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JoeR · 03-06-2012, 08:49 AM

(03-06-2012 01:16 AM)notdrinkingthekoolaid Wrote: I haven't listened to his radio program much, but his tone gets more harsh when someone is simply making stupid decisions. He has more sympathy when life has happened and someone is just stuck.

I think you are right about this. People who call in are people who have listened to the show at least a little bit already. They should know what he's going to say when they tell him about unwise purchases or generally unwise behavior. When they say they don't want to sell something like a car, yeah, he's going to turn it up a bit. If they have medical bills, he's very sympathetic and as helpful as he can be.

Elijah Craig · (This post was last modified: 03-06-2012 09:32 AM by Elijah Craig.)

There's nothing profound in what Dave Ramsey says. To those of us who studied finance or economics, or were raised to be conservative with money, it makes perfect sense. Unfortunatey, our nation and culture is driven by consumption and marketing and this is by design.

Dave Ramsey is a human being. If someone calls up and they have $130,000 of household income but live in a $600,000 house, own a $80,000 Porsche, and a $60,000 BMW SUV, and $75,000 in credit card debt, it's very human to struggle with being sensitive to that person, especially if they're not willing to let the performance vehicles go and get a couple beaters. They really did get themselves into the situation.

JoeR · 03-06-2012, 10:08 AM

(03-06-2012 09:31 AM)Elijah Craig Wrote: There's nothing profound in what Dave Ramsey says. To those of us who studied finance or economics, or were raised to be conservative with money, it makes perfect sense.

This is why a lot of people disagree with his method of the debt snowball. Mathematically, it doesn't always make sense to pay down the smallest debts first. It makes more sense to pay down the debt with the highest interest rates first. However, I see the sensibility of his snowball method as far as the psychology goes. You start small, and work your way up, gaining momentum as you go. I think that whichever way works better for the individual is the one that should be chosen. Neither method is wrong.

Now, as far as anything he says being profound? Even he says it isn't. What is his phrase? Something about advice that your grandmother would tell you. He is really smart as far as knowing how to reach his audience, though.

Elijah Craig · (This post was last modified: 03-06-2012 10:19 AM by Elijah Craig.)

I tend to focus on highest-interest rate first, but the value I see in paying off some small debts is that there's less to keep track of and a lower risk of misplacing a bill. Getting hit with a $30 late fee on a $270 bill sucks. Also, when you clean up small bills you can more quickly get to a larger pool of free money to use in an emergency. Ideally we'd all be making enough not to sweat new tires on the car but reality is a lot of people live hand to mouth.

My largest debt is my mortgage and it also has the lowest interest rate. Agree with you that the tax deduction on it isn't worth the cost of the mortgage. Years ago my sister was on me to buy a house. When I said I couldn't afford it she told me to consider how much I'd save in taxes. To me, it seems like if you have to factor in your tax refund to be able to afford something, then you really shouldn't be buying it.

notdrinkingthekoolaid · 03-06-2012, 09:06 PM

(03-06-2012 10:08 AM)JoeR Wrote:
(03-06-2012 09:31 AM)Elijah Craig Wrote: There's nothing profound in what Dave Ramsey says. To those of us who studied finance or economics, or were raised to be conservative with money, it makes perfect sense.

This is why a lot of people disagree with his method of the debt snowball. Mathematically, it doesn't always make sense to pay down the smallest debts first. It makes more sense to pay down the debt with the highest interest rates first. However, I see the sensibility of his snowball method as far as the psychology goes. You start small, and work your way up, gaining momentum as you go. I think that whichever way works better for the individual is the one that should be chosen. Neither method is wrong.

Now, as far as anything he says being profound? Even he says it isn't. What is his phrase? Something about advice that your grandmother would tell you. He is really smart as far as knowing how to reach his audience, though.

He has a unique combination of financial sense, common sense and just plain old charisma. It also doesn't hurt that he's been on both sides--rich and broke.

Having worked the snowball (sort of), the reasoning behind the smallest debts first is that you gain momentum. Psychologically it feels REALLY good to pay something off and not have to pay that bill again next month. It feels REALLY good to see a zero balance and not have that debt hanging over your head. When you get a taste of what that feels like, you want to keep going.

So logically, no...it doesn't make sense. But we all know that human beings aren't always logical. Wink

Josh · 03-07-2012, 08:32 AM

(03-06-2012 09:06 PM)notdrinkingthekoolaid Wrote: Having worked the snowball (sort of), the reasoning behind the smallest debts first is that you gain momentum. Psychologically it feels REALLY good to pay something off and not have to pay that bill again next month. It feels REALLY good to see a zero balance and not have that debt hanging over your head. When you get a taste of what that feels like, you want to keep going.

So logically, no...it doesn't make sense. But we all know that human beings aren't always logical.

Precisely! If personal finance were only about math, very few people would be in trouble. Cash flow is a matter of addition and subtraction, which anyone with a knowledge of elementary school math can grasp. That emotion wins over logic so often for so many in this area should tell us something. In that regard, the feelings of elation that people get from paying off small debts with the "snowball" method shouldn't be discounted - they're exactly why the method is successful.

JoeR · 03-07-2012, 09:15 AM

NDTK and Josh:

I hope you don't think I disagree. I completely agree. However, I do think that certain people will feel better tackling the higher interest rate instead of the smallest debt. Whichever method keeps the individual motivated to keep going is the one that works. For the record, I prefer the Ramsey snowball method for myself.

C_Fresh · 03-07-2012, 10:48 AM

I'm just fortunate that, with the exception of my mortgage, my smallest loans are also the highest interest rate so my payoff order is the same either way. No point in focusing on the mortgage until the others are paid off since its WAAAYY bigger and a longer timeframe.

notdrinkingthekoolaid · 03-07-2012, 02:57 PM

No worries, Joe! Smile

C-Fresh--don't know if you're a Dave fan or not, but he would say to do exactly what you're doing. Save the mortgage for last, but pay extra when the rest of your debt load is gone or very low (depending on how closely you follow Dave's baby steps.)

C_Fresh · 03-08-2012, 11:41 AM

Yeah, my plan is to eliminate all other debts and then start paying maybe one or two hundred dollars extra on the mortgage every month. I made a one time $1000 extra payment after I got my tax return the first year and according to my spreadsheet it cut 10 months off the end of the loan and immediately resulted in $6 more a month going to principle instead of interest.

I just checked and an extra $100/mo starting now would cut off 86 months and 31.5k in interest. If I could find a decent roommate to rent out a bedroom for a couple hundred a month that would be perfect. I tried doing that when I first bought it but it didn't work out very well so I've been reluctant to try it again.