Three Drawbacks To The Dave Ramsey Plan

Written by Trent Hamm, The Simple Dollar is a popular personal finance blog that chronicle's one man's road back from overwhelming debt to financial security. Hamm declared the contents of the blog to be in the Public Domain in 2008 and available for sharing when attributed properly. We will share a couple of posts a week.



Three Drawbacks To The Dave Ramsey Plan




Carly writes in:




Before I get started on this article, I want to point out that I agree with Dave Ramsey’s personal finance plan on about 99% of the specifics. I totally agree with putting debt freedom above all else. I totally agree with him in terms of psychological milestones. I totally agree with him that a simple plan is usually the one that works the best.


Still, there are a few specific recommendations of Dave’s that I do not agree with. I’m pretty sure that across the thousands of hours of Dave’s show and the many books he’s written that he might have said somewhat contradictory things on these issues. However, the stances I’m describing here are ones I’ve heard him advocate before either in writing or on his show at some point.


First of all, I don’t think cutting up all of your credit cards is a good idea. That’s really the biggest disagreement that I have with him.


Dave Ramsey often advocates for people to just completely cut up all of their credit cards and completely disavow them. I think that credit cards have some limited uses and some value and that simply chopping them all up and closing all credit card accounts does more harm than good.


For example, I feel much more safe when I’m out and about with a credit card in my wallet than with cash in my wallet. A credit card takes care of virtually all purchases that I might make. If I’m robbed, I can just call my credit card company and report the robbery. If I lose my wallet, I can do the same. On the other hand, if I have just cash on hand, that cash islost. It’s gone.


What about debit cards? I don’t feel comfortable carrying around a card that offers total access to my checking account. If someone swipes that number without my knowledge, I’m going to have a mess of a time getting everything cleaned up. It’s just not worth the risk to me.


Using a credit card and paying it off in full every month means that you have to have some degree of self-control, whereas cash-only does more to force that self-control on you. Still, I’m more uncomfortable with the risks of going cash-only than I am with the risks of using a credit card.


Second, I don’t think your credit score is useless. I’ve heard (and read) Dave advocating for people to just stop worrying about their credit scores.


While I know that paying attention to credit scores adds complexity to the situation, credit scores are used all of the time for situations that have nothing to do with debt. Do you have car insurance or homeowners insurance? Those guys are checking your credit. Have you applied for a job? Those people are probably checking your credit. In both cases, they’re assigning rates and deciding whether to hire you based, in part, on your credit score.


Yes, just ignoring this factor and focusing entirely on debt repayment will probably have relatively positive results. However, you need to be checking your credit report regularly, just to keep bad things off of it for the reasons mentioned above. You can engage in that process by starting at the FTC’s website,


Third, the financial returns he expects are completely out of this world. When Dave starts talking about investing, he starts referring to models that involve a 12% annual return. Unless you’re investing in something illegal, there’s nothing you’re going to find that will return anything close to 12% year after year like clockwork.


Warren Buffett, whose investment advice I deeply trust, has suggested that people should expect a 7% annual return over a very long period in the stock market, with much more fluctuation over the short term. I don’t even expect that much, to tell the truth, mostly because I tend to make conservative estimates on my investments. I usually figure on 6%.


Yes, I know that optimism is going to push people to really invest hard, but I don’t agree with selling an unrealistic picture of the future.

Those are the three points that Ramsey sometimes makes that I just can’t agree with.All three of them are minor points and don’t really change the meat of the plan, but they do change some of the details of it.


I think, to some extent, Dave argues on the other side of these points for motivational purposes. It’s thrilling to chop up your credit cards! It’s awesome to think about getting big returns when you invest! However, the results of those stances will often let you down.

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Riverman1 02/15/13 - 09:33 am
Agree. My biggest problem

Agree. My biggest problem with the Dave Ramsey idea of working 2 jobs and eating Ramen until you are out of debt is that it's like an extreme diet where you lose weight, but gain it all back.

Instead make permanent changes in your spending habits based on reality that are not temporary, extreme measures. Do you really need something or is it simply a desire not based on the facts? Do you need to eat out 2-3 times a week? Do you need the expensive car? Do you need that yearly trip?

The point is grilling steaks and drinking wine at home is probably a much better evening than going out to dine. The regular car is as reliable as the Mercedes. You can find many things with an in-town vacation.

Buy shares of stock in a company that you think will do well instead of taking that trip and find pleasure in owning the company and watching your investment grow. It's a way of life, not a crash diet.

Willow Bailey
Willow Bailey 02/15/13 - 12:36 pm
That was really great advice,

That was really great advice, River. I'll add to it, if out of control spending is a problem, then there are root issues attached to it, which must be dealt with to have lasting success.

Fiat_Lux 02/15/13 - 01:09 pm
@ Riverman and Willow I think

@ Riverman and Willow

I think both of you are on target for people who aren't in desperate straits, which is the group looking to Dave Ramsey et al in trying to rescue their financial lives. The crash-extreme "diet" route is for people who are totally crashing and are trying to avoid plunging into bankruptcy, or even perhaps after declaring bankruptcy. And there are lots of those people around with all the job loses happening everywhere in the US.

People who lost their jobs mostly had mortgages, car payments and some consumer debt, and perhaps student loans--all manageable until their income dried up or was cut to ribbons. That's when the debt starts piling on for people, just in trying to live until the income starts coming in again.

That back-breaking load of debt is the worst possible thing for a person and especially for a family. People can never retire, children don't have their parents as a safety net as they pursue their own dreams, and what is there at life's end but an estate rotted out by what is still owed on a life now over?

The crash diet--with a change in outlook and habits--sometimes is the only way of surviving and having a chance at some kind of comeback.

my.voice 02/21/13 - 09:09 am
Ramsey is an intelligent man

Ramsey is an intelligent man and has done well for himself, but nobody has a corner on what's right, however, Ramsey feels only he has that rare insight. I listen to his show and I find the man condescending and sometimes, just downright rude. He has little compassion for his callers and while I understand that's what attracts listeners, it's still not good practice.

Good points in this article, and another poster nailed it, you gotta control the spending.

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