closer to getting out of trouble, they are still in trouble and even more hopeless.

[Deleted]

1) I don't think that $1k in savings is enough for people who have maxed out their credit and don't have any more wiggle room if something bad were to happen.

2) I don't think his grocery budget recommendations are realistic. A while back I read that he recommended a $25/wk grocery budget. I spend more than that on in-season produce every week alone, and in-season is supposed to be cheaper.

3) I don't agree with his complete avoidance of credit. I like to charge all expenses and pay the balance in full every month to accumulate rewards, however, I realize a lot of people don't have the discipline to do so. Ditto sarajoy's points on low-interest debt and credit score.

[ReenaP]

I actually enjoy listening to his radio show at work, but it's a big turn-off when he makes fun of liberals and says TV shows like Modern Family are "trash".

[thatgirl2478]

Jan 9, 2013 14:46:26 GMT -5 schrodinger said:

Jan 9, 2013 14:39:34 GMT -5 @buckybells said:

And I never want to be in a position where I can't use credit. I think it is unrealistic for most people to save up enough money to buy a house or even a car outright with cash. To me, that would be like setting my goal at being a millionaire within the next 5 years or wanting to lose enough weight that I could be a size 0. It's an unattainable goal and I'd quit long before I got very far.

This is a part of DR that I take a huge issue with. His advice for getting out of debt is great, but his advice for accumulating wealth is terrible. To ignore the role that credit plays in cash flow/wealth accumulation is huge. Its easy for him to say "you should never need credit" because he's probably got huge cash reserves. But for the average, middle income household, having a mortgage is the only realistic way to manage cash flow to save/invest for retirement.

The way I understand it (note, I have never read TMM, I only listen to his shows) a mortgage is fine as long as the payments aren't more than 25% of your monthly income AND you have a 15 yr loan. Even MM can agree that spending too much of your income on a mortgage is a bad thing.

What he always says regarding credit & building wealth is that no millionaire ever said 'I owe all my wealth to Chase* and their air miles / bonus points / etc' (* insert any bank name here). His point is that if you're constantly paying payments to a bank - regardless of the APR - you're tying up money that could otherwise be used to save for retirement, kids college, charitable donations, etc.

I don't agree with him 100%, but I do agree with him in principle. I do agree that the inflexibility of the baby steps is what helps those who are deeeep in debt and hurts those who maybe only have a little.

[Deleted]

Jan 9, 2013 14:33:06 GMT -5 thatgirl2478 said:

Jan 9, 2013 14:26:28 GMT -5 LoveTrains said:

I disagree with him on the following items:
-not caring what your credit score is
-paying off smallest balances first, regardless of the interest rate
-not saving for retirement while paying off debt

If you follow his philosophy, you won't NEED a credit score because you won't be using/applying for credit.


Paying off the smallest balances first is so you can score a quick win, it's psychological rather than financial. It's a 'reward' to keep you moving forward.

I don't 100% know what DR says about retirement & debt payoff. I know for SOME people he recommends cutting 401k contributions until the debt is paid off. That makes sense IF your debts are small and you can have them paid off in a year or two by stopping 401k contributions temporarily. However, I don't think he has a problem with saving up to your employers match while in debt pay off mode. Step 4 just says 'Save 15% for retirement' it doesn't say that you were saving zero before hand.

This is one of my fundamental issues. My credit score matters when it comes to my job. All of my last jobs have pulled my credit scores and it good credit was required for me to be hired.

[SJ]

As someone else mentioned, he also tries to take a package approach and pretend that it makes sense for everyone.

Real life is complicated.

I follow personal finance strategies that we have honed and fit to ourselves based on age, income level, assets, job security, tolerance for risk, net worth, and on and on and on.

I would never be so foolish to think that EVERYONE ELSE should do things exactly my way (although it sure wouldn't hurt in most circumstances ) I think people with different emotional/lifestyle needs should have more in cash than we do, etc.

[holly116]

What I find comical about some DR followers is like the one we had post a budget not too long ago, prefaced with "now, I know this board doesn't like DR, but that's what we're doing!" But the only part her family was following was only keeping $1000 in an emergency fund. They weren't "living like no one else." I think most people like to pick and choose everything, and with DR's target audience, I think that can be really scary because there are some parts, that when mixed together, are down right financially dangerous.

I agree with others who have talked about waiting on retirement to pay off low interest debt. I'm keeping my cheap SLs for as long as they'll let me.

[LoveTrains]

Jan 9, 2013 15:03:07 GMT -5 thatgirl2478 said:

Jan 9, 2013 14:46:26 GMT -5 schrodinger said:

This is a part of DR that I take a huge issue with. His advice for getting out of debt is great, but his advice for accumulating wealth is terrible. To ignore the role that credit plays in cash flow/wealth accumulation is huge. Its easy for him to say "you should never need credit" because he's probably got huge cash reserves. But for the average, middle income household, having a mortgage is the only realistic way to manage cash flow to save/invest for retirement.

The way I understand it (note, I have never read TMM, I only listen to his shows) a mortgage is fine as long as the payments aren't more than 25% of your monthly income AND you have a 15 yr loan. Even MM can agree that spending too much of your income on a mortgage is a bad thing.

But right now mortgages are at historic lows. Getting a 30 year mortgage for 3.5% is basically free money. One is better off to NEVER pay down that mortgage and to instead leverage their extra money by a) saving it for retirement or b) investing it and making 8-12% on their investments.

I do not intend to make any extra payments to my recently obtained 30 year mortgage as long as the interest rate is essentially at inflation.

[nomad100]

I am not a huge fan of DR for many of the reasons listed above but for someone like my MIL who is a financial train wreck and refuses to listen to DH (or anyone else she is related to or friends with) about anything financial, he can be a good thing. Or at least better than what she has been doing in the past, which is fucking up big time.

Our thought is that at least she is listening to someone with some semblance of a plan, versus her usual "well, I thought that is what I should do" without doing any research and going with her gut. That gut of hers should have been fired long ago since it has cost her 10s of thousands of dollars.

Should she listen to someone else? Most definitely. Will she? Nope. Why? Because he is faith based he must be better than those other people (yup, she is one of those...sigh).

So we try to talk up the parts we do like and downplay the parts we don't. We talk to her about her plan and steps and try to steer her back when she talks crazy about spending money she doesn't really have on stuff/people who she shouldn't.

She doesn't know it yet but for her birthday we are sending her to FPU. ;D

[Deleted]

Actually I do agree with DR that risk is often under assessed. If you really do have a non-retirement account that could pay off your house and is making 4%+, then keep the mortgage, but most people don't. So not having a paid off house may be a risk.

I take him with a grain of salt--his shows can be interesting and it's great to hear people that have been successful. Definitely no hate. Though as an Athiest Liberal, there is only so much I can take;)

[pamela]

Jan 9, 2013 15:01:48 GMT -5 @amydrinkie said:

2) I don't think his grocery budget recommendations are realistic. A while back I read that he recommended a $25/wk grocery budget. I spend more than that on in-season produce every week alone, and in-season is supposed to be cheaper.
[\quote] Who did you hear this from? His recommended budget for food is 5-15% of your income.

[flatlan]

I think that his way of breaking down things and making it seem like you can get control of your debt and finances is one of his best attributes. Most people that are very far into debt and do not have a budget did not get there by know lots about money. I think he is a great stepping stone to get people started on the right path and then most people, once they start getting ahead, automatically start branching out from his teachings.

[Deleted]

Jan 9, 2013 16:26:51 GMT -5 pamela said:

Jan 9, 2013 15:01:48 GMT -5 @amydrinkie said:

2) I don't think his grocery budget recommendations are realistic. A while back I read that he recommended a $25/wk grocery budget. I spend more than that on in-season produce every week alone, and in-season is supposed to be cheaper.
[\quote] Who did you hear this from? His recommended budget for food is 5-15% of your income.

I read it several years ago, I think in a magazine. I didn't know about the % and that sounds much easier to swallow, maybe the $25 was calculated based on an example income. I'll see if I can find the article.

[nevermind]

I'm a DR fan... Although I've been criticized here for not doing DR "well enough"

I'm reading some of the Bach books including Smart Women Finish Rich and I think that in the end, they will probably get you the same place. The biggest difference is that DR tackles debt faster, so while you do cut short retirement, he expects you to be completely debt free except for the house in < 3 years. Bach's time line is a lot longer. After the snowball, DR has you contribute at least 15% to retirement and Bach shoots for 12%, so in that sense, you should catch right back up.

DR thinks that debt is completely evil, which isn't the impression I get from Bach in SWFR, however, he seems to swing in more that direction in his newer book Debt Free for Life. He even advocates speeding up paying off the house in that book. I'd love to read a more up to date book that covers more of his general philosophy as it stands today

The biggest flaw I see in Bach is that his "plan" isn't very clear. I read Smart Couples Finish Rich years ago and never went anywhere with it and now I remember why. There are a lot of ideas, but there is no real clear plan. People like me need the "baby steps". I need someone to tell me to do this, then this, then this.

BTW - Even in Debt Free For Life, Back doesn't tell you how to set up a budget, which is kind of important in getting out of debt.

[ssmjlm]

I just can't get behind the no retirement contributions. My employer matches up to 5%. That's free money. I would rather be putting 10% into retirement and paying down debt than losing all that matching.

[alexis]

Jan 9, 2013 14:51:34 GMT -5 SJ said:

-I think my biggest issue with him is that I see no reason to obsess about low interest debt. Your money can do far more powerful things for you than pay off 3% loans. I would be much happier if baby step #2 was "pay off all debt charging over 10%" because I think for many people today, it is very foolish to delay saving for retirement for so long. If you have $200K of student loans, and you don't save for retirement until they are gone, you will be way too late.

I kind of think DR is for the alcoholics of the financial world. They are generally drowning in bad debt and perpetually living beyond their means, so telling them they can keep some debt won't work for them. Chances are they aren't going to take the money they would have used to pay down their low-interest debt and put it into retirement or something. They're probably going to spend it on whatever it was that got them into the mess in the first place.

I used to have a lot of credit card debt due to living beyond my means, and I really did have to adopt a "debt=bad" attitude for a while to help me change my habits and finances. Now I am in the habit of spending more thoughtfully and I think I could handle smart debt but don't need it currently.

I read the TMM when I was well into my financial turn around. I was doing something similar but less intense. His "gazelle intense" philosophy really doesn't work for me. I tried a similar level of intensity several times and would always burn out before I crossed the finish line. I found I did much better when I allowed myself to go at a more moderate pace. I visited his website a few times. He seemed like a jerk.

[nevermind]

Jan 9, 2013 15:51:17 GMT -5 LoveTrains said:

Jan 9, 2013 15:03:07 GMT -5 thatgirl2478 said:

The way I understand it (note, I have never read TMM, I only listen to his shows) a mortgage is fine as long as the payments aren't more than 25% of your monthly income AND you have a 15 yr loan. Even MM can agree that spending too much of your income on a mortgage is a bad thing.

But right now mortgages are at historic lows. Getting a 30 year mortgage for 3.5% is basically free money. One is better off to NEVER pay down that mortgage and to instead leverage their extra money by a) saving it for retirement or b) investing it and making 8-12% on their investments.

I do not intend to make any extra payments to my recently obtained 30 year mortgage as long as the interest rate is essentially at inflation.

The whole point of paying off the house is to eliminate risk. It makes working optional, so that when you get laid off you aren't up shit creek.

Now, if you happen to have enough money just sitting somewhere (besides your 401K) earning really great interest that you could withdraw from and pay off the house, that's one thing, but I'm going to doubt most people are in that position

Honestly, the more I listen to his show the more I understand why people love him. I hear people talk about their paid off houses and it sounds heavenly. It sounds like true freedom.