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March 16, 2010

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Dave takes a little getting used to, but I think the in-your-face is what's required to get the attention of his audience of debtors. I appreciate his candor, and his message of tithing and giving back. While it is difficult to live in this society without credit cards, it isn't impossible. Having a credit card in hand is the easiest and fastest way to backslide into old habits.... so I understand his zealousness in this area. Where I have a problem with him is with his investment advice. Do not, I repeat do not take investment advice from Dave. He is an expert on getting out of debt, but please, please, please go other places for investment guidance.

I agree with you. I love most of what he teaches. Just went to his Total Money Makeover Live event in Dallas this weekend and it was great except that he made everybody stand up and yell "show me the money!" at one point. That was just a bit too over the top for me.

I'd love to hear your take on Suze Orman, if you have one. I'm not very familiar with her overall, but my fiance has a bunch of her books. Of course, I could read the books, but I like to solicit opinions first... I'm going to read the books anyway. :)

Brian --

I think Suze has good, decent, basic, conservative advice. But every once in awhile she enters into the twilight zone of advice like "respect your money and it will respect you" and other la la tips that make me wonder why I'm reading the book in the first place. ;-)

ALL of the "experts" are failing, big time, for the income deficient. I've been searching and searching - no results. Oh yea, there is a lot of hate - but I'm looking for viable solutions.

Two words sum up Dave Ramsey to me-personal responsibility. If you believe in it, you probably like him.

I think you're right Yankeegal. I think personal responsibility is a huge part of personal finance, and educating people.

Investing in your pocketbook and yourself is the responsible thing to do.

Most of Dave's rants are about people doing stupid things with money or Congress misbehaving (but I repeat myself). I usually enjoy his rants as he doesn't pull punches (as the author stated) and sometimes we need a kick in the butt to get focused on what's important. Besides, it's his show and I respect his opinion.

As to the "No Credit Card" rule, Dave states that personal finance is 80% behavior and learning to live without credit cards is how most millionaires got that way.

Go Dave!!

yup, if you shut down and you don't use your credit cards, your credit score will be shot. 35% of your score comes from your credit cards and how much you're using them. If you aren't using credit cards at all, that 35% of your score (about 193 points) is completely missing. That doesn't even include the length of credit history (15% of your credit score - around 82 points) that you may be eliminating as well! Remember, between a 720 and a 620 credit score, you can save over $7,000 A YEAR in INTEREST and INSURANCE payments alone!!! Dave Ramsey, you are SO wrong when it comes to this...it's devastating to peoples credit.

I agree about the 12% return figure. When it comes to projecting future value and gains, I find it best to use conservative figures. Personally, I don't like Dave Ramsey, Suze Orman, or any other "expert" who claims that their system will work for the masses. I've said it a thousand times, and will keep saying this: financial advice is not a one-sixe fits all proposition. Everyone is in a different situation for differing reasons. They have different social, economic, and educational backgrounds and view money differently. Financial advice is supposed to be tailored to each indivual seeking it, not a blanket statement or theory to be thrown out there like the gospel.

And, I agree 150% with Yankeegirl; personal responsibility and accountability are key. But, I still don't like him!

@ Lauren - credit expert:

I think the argument is that if you aren't in debt and really have no need for debt, it makes absolutely no difference what your credit score is, or if you even have a credit score for that matter. If you don't have debt, you won't pay any interest (and will prbably save WAY more than $7,000)

Also, when it comes to insurance, plenty of companies still perform manual underwriting, which again, really shoots down your argument of a need for a super credit score.

So, Lauren, you are SO wrong when it comes to this (in your own words).

You are obviosly one of the FICO score slaves that I hear so much about. The credit industry has you right where they want you.

Overall, I agree with Dave's debt reduction concepts. I do NOT agree with the fact he charges $75 to people for this course and then hawks additional material once you sign up. BTW, I do own a lot of his material.

I used the Crown Ministries material for our church and recommend it as a decent alternative. It's significantly less and we provided some custom spreadsheets to help people create plans for themselves.

The fundamental concepts are the same for all of them. Identify your debt, establish a budget, prioritize payments (some differ here), and live within your means.

I think Dave is a bit caught up with himself.

@wanzman:

Actually, you are both half right. While there are still companies that will manually underwrite insurance policies, the larger companies still take credit scores into consideration. I don't have first-hand knowledge, but I will be willing to guess that these national insurers will also be much cheaper when compared to those that forgo credit scores. Plus, it's not just insurance and interest that is dependent upon credit scores. It is a widely known fact that many employers are doing soft pulls in order to assess potential job-seekers (whether that is ethical or not is for another discussion). Plus, since you mentioned not having any use for debt, renting a home comes into play, and no landlord or leasing company will even consider an application without permission to do a credit check, unless they are going to ask for a huge sum for a security deposit. As for the part you wrote about "FICO score slaves" and the credit industry having people where they want them, well that's just hysterics.

As I have seen before, there is much mis-information.

Wanzman is right.

Eric J. Insurance ocmpanies do not use a credit score.

They use an insurance risk score which takes credit HISTORY into account. Not credit score. Credit history only affects the insurance score if it is negative.

As I have said on here before, there are three types of credit histories. Good, Bad, and none.

Only Bad history affects your insurance, or your employment or anything else for that matter.

You must remember only certain creditors are allowed to pull a credit score. Everyone else pulls a history, which has no score. As long as the history shows nothing negative, there is no issue. Soft pulls do not reflect a score.

That is why the "you have to have good credit" movement is so wrong. Only if you plan on borrowingmore money, and even then a good history trumps a good score.

@Troy:

The problem is that so many people would like to dissociate the two, when in fact they are very closely related. Check out this page http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx which shows how MyFico (formerly FairIsaac) calculates the Fico Score. Notice that the payment history and the length of credit history account for a combined 45% of the Score. Yes, a bad score may be the result of a high consumption percentage alone, but that also tends to go hand-in-hand with missing payments which would mean a negative payment history which you base everything on. So, in reality the two are not mutually exclusive of each other and one will generally be a fairly accurate representation of the other.

Eric:

That is inaccurate. They should be disassociated. That is my entire point.

A credit score is determined from credit history.
A credit histoy is NOT determined from a credit score. Credit scores play absolutely no part in credit history.

It is a subtle difference, but that subtlety makes all the difference.

When people say they need good credit or that some action affects their credit or some entitly other than a creditor checks their credit they are talking about credit history.

Not using a credit card, or utilization ratios or anything else does not affect your credit history because your history is not a formula.

That is my point. People confuse history with score. Score only matters in extension of credit decisions,IE borrowing money, and then only sometimes.

For everything else not direct extension of credit related, including insurance, employment, renting an apartment, etc history applies, not a score, because scores are not evaluated.

MY general point is so many assume that one of the benefits of credit card usage is it improves your score and that score matters for more than borrowing money.

That is not the case. The score only matters for borrowing. History matters on other issues and anyone can have a acceptable credit history without credit cards, or any debt for that matter. That is because positive credit tradelines stay on your credit report indefinately...the remainder of your life actually.

People should not be concerned with having good credit. They should be concerned with not having bad credit. There is a major difference between the two.

I've heard a lot about Ramsey on blogs. But never from a live person. Also I've never seen him on TV myself. His advice (as you describe it) is basically sound and apparently it's delivered in an entertaining way.

I agree re credit cards. I have however found the Ramsey credo useful while dating:

When a guy I've met online on a blind date launches into the "demon credit cards" schtick, I've learned that is a huge "red flag" indicating the guy most likely has/has had problems with financial irresponsibility.

Of course not everyone who uses credit cards is responsible, but hearing what I call a "card rant" is a sure sign of a problem!

I mainly like Ramsey and even though I agree personally with your first two dislikes, I think they probably just show the difference between you and the intended audience. Most of his plan is about getting out of the kind of debt and stopping the kind of spending that you wouldn't have tended toward anyway.

Your last dislike is the troubling one to me. Its not so much that he uses 12% as his estimated return, I'm not sure thats a worst guess than 8%, who knows, but its his planned distribution of this. I heard him tell a soon to be retiree that you can make 12%, assume 4% inflation, and therefore withdraw 8% a year from the nest egg. So he is doing his math not on averaging 12% a year, but on returning a constant 12%/year like its a fixed investment. YIKES.

And I never balked much at him advising investing all of your retirement in growth stock funds, until I realized that advice was as targeted toward those over 70 as much as those at 40.

Interesting. I'm not a Ramsey follower (nor an Orman follower: don't much feel the need to listen to sermons from any TV personalities) and so didn't know about the 12% estimated return. That seems very high, even over the long term. It certainly isn't realistic, as Strick notes, for retirees or about-to-be retirees. Eight percent seems to be the standard guess.

In my experience, the investments that just sit there without being actively managed (as in my 403(b)) probably make around 7 or 8 percent, after you've taken in the effects of market crashes. Investments that have been handled by my financial manager have done slightly better--probably around 9 percent--because he's pretty wily and has avoided the worst repercussions from the bear markets I've seen over the past 20 years. Some years are better than others...but 12 percent, consistently? Don't think so!

I am a landlord.

I pull a credit check on every tenant.

I get a FICO score and a credit history.

If I only rented to good FICO scores I would probably have a hard time finding tenants. A lot of people who rent don't have great credit. I couldn't care less if the applicant has a proven history of paying credit cards on time or mortgage payments on time, etc. What I want to see is that they don't hae delinquent accounts where they are not paying their bills.

So for me, if you pay your bills and don't have any debt and thus a low FICO score, you are an ideal tenant. Having debt and paying it off doesn't prove anything to me. I just want to see that you pay your bills when they come due and it doesn't matter if it's debt based or just usage based (such as rent and util payments).

I'm okay with Dave Ramsey, but he's definitely only useful for get-out-of-debt advice for the masses.

As someone with financial control, he annoys me. He's judgemental and makes sweeping generalizations (like credit cards) that seem useless to me.

Luckily for both of us, I'm not his target audience. :-)

I generally like Ramsey, mostly because he seems to have integrity and really seems to care about helping eople.

But every time I hear him suggest using 12% as an estimate for investment returns I pretty much choke. Also troubling (at least it makes me wince) is that he only mentions "growth stock" mutuals funds as an investment and never mentions diversification.

yeah he's too jittery for me too

Bender - Are you kidding me? He mentions NOTHING BUT diversification: not keeping all your eggs in one basket. He mentions mutual FUNDS more then anything else whether it be itnernational, large funds, etc. If it weren't for diversification, most millionaires would not be that any longer and Dave Ramsey is one very wealthy millionaire. @ everyone that is saying they haven't averaged 12% on their returns. Get a new financial manager because yours currently sucks. I've averaged anywhere from 12% to 20% on some of my more aggressive funds.

Nick - I am curious how many years you have averaged in the 12-20% range. Certainly newer investors whose recent contributions are a larger percentage of their net worth have seen extremely good results if they have only been in the market for 3-6 years. This time frame really has benefitted from dollar cost averaging. However, I am a firm believer that the long term market average is only 10-11% and am concerned that the market will return less than that over the next 10 years. My planning expectations are more in the line of 7% annual returns for the next decade with a 70/30 stock/bond mix. However, I hope you turn out to be correct. BTW,my portfolio has recently recovered to exceed my 2007 high balance, however, to accomplish this I have contributed 12% of that previous balance, so technically I am still underwater.

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