Bringing up Dave Ramsey in the South is like talking about Selena in South Texas. It's not something you are allowed to be neutral about; you either love them or should be cast out of society. Just hear me out; Dave has undoubtedly helped millions of people improve their lives through his financial wellness empire. Multiple things can be true at once, for instance, that Daves's general advice is directionally helpful. Secondly, depending on how fixated one becomes on a topic, his advice can also be relatively harmful.
I'll just come out and say it: he is far too fanatical about debt. Some of this stems from his origin story and experiences with debt, but his extreme stance puts many of his followers in challenging places today. To clarify my position, everyone should consider using debt in their financial plan based on that person's individual and unique goals. Some debt is terrible and crippling, and some debt is not; painting with a broad brush and making the focal point about simply getting out of debt is detrimental to most people's long-term goals. To prove my point, we need to do some math – bear with me.
Let's say you are 40 years old, you and your spouse have just finished Financial Peace University, and you have committed to paying off your mortgage early. Suppose you owe $300,000 on your mortgage at 4% for the next 30 years. Your mortgage payment (Principal and Interest) would be about $1,430 monthly. You can make that payment for the next 30 years, and your total interest expense will be about $215,608.52. You could also round that payment up to $2,000 a month, pay off the mortgage 13 years early, and save almost $100,000 in interest! So far, it sounds great. But what if, instead of using that extra $570 to pay down the mortgage, you invested it? If you invested $570 a month for 17 years in an account that could make 8% annually, you would have somewhere in the neighborhood of $245,000.
In other words, if you pay off that mortgage on time with regular payments in 30 years, you'll have paid $215,608 in interest. If you took that extra savings capacity ($570/mo) and invested it rather than putting it toward your mortgage at a hypothetical 8% rate, at the end of that 30 years, you would have around $850,000 in assets.
My point is that not all debt is wrong, and in certain circumstances, debt can even be good. Problems arise when people paint with broad strokes and broad strokes can lead to misunderstandings that cause generations to step over dollars to pick up pennies. This highlights the need for everyone to work with a local financial planner to ensure their strategy leverages their unique situation. Call us and learn how we can help you plan for your future.
Disclaimer: The examples in this article are meant for educational and conceptual purposes. Returns are not guaranteed and there are many considerations one should consider when making financial decisions. This example does not reflect sales charges or other expenses that may be required for some investments. Rates of return will vary over time, particularly for long term investments.