I should probably never preface an article with this but here goes. If you are a die-hard Dave Ramsey fan, you will probably disagree with what I have to say. I get it. But all I ask is that you read the post, think about it, and then let’s engage in a discussion in the comments section below.
For the rest, not blindly mesmerized by Dave Ramsey, consider that dealing with debt and credit is a balanced approach. But, like many things in life, giant swings to one side or another leave you out of balance.
People bring up points that the personal finance guru Dave Ramsey has taught or stated from time to time. So I thought I’d take a close look at what he had to say.
Rather than make any assumptions based on what I heard from people, I went to Dave’s site and researched them for myself.
Dave Ramsey Says, “Responsible use of a credit card does not exist.”
Dave also says, “There is no positive side to credit card use. You will spend more if you use credit cards. You are not beating the system even by paying the bills on time! But most families don’t pay on time.” – Source
But the fact is that most consumers do pay their bills on time. For example, at the time of this article, only 2.75 percent of credit cards are delinquent. That means 97.25 percent do pay their cards on time. Indeed, that’s “most families.”
According to Time magazine, about 45 percent of card users carry a balance from month to month. But 55 percent do not. – Source
But I’m afraid I have to disagree with all of that. We can’t assume that people are stupid and can’t learn to build better awareness of managing their debt. One of the incredible teachable moments is by learning from mistakes.
Suppose responsible use of credit cards does not exist. How can people exercise responsibility when owning sharp kitchen knives or driving down a road with only a painted line separating them from oncoming traffic?
More often than not, people are responsible and can operate things appropriately. So we can’t begin with the assumption that all people are idiots.
Responsible use of a credit card does exist. And less than half of all people carry balances month-to-month on their credit cards.
Credit cards also provide consumers with greater financial security. When a transaction goes wonky, and the incorrect amount gets charged, or you have a problem with a merchant, using a credit card prevents that disputed amount from hitting your checking account. It provides you with a financial buffer.
A debit card is an electronic check. You would no more hand a waiter at a restaurant a blank check for them to take it to pay for your meal, but that’s precisely what you do when you hand that stranger your debit card. Yet, we never think about it. And one reason is this continued argument that debit cards are better than credit cards.
Ramsey says, “If you “have to” use plastic, I suggest a debit card. I use them for travel and the occasional convenience of ordering something over the Internet or phone. Other than that, I use cash.” Awesome, but have you tried to rent a car with a debit card or cash? Many places won’t do it. If you have a credit card, then there is no problem.
Ramsey tells readers, “You cannot beat the credit card companies,” but that’s not true. Just pay your bill off in full at the end of the month, and the credit card company will make no money off interest, no matter what interest rate they charge.
And the good use of credit builds an excellent credit score which will be invaluable if you want to buy a house, get the lowest rate mortgage, pay less for car insurance, etc. There is no downside to having a great credit score if you manage your finances well.
But Ramsey seems to think other issues in life do not need such aggressive action or blanket elimination, like gun control.
So if people should have a right to bear arms, and I’m not saying they shouldn’t, and I’m assuming they can do it responsibly, then why can’t people bear credit cards with equal responsibility?
Let me put this in a different light. What if we took Dave’s words and substituted a gun-related word instead of for a credit card? Would it become a message that would alarm his followers?
From Dave’s Page The Truth About Credit Card Debt
Myth: Aren’t there positive uses of a [gun]?
Truth: Responsible use of a [gun] does not exist. [Guns] are a major problem in America.
There is no positive side to [semiautomatic weapon] use. You will [shoot] more if you use a [semiautomatic weapon].
Use common sense. When you play with a multi-billion dollar industry and think you’re going to win at their game, you are naive. You cannot beat the [gun] companies.
All of a sudden, the imbalance in the statements seems extreme. So if Ramsey feels people can’t handle credit cards and should not own them, should we take all the guns away from people?
How about we use both of them responsibly, like adults.
Dave Ramsey Says, “Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage.”
Bankruptcy is not something I recommend any more than I would recommend divorce. Are there times when good people see no way out and file bankruptcy? Yes, but I will still talk you out of bankruptcy if given the opportunity. Few people who have been through bankruptcy would report that it is a painless wiping-clean of the slate, after which you merrily trot off into your future to start fresh.
Don’t let anyone fool you. I have been through bankruptcy and have worked with bankruptcy for decades, and it is not a place you want to visit. Bankruptcy is listed in the top five life-altering negative events that we can go through, along with divorce, severe illness, disability, and loss of a loved one. I would never say that bankruptcy is as bad as losing a loved one, but it is life-altering and leaves deep wounds both to the psyche and the credit report. – Source
As a result of my experience, I don’t like bankruptcy. Do I hate it? Yes. I always look for another solution. – Source
Dave imparts this negative connotation about bankruptcy to his flock. But why the bias?
Bankruptcy is the only legal intervention tool to allow people to deal with their creditors and create a binding repayment plan when creditors can’t agree.
Some people say that bankruptcy is immoral because you wipe away your debt. Still, nothing prevents anyone from repaying their creditors in full as they best can after getting the protection bankruptcy offers. Is that immoral?
So the belief is that bankruptcy is somehow corrupting or, as Ramsey says, an “event that causes lifelong damage.”
How about we put continued financial misery in the same category as spousal abuse? Should we not try to do everything to avoid that? Why stay in an abusive relationship that’s bad for the kids?
Dave is entitled to his opinion. But the facts don’t support his statements. If we look at bankruptcy purely from a religious or faith-based point of view, then we need to consider these points:
- Is Bankruptcy Sinful and Bad or Right and Moral? An Examination
- What Does the Bible Say About Bankruptcy? Is Bankruptcy Scriptural?
- The Ethical Considerations of Bankruptcy
If we look at bankruptcy from reality and a practical point of view, then we need to consider the following:
For all those that think bankruptcy is a last resort, I’d love to show you the damage you’ve done in espousing that fairy tale. I’ve watched countless numbers of people lose everything to live up to your imaginary and fictitious belief that bankruptcy should be a last resort.
To avoid bankruptcy, people will sell all their assets and limp until they hit the wall, broke and without options. They will drain their protected retirement accounts to avoid bankruptcy. They will believe the sales pitch of debt relief companies and credit counselors that the widget those companies are selling is better because bankruptcy should only be the last resort.
I’ve written about the “last resort” marketing message many times. And each time, it was used to scare or persuade the consumer to stay away from bankruptcy and buy the peddled debt relief product instead. But the reality is that bankruptcy should often be the first option to investigate on the list in the face of no other reasonable, logical, or sound options.
Bankruptcy is often the least expensive way to deal with debt in the shortest time. And for most people that file bankruptcy, their debt will be eliminated in a few months, and their retirement funds will be protected from creditors. Moreover, those funds will be protected when they need them most when they can’t work and need to feed themselves.
Here is a better statement about bankruptcy; it’s not the first or last resort, but one of the options consumers have to deal with their debt. There is no way to know if bankruptcy is the most appropriate solution in a particular situation unless the consumer talks to a local bankruptcy attorney.
And if you press people on why they say bankruptcy should be the last resort, ask them this, “why?” I bet they come back with more myths like it will wreck your credit for ten years or it will prevent you from getting a job. Both of those myths are substantially unsupported. The reality is that it’s silly easy to rebuild your credit after bankruptcy and the facts don’t support widespread employment discrimination after bankruptcy.
Another common excuse I hear is that bankruptcy is immoral. That’s another argument based on perception rather than reality. There is no reason why someone can’t file bankruptcy to get legal protection from unreasonable creditors and then begin to rebuild their lives and elect to repay creditors. There is also the issue of if it is more moral to leave yourself and your family stranded in an unsafe life or financial position while you limp along for years trying to repair the past.
If bankruptcy is the right solution for churches, airlines, and cities, then why can’t it be the right solution for you? – Click to Tweet
For more on this, you can read a previous article, Dave Ramsey and His Un-Truth About Bankruptcy.
I went bankrupt, just like Dave did. And I admit, at the time, it was painful. But it was sad because I didn’t have someone there helping me understand all of my options. If I had, I would have walked into bankruptcy knowing that for me, at that time, bankruptcy was the best option and not life-destroying.
You can view my story below.
The reality is that for me, like for Dave, bankruptcy allowed us to get a legal fresh start and a second chance.
A couple of years after, we had rebuilt our good credit, purchased a home, and I had a great job with IBM.
Just because we wound up not liking the customer service our bankruptcy attorney delivered, it didn’t mean that bankruptcy was not right for us. In fact, without our bankruptcy experience, I wouldn’t be here, just like Dave wouldn’t be probably, helping people.
If there had been someone who could have helped us understand the process and learn that bankruptcy was not the end of our life but the start of a new life, then the pain we felt at the time would have been mitigated.
Just because something might be painful
doesn’t mean it’s not right.
I’m not suggesting that everyone file bankruptcy to deal with their debt situation. I am saying that before anyone can make a fully informed decision about any path out of debt, they need to be educated about the realities of the options.
Dave’s statements about his truth about bankruptcy seem odd to me.
He says, “Too many bankruptcy filers never really recover from their financial distress because they never learn new ways to manage their money.”
Yet the rate at which people file bankruptcy again is meager.
He says, “As a result of that experience, Dave hates bankruptcy. That’s why, when someone asks him about whether or not to file, he’ll always try and help them find a better solution.”
Yet I went through a similar experience simultaneously, and I’m saying that bankruptcy is often the most logical solution.
He says, “Without a doubt, it’s a long process that will follow you around for years, even after it clears off of your credit report.”
But not being able to make your minimum payments and being delinquent on your debt will stay on your credit report for the same seven years as a chapter 13 bankruptcy does.
“That said, Dave doesn’t tell his listeners to never file for bankruptcy.”
Yet, that makes no logical sense. Why tell people they should never consider the only legal solution written into our Constitution to allow people to get a legal fresh start from their debts?
Bankruptcy in the United States is governed under the United States Constitution (Article 1, Section 8, Clause 4), which authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.”
The Congress shall have Power To…
To establish a uniform Rule of Naturalization and uniform Laws on the subject of Bankruptcies throughout the United States;
But Dave appears to have no problem defending the Second Amendment to the Constitution and protecting an individual right to possess and carry firearms.” Guns good. Bankruptcy is bad.
Think It All Through for Yourself
Everyone deserves to know the facts and truth about dealing with debt. So I encourage everyone not to be a blind follower of either Dave Ramsey or anyone else, including myself.
Before you let others tell you what is best for you, find out what is best for your situation and make a fully informed decision about tackling your debt based on the facts and not someone else’s lingering fear and regret.
I’d suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you an excellent overview of what we need to deal with to move you in the right direction.
You can also always feel free to contact me for free help.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.