Dave Ramsey Financial Peace University Review: Week 4

This is a series of posts about what you will find in Dave Ramsey’s Financial Peace University course. This is week four (week oneweek two and week three)

This week’s lesson focused on getting out of debt. We’re getting to the meat of the plan now, and I was eager to hear Dave’s ideas for paying off debt. The lesson began with Dave debunking some common money myths, such as playing the lottery will make you rich, payday lenders are helping people, loaning money to relatives and friends is “helping” them, debt consolidation is a good idea, and you’ll always have a car payment. While these were interesting and entertaining to listen to, I didn

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22 Responses to Dave Ramsey Financial Peace University Review: Week 4

  1. Natalie says:

    I really wanted to find that video! Here’s what I did find though: http://www.youtube.com/watch?v=Ot-uECCNQf8

    Kinda funny!

  2. Annie Jones says:

    “When I use cash, it seems to drift through my fingers quicker. I realize I

  3. I have a big problem with the “debt snowball” or paying off your smallest debt first. People who are deep in debt are often there because they are choosing psychological”good feelings” over solid math based decisions. By encouraging people to take the psychological happiness approach instead of doing the actual math to make a decision, I think it perpetuates the problem that needs to be solved.

  4. Julie says:

    I won’t give up my credit cards either. I pay them off each month and earn about $50 in cash on my chase rewards card every month.

  5. Richard says:

    I can understand how the debt snowball thing would work for some people. We just consolidated our debt using a HELOC @ 3.25%
    The interest is low and we can write it off.

  6. Cristi Smith says:

    oh my gosh that video was tooo funny. talk about having dinner delivered!

  7. fisher_man says:

    You don’t seem to have given Dave Ramsey a chance from the start. I thought your post was flimsy and not well thought out.

    Don’t let your lack of imagination stop you from traveling without a credit card. If you follow his plan you will have enough to withstand a measly $100 hold, or more. Also, we are allowed to have more than one checking account with a debit card. Then, all your money would not be tied up with one unauthorized use.

    Finance for people is not about interest rates, it is about numbers. Consider that you are, in essence, taking out a loan each time you use a credit card. That is a major reason people spend more, they are not yet spending their own money. Why not save the money up, on top of a sufficient reserve amount?

    All of your reasons for clinging to credit cards are hollow. You haven’t given a single valid reason for using them. I can do everything you mention as a reason for having credit cards, with debit cards. Unless you don’t actually have the money, they are redundant. Yes, you can see all your purchases on a single statement too. Just consider the possibility that Ramsey might know better than you, in this instance.

    From a “purely financial standpoint,” it is better not to borrow in the first place. Interest is lost money and debt adds risk. The numerical interest rate should not be the focus, it’s the amount owed as an obligation. That’s why his gazelle analogy works so well.

    “I don

  8. Scott says:

    The facts are more and more people are using their debit card for hotels and rental cars. Its

    While I still have my American Express card I rarely use it anymore. I dumped all other credit cards years ago.

    I think the most important thing my dad taught me was to never ever buy a depreciating asset with credit.

    From clothes to groceries to cars. Just don’t do it and you will be so ahead of the game you won’t believe it.

  9. Doug says:

    “I suppose that if you are totally undisciplined with cards then the risks of card theft or overspending are outweighed by the risks of racking up debt.”

    Yeah. Just the other day I was reading where Warren Buffett said the secret to his wealth was using a credit card. All those “cash back” points really added up over time . . . oh, wait, Buffett’s advice is to stay away from consumer debt.

    You know, if you’re gonna go through Financial Peace, then go through it. You’ve already seen that a zero-based budget might have actually allowed you more savings. Maybe, just maybe, if you put aside your preconceived notions, you’ll actually learn something.

    Right now, it’s like you’re going on a diet but saying “Oh, I don’t want to give up ice cream. After all, ice cream is a dairy! I have to get my calcium from somewhere!”

    Good luck.

  10. DeeDee says:

    I look forward to reading your posts on the FPU class, and I’m glad you decided to share your experience. I’m more of a Suze Orman fan, but I do listen to Dave Ramsey on the radio because I like some of his advice.

    I am using the debt snowball method, but I am paying the highest interest rate first. Dave’s way makes no sense to me, but I’ve had enough of these discussions (arguments?) to realize that each person has to do what works best for them and leave it at that.

    As a victim of identity theft, I prefer to use my credit card over my debit card, for the security and the rewards. As I am paying off my debt, I have one card that I use for monthly expenses which I pay in full every month. I then get cash back rewards that I put towards my snowball. I am a Christian, so I do tithe and I do pray, and Lord willing I will be debt free this time next year. I only mentioned this because you said Dave suggests that you pray, and I agree with him on that and on tithing.

    Thanks for another great post!

  11. Ben Stutts says:

    There is more than one way to skin a cat. What works for one person may not work for another. The purpose of Dave’s plan is exactly the same as any other real get out of debt plan. I still have one credit card that I use for internet purchases – and pay off every month. I also have a 30 year traditional mortgage that I just took out – as I am now 63, I will probably never see that mortgage paid off. But it is a whopping $388 a month because of the large down payment I put up. I have no other debt.

    Dave’s plan will work if people follow it. But other plans can also work.

  12. Jackie says:

    @ Debt Free Dude … I’ve never thought of it that way. I’m a big proponent of doing what works and, yes, if someone needs that psychological push to keep going, what’s the harm? But, if the underlying debt behavior is emotional spending, then feeding that emotionality could actually sabotage their debt pay off. Or, for someone who makes emotional decisions it’s a way to connect with them and get them on the road to being debt free by showing them the emotional benefit. lol, whatever works.

    As for the others, I thought her arguments about debit vs. credit were plenty compelling. I almost never use my debit card and I use my credit cards for 95% of my purchases. I pay them off every month and accrue rewards in cash back and points. I can go all cash just fine, but why would I do that if I can get cash back from my credit card without even having to pay a yearly fee?

    As for the protection it offers – heck yes. It is absolutely convincing to me that if I need to fight a fraudulant charge on a dc I am already out that money whereas I still maintain payment control with a cc. In fact, one of my credit card numbers was recently stolen, a physical card was manufactured and then used in South Africa. My cc company caught it, removed the charge and issued me another card with a new number. If that had happened with my debit card, I’d be out over $500 (plus interest that I would have accrued had it stayed in my account) until this whole thing was resolved.

    And if you’re someone with a small bank balance, a $100 hold on your debit card for a hotel room (that sometimes takes 48-72 hours to clear) can make a big difference in your purchasing power. Shoot, the gas pumps check your card to see if you have at least $75 free to pump (as of 14 yrs ago when I worked at a gas station) – if you’re on the raggedy edge already you may not have money clear for that on a debit card. I don’t, but some people may keep their checking account artificially low because they want to keep the bulk of their cash in higher interest accounts.

    Basically, I agree with the author that credit cards can be a useful tool if you are responsible with your money and pay your balance every month.

  13. Jackie says:

    Oh, and I’m loving this review of the program. I don’t have a pressing need to join, but I’m glad for the insight on the religious factor here. If I ever did want to go or had a friend who wanted to go, I can let them know to be prepared for the religious angle.

  14. Nichole says:

    I just wanted to point out that the Visa Debit Card Policy states that your financial institution must replace your funds within 5 days. Also, you can have a separate account with a debit card just for internet use and travel. I’ve done it in the past and never had a problem.

  15. Tom says:

    I have a friend, who recently had a fraudulent charge hit his debit card for over $4000. He got it back within a few days, but I would prefer to have that hit my credit card so that I don’t have it interfering with my main bank account.

    Every day or so, I update all of my credit card balances in Quicken, and mark that amount as a future debit from my checking account. Then I pay the monthly credit card bill in full when the bill arrives. I will take anyday as opposed to having every charge hit my checking card via a debit card.

    Many people are not disciplined enough to use credit card effectively, so I assume the Ramsey method is best for them.

  16. Blake says:

    I have a question for Maggie or any other that have attended this seminar. Iknow we can save money in our budget and make changes and spend less and we can also sell some things. My question is what if your house is alreay paid off and you do not have any credit card debt and the things you have do noy have a payoff date. For instance the care for an elderly parent. That debt is not going to go away or be paid off, at least until the good Lord brings them home. Does he cover things like that? If your monthly debt (minus the budget savings) does not come to a zero balance? Like tuition for the next four years, nursing home costs, and other reoccuring expenses in the monthly budget. We are taking the class in april but I keep hearing about paying down credit cards and paying off your home neither of which we have to pay for now.

    Thanks

  17. NoDebt2 says:

    Its alarming that some Ramsey devotees are so radical in their zealous pursuit of THE Plan that they glibly gloss over the VERY REAL shortcomings of using DCs vs. CCs. Doug & FisherMan parrot standard Ramsey fare in a mocking smug tone that is soooo characteristicly typical.

    Used properly CCs are a tool, not a crutch. You can pay the balance off on them online every week if you want… utilizing them much like a DC, but with the extra layer of protection, plus perqs, like cash-back points programs. Its not high finance, by any means, but when my savings account is paying .75% per yr & a CD is at about 1.5%, I’d say getting between 1.0 & 5.0% back in cash, simply by running my expenses through a CC, is an excellent use of CC as a tool.

    OBVIOUSLY, never put more on the CC than is ALREADY in the checking account, BUDGETED for spending!

  18. David says:

    When I started reading this series I was hoping you would learn something (non-financial). Keep trying and the articles are well written.

  19. Wild Bill says:

    Above it states that the avalanche (highest interest rate first) dept payment is better. So, I ran my own $75,000 debt using both avalanche and snowball (Dave

  20. Wild Bill says:

    NoDebt2,
    Yes CC

  21. Josh says:

    As far as I understand it, Dave isn’t all out against CCs…I think he understands that sometimes the benefits are worth it….I just think he wants his students to get their main finances together first and then learn how to use and abuse the credit card companies to their advantage instead of being on the companies playing field….and I think he makes a good point that sometimes those “rewards” that people praise about CCs aren’t all that impressive…..like getting 2000 flyer miles only after spending 10s of thousands on CCs when you could just save up for that flight and not have to spend all that much on a CC….and, keep in mind, some banks offer rewards on their debit card accounts as well. Just food for thought.

  22. JMK says:

    If someone is spending money in order to earn CC benefits, that would be a problem. The suggestion here is simply to spend the planned/budgetted amount on the CC and get the benefit for doing what you were already planning to do. When I buy my groceries or fill my gas tank, the weekly amount is already listed on my spreadsheet of planned spending for this week. The money is in the account. If I swipe my debit card I get the groceries or gas and pay for it a few seconds later. If I swipe the CC I get the gas or groceries, a bunch of flight miles in my case, and I pay off all that week’s charges on Friday. End result is that the identical amount was spent, I paid no interest, never put my bank account at risk of fraud and earned free flight mileage toward our next trip.
    Another up side to CC which hasn’t been mentioned is that if you have all your monthly bills (phone, internet, insurance, utilities etc) charged directly to the card, you are never late with a payment and then you only have to pay one bill and never worry about tracking multiple due dates. When I pay off my weekly CC charges it always includes gas and groceries, but depending on the week it also includes other bills. They were all listed in the spending plan because they are not surprises. They arrive (on the card) on the same day every month and in most cases for the identical amount. Utilities may vary with the seasons, but I plan for an appropriate amount based on actual numbers for each month for the past 5 years.

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