Dave Ramsey - Is his get out of debt plan right for you?
Dave Ramsey - Is his get out of debt plan right for you?
Dave Ramsey is a very successful business man as well as a renown personal finance advisor. He has successfully published four books, The Total Money Makeover, Financial Peace, Financial Peace Revisited, and More Than Enough. Ramsey’s ventures also include a nationally syndicated radio show, “The Dave Ramsey Show”, a TV show on Fox Business Network, and a busy career traveling the world in motivational speaking. He has released a popular life changing video program, Financial Peace University, designed to teach you the 7 baby steps to getting out of debt and saving and investing money for retirement to better your future. If you’re familiar with Dave Ramsey, then you’ve no doubt heard of his support of the envelope system and ’snowball’ approach to paying down your debt. First, build an emergency fund, then start tackling your smallest debt with all your extra money, no matter what the interest rate and pay it off as quick as possible. During this time you only pay the minimum payment on all other debts. Next, move to the next smallest debt and pay the minimum payment plus all the other money from the first debt on this debt. Continue this process until you are debt free.
The concept works and is very effective, but the program draws some criticism. Many Dave Ramsey critics argue that you are wasting money by paying off loans with the smaller interest rates. Ramsey’s major factor in success with the program is motivation and believes you need to feel successful as you go an the smaller debts are easier and quicker to pay off. This leaves you with a sense of accomplishment and keeps you from getting discouraged and quitting.
There is no doubt that the Dave Ramsey program works because of the numerous success stories that are shared on his radio show, TV show, and books but is Dave’s plan for eliminating debt right for you?
One of Dave Ramsey’s competitors in the market is Suzie Orman. Suzie Orman’s method of Financial Freedom is based more on getting to know yourself and trusting yourself with your money. Her book, 9 Steps to Financial Freedom uses a 9 step process to be successful.
1. Seeing how your past holds the key to your financial future
2. Facing your fears and creating new truths
3. Being honest with yourself
4. Being responsible to those you love
5. Being respectful of yourself and your money
6. Trusting yourself more than you trust others
7. Being open to receive all that you are meant to have
8. Understanding the ebb and flow of the money cycle
9. Recognizing true wealth
Her method for paying debt is similar to Dave Ramsey, but she suggests figuring out how much money you have left over at the end of the month to apply toward debt. You then pay $10 over on each of the lower interest rate debts and the remaining on the highest interest rate debt.
You should get a feeling of accomplishment because you are paying more than the minimum balance on all the debts and focusing on the highest interest rate debt. Most of the time Suzie Orman’s method will save you more money, but I think the big question is does her method provide enough motivation to keep you interested in your overall goal? It will take longer to completely pay off a single debt which could leave you frustrated and cause you to give up all together.
The best financial move that will win every time would be to pay all extra money toward the highest interest rate debt, but for someone that isn’t very motivated this would probably not work as often. Now, since this article is about Dave Ramsey and I’m not real familiar with Suzie Orman I am going to have to agree that Ramsey’s method, in most cases, would be the better choice for most people who need that extra pat on the back and sense of accomplishment. You stay motivated throughout the “get out of debt” process and get excited about conquering the next debt.However, as I have mentioned earlier in my blog I’m not sure of my overall opinion about Dave Ramsey.
I have many friends who disagree with his tactics and think that he is like most other financial advisers and planners and he’s only in it for the money. Dave Ramsey like most other personal finance managers agree that it is important to have life insurance, health insurance and have an estate plan in place. Ramsey, however goes as far as to have Endorsed Local Providers who he has partnered with to provide trusted financial services to his viewers. The ELP’s include services such as: Investing, Real Estate, Health Insurance, Long Term Care, CPA-Tax Services, ID Theft Protection, etc. I’m sure Dave gets a healthy kickback from these business services. I know he need financial support to carry out his mission, but I’m just not sure of true intentions.In conclusion, Dave Ramsey is a very intelligent financial advisor. His methods of dumping debt, avoiding bankruptcy, saving and investing for the future obviously work. His books and literature however, are not free and require some cash.
Most of Ramsey’s methods can be found online for free with some research if you want to try his methods. If you are the type of person who need some motivation and are willing to give something new a try then Dave Ramsey might be for you.
