Dave Ramsey’s Bad Advice
Many of you are familiar with the financial guru Dave Ramsey. His most popular book, “The Total Money Makeover”, has sold over 5 million copies. While I agree with most of what Dave has to say there are a few key areas where I entirely disagree with him.
Dave’s approach of one-size-fits-all financial advice just doesn’t work. Each person has their own unique situation and the path to their financial goals will vary. There are two main areas where I differ from Dave’s advice. Let’s take a look.
Cut and Close Your Cards
Dave Ramsey is insistent on the many ills of having credit cards. His argument is that there is no such thing as responsible credit card use. As a responsible credit card user myself I’d have to disagree. While there are some people out there who should never own a credit card, just like some people should never have a drink. However, most people with the proper discipline can use one responsibly.
Not only do I think people can use credit cards responsibly, but revolving credit (i.e. credit cards) makes up 30% of how your credit score is determined. Which leads me to my next point..
FICO = No Go
Dave is absolutely correct in challenging people not to “worship at the FICO altar”. Credit is, after all, just a game as I’ve mentioned many times. However, it is a game we have to play. In fairness to Dave, I have never heard him tell people to trash their FICO scores, but he is quite proud to proclaim that his is zero because he hasn’t borrowed money in many years. The reality is that not everyone has the ability to pay cash for everything.
How many people can pay cash for their house? I would assume not many and unless someone wants to rent their entire life they will need a credit score. Not only does credit affect your ability to buy a home, but it also affects things such as insurance premiums and cell phone plans. Having a good score can save you thousands and thousands of dollars over your lifetime.
While there are situations where someone may not need a credit score or credit cards, most people will need credit at some point in their life. Being prepared for this is essential because the savings are big.
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