With Apologies to Dave Ramsey, One Size Doesn’t Always Fit All

by Joe Plemon on April 5, 2010

Snuggie

Does one size really fit all?

Creative Commons License photo credit: rejon

Before you jump to the wrong conclusion, let me state that the purpose of this post is not to trash Dave Ramsey. Just check my “About” page to read how Dave, his teachings and his books have turned my life around. You will also read that I am a Dave Ramsey certified counselor. I drank the kool-aid and followed Dave’s Baby Steps to dig myself out of debt, build my emergency fund and pay off my house. I will readily attest that Dave’s teachings work.

However, months of exposure to the personal finance blogging community have helped me realize that Dave’s “one size fit’s all” message doesn’t apply in every case to every person. My point is not to fault Dave; it is to encourage people to think beyond the Dave Ramsey formula and clearly understand why they are doing what they are doing.

Some examples:

Debt snowball

This is one I have seen debated ad nauseam in the blog sphere. Nearly everyone agrees that a debt snowball is a good idea; but disagrees on how to structure it. Dave says lowest debt to highest debt, stressing the importance of those early victories that fuel the debt free fire. Dave is famous for his observation that personal finance is 80% behavior and 20% math. Others say highest interest rate to lowest interest rate. Still others have a hybrid plan…I recommend reading Matt Jabs’ post “Pay Off Debt – The Hybrid Debt Snowball Fight” for a great explanation of his hybrid plan and (more importantly) the thinking behind it.

My point is this: debt needs to be attacked with a vengeance, but not everyone is motivated in the same way. Some people (usually the math nerds) are MORE motivated by getting that high interest debt paid off first, even if they don’t get that quick victory that Dave’s method achieves. Others, like Matt Jabs, will be highly motivated by devising a plan that works for his family. My thought: attack your debt in a way that will keep you motivated and on track for however long it takes.

Credit cards

Here we go. Dave, of course, is adamant about the many evils of credit cards. Yes, credit cards get lots of people into lots of trouble, but the debate reminds me of the gun ownership debate: do guns kill people or do people kill people? My wife and I have not owned credit cards for years and have not missed them one iota. But I have met too people who use credit cards responsibly (and who do extremely well financially) to believe that Dave’s “No Credit Card” rule should apply to everyone.

Don’t worry about your FICO score

Dave is absolutely correct in challenging people not to “worship at the FICO altar”. Too many people get way too freaked out about their credit scores, and Dave is on target teaching people not to go into debt in order to build their credit scores. In fairness to Dave, I have never heard him tell people to trash their FICO scores, but he is quite proud to proclaim that his is zero because he hasn’t borrowed money in many years. The inference is that FICO scores are irrelevant, but they aren’t. Insurance companies regularly use credit scores to determine insurance premiums and a good score helps with a home loan if manual underwriting is not available. A recommended read on the topic is FICO Scores Matter: Sorry, Dave Ramsey at Money Help for Christians.

Always get a 15 year fixed rate home mortgage

Fixed rate? Definitely. 15 year? Hmmmm. Are there times when stretching the loan farther makes sense or should all home buyers in all circumstances always get 15 year mortgages? Dave’s criteria are to be out of debt, have a 3-6 month emergency fund in place and set your price range by buying a home on a 15 year note that will keep your payments at 25% or less of your take home pay. Great guidelines, but what if there are no safe neighborhoods in your price range within driving distance of work? Or what if one of the incomes in a two income family is fragile? Or if one spouse is contemplating becoming a stay at home parent? Would there not be some wisdom in giving some cushion by stretching the loan to a 20 or even a 30 year time. To dig a little deeper in how the interest rate itself affects the comparison of loan terms, read Joe Taxpayer’s A Thought on 15 vs 30 Year Mortgages.

Reverse mortgages

I know. Reverse mortgages are more debt and a terrible financial product. I agree. My point is to push the envelope enough to ask, “Are they always wrong?” I recently wrote a four part series on reverse mortgages, arriving at the conclusion that no one should get one without trying every other conceivable option. But I could see that if a senior was emotionally attached to the family home, leaving an inheritance was a non issue and he could use some extra cash flow, a reverse mortgage could be a positive option.

Summary

Dave Ramsey is a financial guru. He has probably helped more people escape financial bondage than any individual alive. His books are full of clear and well articulated advice. I don’t think anyone would go wrong by simply doing what he says. It works. But my challenge in this post is to make people understand why they do what they do. By doing so, they will usually discover that what Dave teaches is what they should do. But, because one size doesn’t always fit all, they may be able to streamline their finances to better meet their individual circumstances.

After all, isn’t that what makes personal finance personal?

Readers: What other exceptions can you think of for Dave Ramsey “one size fits all” advice?

This post was included in the following Carnivals:

Yakezie Challenge Carnival #7 hosted by Money Reasons

Best of Money Carnival hosted by Credit Card Offers IQ

Carnival of Financial Planning hosted by The Skilled Investor

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{ 34 comments… read them below or add one }

Bucksome Boomer April 5, 2010 at 8:19 am

Joe, I like how you critically evaluated key principles taught by Dave Ramsey. I’m a fan and FPU changed the way I manage money. I’m working on the debt snowball.

Having said that, I disagree with his theory that you don’t need credit cards. I use them for big purchases or online purchases for the protection. Believe it or not, I had to go to American Express to resolve an issue with Amazon.

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joeplemon April 5, 2010 at 8:30 am

BB,
You make my point. A mature adult with a credit card is not necessarily going to self destruct.

I am glad to hear that FPU has changed the way you handle money. Hope your debt snowball is rolling!

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Joseph | kieck debt off April 5, 2010 at 11:07 am

I think Dave’s message if for people who are struggling with debt, and i am grateful that we went through the FPU before getting married. If you are so much in debt i agree with him Fico scores do not matter .. you are already in debt and have played their game.. so what remains is to clean up the mess and in the process of cleaning up.. you bump up your scores.

I also agree with you Joe that it’s not a blanket cover that fits all.

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joeplemon April 5, 2010 at 1:26 pm

Joseph,
Yes, Dave is famous for helping people who are struggling with debt. But five of his seven Baby Steps come after getting out of consumer debt. I too agree that the FICO score is not the big deal that so many people try to make it out to be. But, for reasons listed in the post, it is still part of our overall financial plan no matter what Baby Step we may be on.
As always, thanks for stopping by and joining the discussion.

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Craig Ford April 5, 2010 at 3:18 pm

Joe,
I LOVED this post. It is exactly how I feel about Dave Ramsey. I like him more than any other financial guru. He has provided my family with a lot of fantastic financial advice.
BUT, I don’t think he is always right.
People feel like it is heretical to question the infallibility of Ramsey – that drives me crazy.
Your post really helped explain things clearly.

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joeplemon April 5, 2010 at 3:27 pm

Thanks Craig. As a Dave Ramsey counselor, I admit to the feeling of walking on eggs as I was preparing this post, but I also realized that, as a DR counselor, I was in a unique position to question some of his generalizations without coming across as a Dave Ramsey basher. Evidently, based on your comment, the post achieved what I wanted it to achieve.

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Evan April 5, 2010 at 3:48 pm

I am not a fan of Financial pundits because everything they say is absolute in nature, and it has to be they have your ear for 30 mins max a day.

I think it is funny that you disagree that one size doesn’t always fit all and then state, “Fixed rate? Definitely”

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joeplemon April 5, 2010 at 3:53 pm

Evan,
Man, you nailed me on the “Fixed rate? Definitely” quote! Nothing like a bit of hypocrisy to keep readers on their toes. :)

Well done and thanks for pointing it out.

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Laura April 5, 2010 at 3:55 pm

Joe, you are absolutely right to advise people to question Ramsey’s advice and tailor it to their own needs. I’m on the other side of the financial fence – am nearing retirement and have made my ‘wealth’. I had not heard of Dave Ramsey as I made this journey, and broke almost all his rules along the way. I had a 30 year mortgage, use credit cards almost exclusively, have bought new cars with loans, etc. Thank goodness I’d never heard of Dave Ramsey! Where he alienates a lot of people is with his little quips that make no sense. For instance, I’ve made several thousand dollars on credit card ‘points’ (dollars back). Ramsey counter (usually said with condescension) to this goes something like “I’ve never met a millionaire who said they made their millions with credit card points.” Ok, I’m yet another millionaire who will say the same thing, but I’m surely not going to turn down tens of thousands of free dollars!

I watch his show occasionally and am awed at how he often ignores some of the financial fundamentals when he gives advice. For instance, he often doesn’t consider income taxes when giving advice, and I’ve heard him sling around a 12% return on investments. What decade is he living in?

Ramsey can be useful for motivation to those in dire financial circumstances, but he has little appeal for those who are more financially sophisticated. And EVERYONE needs to think through everything they hear him say. Some of it just isn’t true.

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joeplemon April 5, 2010 at 4:19 pm

Laura,
Thanks for sharing a story from the “other side of the financial fence”. You may have broken some of “Dave’s rules” but you have obviously done a lot of things right along the way. Congratulations for thinking for yourself and doing well in your personal finance.

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financialwizardess April 6, 2010 at 3:58 pm

I also enjoy Dave Ramsay, and I also watch Suze Orman religiously. Either one’s strategies are sound and will work. However, I find that it’s important to know your temptations and work against those. Personally, Suze’s 8 month emergency fund would be a disaster for me because I see that kind of lump sum sitting around, and I feel rich. Once I feel rich, I start spending. Dave’s beliefs against credit cards is dangerous, I think. It’s important to be seen as credit-worthy as a backup plan if you’re ever in a pinch. If I ever need money to fix a cash flow problem, I would be given a loan in an instant due to my great FICO score. However, I know how to have a credit line and not use it. Some folks have trouble with open lines (the way I have trouble with lump sums sitting in my account.)

Bottom line is, if you don’t have a plan, you will fail. Until you get on good footing, it’s good to follow a guru’s advice. Personally, I’m past that. I still enjoy the advice and often learn something new (especially if the laws have changed or it’s a situation I’ve never thought about). But I’m blessed that I’ve got it all figured out on my own hybrid plan that works for my personality. I can at least say that I’ve made my decisions after becoming well educated on the pros and cons of each decision.

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Arthur @ FinancialBondage.org April 6, 2010 at 4:09 pm

Well Dave is human he’s not God. No plan is perfect, but his works if done over time.

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joeplemon April 6, 2010 at 4:12 pm

Financialwizardess,
Your comment accents the point that personal finance is indeed personal. You know your own weaknesses and strong points, you read and study and then devise your own plan based on what you have learned and your own personality. This is how to do it.

I also appreciate your comment that until you get on good footing, it is good to follow a guru’s advice.

Thanks for reading and sharing your story.

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joeplemon April 6, 2010 at 4:16 pm

Arthur,
The great thing about Dave’s baby step plan is that, if followed, it will indeed work. I never inferred that it wouldn’t work…just that people should dig in and think for themselves instead of simply doing what any guru says. Like you said, Dave isn’t God.

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Peter April 6, 2010 at 4:36 pm

I think one thing that a lot of people leave off is that Dave Ramsey doesn’t say it’s his way or the highway all of the time.. For example, on the debt snowball, I’ve heard him more than once on his radio show talk to people who want to get out of debt another way (highest interest first), and while he believes the debt snowball is the best way to get out of debt – and will be the most successful in the long run, he always likes to say that “you can’t go wrong getting out of debt”.

My thing is this – is his advice perfect for every person and every situation? Probably not. But people like to pick on one small point or another – and then basically assume that his whole message is bunk because they don’t agree with the debt snowball – or with not having credit cards.

Personally I think you could do a lot worse than to follow his advice. If you have a sticking point – like you absolutely feel like you have to have a credit card? So be it.. :) Don’t follow that advice, but realize a lot of the other advice he’s giving is still extremely good..

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JoeTaxpayer April 6, 2010 at 5:17 pm

Thanks for the shout out on my mortgage post.
To reconcile Dave’s stance on the issues, I’ve drawn an analogy to AA. An alcoholic can’t go back to social drinking. If you view Dave in light of the fact that his (target) audience is comprised of those who have shown themselves to be beyond irresponsible when i comes to credit. Without that comparison he appears rigid and over the edge in his anti-debt campaign.

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joeplemon April 6, 2010 at 6:05 pm

@Peter,
I am glad you brought out the fact that Dave is not as rigid as some may think. I too have heard him say that “you can’t go wrong getting out of debt”.
Your point about people wanting to ignore all of Dave’s advice because they pick on one small point is well taken. This is why I started and ended the post supporting and recommending Dave’s advice.

@JoeTaxpayer,
I hadn’t considered that analogy but it is an apt one. Dave truly cares about helping people and that care is translated as being overly rigid unless you realize that many of his audience need black and white advice. Any gray could be interpreted as license to re-create the mess they were in.

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threadbndr April 8, 2010 at 4:45 pm

About the only place that I disagree with DR is that he wants you to stop contributing to your retirement during the debt snowball and efund accumulation steps (Baby Steps 1-3). IF your employer offers a 401(k) match, why on earth would you leave that money on the table? Cut back to just the match, yes. Stop altogether? NO WAY! Each year you are getting an automatic 50 to 100% return on the money that you save.

Maybe it’s because I don’t have a problem working on multiple goals at the same time, but that particular piece of advice just irks me and I didn’t do it.

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joeplemon April 8, 2010 at 5:15 pm

threadbndr
Yes, that is another one that doesn’t always work for everyone.

The key for you is that you don’t mind working on multiple goals at the same time. But hey, if that is the only place you disagree with DR, that isn’t bad. My guess is that if you can multitask successfully with “gazelle intensity”, DR would applaud that success.

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Guy G. April 8, 2010 at 9:57 pm

Hey,
I just wanted to say that it was a good thing you put the disclaimer about how great Dave’s advice is. I was getting worried. Anyway, I agree that Dave’s tips on budgeting and debt elimination are critical for the majority of individuals and families in financial crisis or simply need to hedge in some frivulous spending.

Also, as a fellow PF Blogger, I just wanted to say keep up the good work. The value you’re providing your readers is very helpful to them I’m sure.

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joeplemon April 9, 2010 at 9:06 am

Guy,
Don’t worry. I am still a big Dave Ramsey fan! But the title got your attention, didn’t it? :)

Thanks for the encouragement. Providing value to my readers is what I am striving for. It is nice to get that occasional affirmation from a fellow blogger.

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Harrken April 11, 2010 at 9:25 am

I used the common sense methods that Dave Ramsey describes to get out of debt. However I started doing it before I heard of Dave Ramsey. Even so it turns out that I followed his plan almost completely with the following exceptions.
1. After I had the first $1000 in my emergency fund I continued to automatically add to my saving when I was paying off debt.
2. I continued to contribute to my employer matched retirement account up to the point where I go the full match.

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Laura April 11, 2010 at 12:16 pm

Harrken, I completely agree with your approach. I can’t imagine not taking advantage of what a 401k has to offer, especially if there’s a company match. I also can’t imagine having $1k in savings and cutting up my credit cards. What happens if the transmission blows and the repair is $2500 or so? Or there’a an emergency (or non-emergency for that matter) medical situation that needs immediate attention. That $1k in savings won’t go very far toward paying deductibles and co-pays!

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joeplemon April 11, 2010 at 5:28 pm

@Harrken,
You were doing the Dave Ramsey stuff before you ever heard of Dave Ramsey. Why? Because you have common sense! I think you used common sense in the two ways you slightly deviated from Dave’s plan. Good job!

@Laura,
Good points toward a bigger Baby Step One emergency fund. The trouble with many is that they are in such a deep hole that saving $1000 takes so long that they might give up if they had to save more before focusing on debt. You are right that the $1000 won’t go far in covering many emergencies, but for those who had never saved a penny, it is still better than nothing.

This being said, Harrken’s approach has merit: start paying on debt once you get to the $1000, but continue to add to the $1000 emergency fund (if possible) at the same time.

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Jolyn@Budgets are the New Black April 12, 2010 at 7:32 am

I think Dave is great for getting people on fire and finally managing their money instead of letting their money manage them. I, too, think everyone needs to think about their particular situation, weaknesses, and strengths. The credit card issue, for instance, is a mental one — after all, it’s not like there’s actually two price tags on an item when you take it up to the register: one for cash; and one for credit. But the way some people use their cards, there might as well be.

For us, we have been following Dave’s steps for a year now. Going by his numbers, we should include our second mortgage into our consumer debt snowball. But we are a military family and will be moving soon. Of course we should bulk up more savings first!

Dave offers great wisdom and general guidelines, but it shouldn’t overrule common sense when it comes to variable conditions that many of us have. If you listen to his radio show, you will often hear him advise someone to disregard his steps in light of their current situation.

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joeplemon April 12, 2010 at 6:54 pm

Jolyn,
You have the perfect balance of following Dave without being a robot. The example of bulking up your savings before focusing on getting rid of your second mortgage is a great one.

And yes, Dave himself will sometimes tell his listeners to disregard his steps in light of their current situation. Good point.

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Muspro April 21, 2010 at 11:59 am

Ok, so I am completely new to DR and I am the type of person who likes to look at both the good and the bad reviews before I make any decisions. I was in the book store the other day and just picked up his book because I recognized his name. After reading a bit I decided to buy it and I feel compelled to do something about my debt. I feel like Dave is good at the core and his advice will definitely help me. Like I said I like to look at both sides and this blog impressed me because it is the way I like to think. You need to look at every angle to figure out what is best for your situation. I think I definitely fall into the category that I need to follow a guru’s advice given my financial situation, but I have some special situations that will require, I think, some bending the rules a bit. I was hoping I could pose a financial question here that you would be willing to give me some feedback on. My wife and I (we have two kids 12 and 10) make $92,000 a year and have basically lived on the idea that as long as you can afford the payments and still have money to live its ok. I have since realized the problem with that. I have $90,000 in credit card and student loan debt. I have no choice where I live and the housing is expensive. We have a bablance of $268,000 on our home. Believe it or not I have one of the very cheapest houses in our surrounding area. I just graduated with my doctorate and am looking to improve my salary, in the mean time my student loans $4,600 left from masters, and $30,000 from doctorate payments will begin in a few months and I am having a difficult time seeing how I can afford the $450 in payments. (My approach to money has caught up with me!) My pay is interesting because I get a lump sum of $6,000 take home each summer. I usually use that to pay off debt. My question is if I should use that money to pay of the $4,600 from my masters so those payments do not even begin or should I pay off credit card debt of which I have 5 cards ranging in balances from $2,000 to $20,000 totaling about $32,000? The remainder of my debt is car loans. I am leaning toward paying off the masters loan, and even paying off cards out of order as suggested by Dave. Also should I save $1,000 of the summer money for the emergency fund? I feel like I need to be focusing as much money on my debt as possible, but am wondering if I should just stick to the plan. Thanks!

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Laura April 22, 2010 at 3:18 pm

Muspro, I would apply the whole $6k to the highest interest loan, which is probably one of the credit cards. I feel Dave Ramsey’s advice to pay off the smallest debt first is misguided, as it costs the borrower more in the long run. However, if you truly can’t afford the student loan payments when they kick in, then it might be wise to pay it toward the smaller student loan before the payments kick in.

I don’t see the logic in holding out $1k for an emergency fund at an interest rate of 1% while paying MUCH higher rates on the loans you have. As long as you have some available credit left on a credit card, that can be your emergency fund.

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joeplemon April 22, 2010 at 3:41 pm

To readers,
In case you are curious, I have responded to Muspro via email. I sent him a budget form and requested more information before I was ready to give specific advice.

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Laura August 18, 2010 at 7:39 pm

I know you want to put ALL your moiney towards debt, but having $1,000 cash in an emergency fund is wiser than depending on available credit, this will likely guarantee that you will always have debt. I am currently working on paying off $83000 in debt and have a $1000 emergency fund and have found this to be more of a mental relief to have some in savings to depend on rather than a high interest credit card.

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joeplemon August 18, 2010 at 8:36 pm

Laura,
It sounds like you are doing exactly what DR recommends in his Baby Step One: $1,000 in an emergency fund before attacking the debt (Baby Step Two).

I wish you well as you work on that $83,000 debt. How long do you think it will take for you to get it paid off?

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Ray Cofer February 8, 2011 at 1:04 pm

I followed Dave’s advice for 2.5 years and did get completely out of debt. It definitely works. I do, however, use a credit card for gas, some on line purchases, and emergencies when out of town. i have never failed to pay the entire amount off (although most months it is menial) at the end of the month.

Dave has to put in a structured process. He cannot be flexible as people will go all over the board. He has sound reasons for each step and putting those steps in a definite process. Using credit cards for perks is not a negative thing unless you fail to pay the amount at the end of the month and don’t get into a mindset that using it more and more gets me additional points. These companies are not giving you anything that they have already not made money. I paid my house off 2 years ago and it is a great feeling. Paying extra on a 30 year loan sounds like an alternative to a 15 year mortgage but the great majority of people do not make that extra payment in time. Pluse the interest savings is significant.

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joeplemon February 9, 2011 at 10:39 am

Ray,
You validate this post by following Dave Ramsey’s principles and yet still thinking for yourself (credit cards, 30 year mortgage paid early). Congrats on doing a great job. Having a paid for house is indeed a great feeling!

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Sara R September 20, 2011 at 3:45 pm

I think it is just important to stress that you need to have a plan. If Dave Ramsey’s plan works, then why knock it? If tweaking a few little things works for you, then do that, but have a plan! Being non-negotialbe from your plan is important or you fall back into bad habits. Some people cannot handle the temptation of credit cards (I could argue that most people can’t) and would do better to not have them. To those that like getting the points, if you can make it work for you, great! But the reason CCs do that program is because they are making money that way, so look for hidden costs and make sure you are really getting a deal. In the long run if you are paying any interest you are not getting a deal.

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