You may have heard ‘The Dave Ramsey Show’, a nationally syndicated radio program in which Mr Ramsey gives financial advice to millions of listeners. Mr Ramsay is self educated in finance after acquiring huge debts and then losing everything. In 1992 the Lampo Group which he spearheads was formed with the aim of “providing Biblically based common sense education and empowerment which gives HOPE to everyone from the financially secure to the financially distressed.”
The Lampo group now sells books on finance; designer envelope systems to help people become more organized with their finances; and software which can be used to train people to handle their finances more responsibly. Whilst a lot of his advice is common sense and urges people to budget, live within their means, save, avoid debt consolidation companies, and other useful advice, some of his advice makes no financial sense. He tends to make blanket judgments with an authority which is rather misguided.
Mr Ramsey makes the factual statement that “credit card debt is a major problem in America” and no one could dispute the validity of this fact. However he also states categorically that “responsible use of a credit card does not exist”. He insists there is no positive side to credit cards and that they always lead to more spending.
Whilst many should never have been let loose with a credit card in the first place as have no discipline with spending, there are tens of thousands of responsible credit card holders who have never once paid a cent in interest. They carry no fee rewards or cash back cards which allow them to obtain interest on their monthly spending until they use the saved amount at the end of the month to clear the balance down completely. They thus gain from using interest free money for a month which accrues interest, at no cost, and additionally receive cash backs or rewards such as free travel.
Just because Mr Ramsey found himself to be undisciplined with credit card use does not mean everyone is. There are countless people who have used credit for many years in a disciplined fashion, and many young people who are already aware that you can beat the credit card companies.
Other unsound advice which Mr Ramsey teaches through his programs is to never consolidate debt but snowball it and always pay off the lowest balance first. He maintains that consolidating debt will always leave you paying the same amount, which is patently untrue if done wisely. Moving high interest debt onto a zero or low balance transfer card which is then cut up, can reduce the total amount repaid by a huge amount providing one concentrates on paying the debt down and amassing no further debt. Again he presumes there is no one able to manage their cards responsibly.
If one follows the practice of snowballing debt one should always pay off the debt with the highest interest rate first, rather than the debt with the lowest balance. It is simply financially imprudent to do otherwise, and Mr Ramsay’s advice that it is far more satisfying to pay off one small debt rather than tackle the debt whic costs the most to service is an emotional approach rather than a financially sound one.
Further unsound advice comes as he advises that as married couples are one, they should not maintain separate bank accounts. He rather overlooks the fact that one can often become two again, and it is far more prudent to share one joint checking account to cover household expenses and then to each maintain a separate account. Too many women in the past have been left financially unprepared to cope with the basics of their own banking needs when they have been left on their own through divorce or bereavement. Divorced women in the U.S. account for a large proportion of those unable to obtain credit.
In addition to his radio shows Mr Ramsey has a syndicated newspaper column and devised the Financial Peace University. The Lampo Group may well have helped over a million people to try and get their finances back into order but the approach is too restrictive in the advice it gives, as it simply follows the assumption that no one can be responsible with credit.
Source: Dave Ramsey com.