How following this advice from Dave Ramsey could be hurting you financially

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

There is no doubt that Dave Ramsey is one of the most popular financial gurus in the US. But even with all his experience, Ramsey doesn’t always get it right. Here are two examples of it.

Where he believes he shines

I understand that Ramsey thinks he invented the concept of a debt free life. He didn’t.

I come from a long line of thrifty farmers and ranchers. Do you know what they always avoid like the plague? Debt:

My parents were so allergic to debt that they filled the house with used furniture, drove cars until the tires fell off, and invested almost everything they earned.

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

My point is as follows. Dave Ramsey did not introduce the world to the idea of ​​getting out of debt. He just used the loudest megaphone to spread the word and make a name for himself.

And therein lies the problem

The problem (as I see it) is that Ramsey, like anyone who works to build a following, starts out with a good idea to attract a crowd, and once he gets those people to believe that his word is gospel, someone really invests. terrible advice.

Nobody’s perfect, and boy does Ramsey get it wrong sometimes.

Short-sighted advice

Here’s some short-sighted advice recently offered by the owner of Ramsey Solutions. “Want to know 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 gone. completely gone.”

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

What is wrong with this advice?

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

Life happens

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

However, life happens. Spouses leave, taking financial assets with them. A serious illness strikes, bringing with it high medical bills. Businesses are closing down, jobs are being lost, houses are burning down.

In short, while having the discipline to get out of debt is great, it doesn’t isolate you from real life. Even if you have a huge emergency fund, you can’t be sure it will be enough to cover everything that comes your way.

Adults need to 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 ever need a low-interest loan, their account will be easier to land.

Credit scores aren’t just for credit card applications

Although credit scores are used to qualify for consumer loans and credit cards, they also have other uses. Let’s say your roommate gets a job in another city and moves away. You need to rent an apartment that you can afford. You better believe that the landlord or management company is going to check your credit score as part of the application process.

But what if the job you’re trying to land involves money management? It’s a safe bet that a potential employer is going to check your credit to learn how you manage your own finances before trusting you (employers can see almost everything on your credit report except your actual score and date of birth).

Extremes are rarely healthy

Imagine telling a dieter that once he’s lost weight, he can never eat another piece of bread. It’s extreme and rarely works.

Balance is an important part of life, and it may be healthier to encourage those who are out of debt to monitor their credit score rather than forget it exists.

Another awesome tip!

This is how Ramsey describes financial success to his followers. “Once you build your own financial security, you may see your credit score start to drop. But fear not… It’s actually time to celebrate! numbers disappear completely, that means you’ve made it. The true measure of financial success will be when your score reads uncertain 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 the credit score when it comes time to buy a new home. That’s why you don’t need a stinky credit score (despite what people may tell you). There is a process called mechanical placement that looks at full a picture of your financial stability, not just your credit score. See? You can breathe easy.”

How it can hurt you

Ramsey is right that it is it’s possible provide a mortgage without a traditional credit profile. FHA mortgages are usually available to first-time homebuyers without a traditional credit score, and conventional mortgages, VA loans, and USDA loans may also be an option.

But (and this is a big but) 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 go all out trying to win over your business.

Can you blame them? They can see your bank account and investment portfolio, but they have no idea how well you’ve managed your debt in the past. How are they supposed to know if you are the kind of borrower who pays their debts as promised?

The moral of the story is that nobody gets it right 100% of the time. It’s up to you to weigh the advice before following a charismatic leader down a rocky path.