How Following This Dave Ramsey Advice Could Hurt You Financially

Just because someone says something confidently doesn’t mean they’re right.


key points

  • Ramsey suggests letting your credit score run out.
  • A credit score is the primary way lenders, landlords, and employers understand how you’ve managed money in the past.
  • It can be difficult to find a lender to take on the mortgage without a credit score.

There is no doubt that Dave Ramsey is one of the most popular finance gurus in the USA. But despite all his experience, Ramsey doesn’t always get it right. Here are two examples of this.

Where she believes she shines

I have the feeling that Ramsey believes he invented the concept of a debt-free life. He didn’t.

I come from a long line of thrifty farmers and peasants. You know why they always avoid it like the plague? Debt.

My family was so allergic to debt that they filled the house with used furniture, drove cars until their wheels fell off, and invested almost everything they earned.

I’m glad they lived like this because it meant that after my father died, my mother could lead a comfortable life.

My point is this: Dave Ramsey didn’t bring the idea of ​​debt-free to the world. He used the loudest megaphone to spread the word and create a name for himself.

And here lies the problem

The problem (as I see it) is that Ramsey – like anyone trying to build a following – starts with a good idea to attract a crowd, and when he gets people to believe his word is gospel, he really kicks some in. disgusting advice

No one is perfect and hello boy, does Ramsey get it wrong sometimes?

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narrow-minded advice

Here’s a short-sighted piece of advice recently offered by the owner of Ramsey Solutions: “Want to learn how to improve your credit score? It’s simple: Pay off your debt, don’t add any new debt, and let your credit score drop until it’s completely depleted.”

Ramsey goes on to tell his followers that they don’t need a credit score to buy a home, but more in a moment.

What’s wrong with this advice?

Ramsey’s advice does not take the following factors into account.

life happens

Letting your credit score “degrade until it’s gone” may make sense if you’re confident you’ll never need a loan in a hurry.

However, life happens. Spouses leave, taking their financial assets with them. A serious illness strikes and comes with very high medical bills. Businesses are closed, jobs are lost, homes are destroyed.

In short, having the discipline to get out of debt is great, but it won’t separate you from real life. Even if you have a large emergency fund, you cannot be sure that it will be enough to cover everything that comes your way.

Adults should be able to trust themselves to do two things at once: get out of debt and Maintain a healthy credit score. That way, if they’re in a position to need a low-interest loan, their scores will make it easier to go down.

Credit scores are not only valid for credit card applications.

While credit scores are used to qualify for consumer loans and credit cards, there are other uses. Let’s say your roommate got a job in another city and moved. You need to rent an apartment that you can afford on your own. You better believe that the landlord or management company will check your credit score as part of the application process.

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But what if a job you’re trying to catch involves managing money? The potential employer is sure to check your credit to learn how you manage your own finances before relying on your own (employers can see pretty much anything on your credit report except your actual score and date of birth).

Extremes are rarely healthy

Imagine telling someone on a diet that once they lose weight they will never be able to eat bread again. It works extremely and rarely.

Balance is an important part of life, and it may be healthier to encourage debt survivors to take control than to forget that their credit scores exist.

Another shaky tip

Ramsey tells her followers about financial success: “As you build your own financial security, you may find that your credit score starts to drop. completely, which means you have succeeded. The true measure of financial success will be when your score is read. cannot be determined and you have money in the bank, your retirement accounts are fully funded, and you live and give like no one else.

Oh, and don’t worry about your credit score when it’s time to buy a new home. You don’t need a bad credit score for that either (contrary to what people might tell you). There is a process called minister manual commit. fully loaded a picture of your financial stability rather than just your credit score. To see? You can breathe easy.”

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how can it hurt you

Ramsey is right to say that he is. possible Getting a mortgage without a traditional credit profile. An FHA mortgage is normally available to first-time home buyers without a traditional credit score, and traditional mortgages, VA loans, and USDA loans may also be an option.

But (and that’s a big one), it can be difficult to find a lender willing to go the unconventional route. The fewer lenders you have to work with, the less competition there is for your business. In other words, lenders don’t fall all over the place trying to win your business.

Can you blame them? They may look at your bank account and investment portfolio, but have no idea how well you’ve managed your debts in the past. How will they know if you are the kind of debtor who pays off debts as promised?

The lesson to be learned from the story is that no one gets it 100% right all the time. It’s up to you to weigh the recommendations before following a charismatic leader down a rocky road.

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