These Are the 2 Biggest Things I Disagree With Dave Ramsey About
by Christy Bieber | Published on Oct. 12, 2021
Is Ramsey right about these two big issues?
Dave Ramsey is a financial personality with a big following -- and with good reason. He's helped many people to become debt free, and he explains money management issues in a way most people can understand.
But that doesn't necessarily mean every piece of advice he gives is solid. In fact, there are two major positions he's taken that I strongly disagree with. Here's what they are.
1. You don't need credit
Ramsey believes that living without a credit score is a good thing. He has indicated that you don't need credit and touted the benefits of not having a credit score -- including not being enslaved to debt and being in complete control of your personal finances.
The problem is, while you theoretically can survive without a credit score, it makes life a lot more difficult. As Ramsey himself explains, companies may check your credit when applying for jobs, and mortgage lenders will definitely check it if you need to borrow for a home (which most people do). You could have a hard time finding companies willing to do business with you.
There's little reason to needlessly narrow your options, especially as these are just some of the ways having no credit makes life harder. You'll also need to tie up your money by making larger deposits with utility companies. Plus, you may not be able to get a monthly cellphone contract and will need to use a debit card to make a deposit for a rental car or hotel, which also ties up your money.
You can and should use credit responsibly as a tool so you have a credit score that opens up doors for you. You can also benefit in other ways, such as being able to use credit cards to earn rewards and being able to borrow for a home at a low rate while investing your money in other assets that provide a higher return on investment (ROI).
2. You should pay off your mortgage early
Ramsey also advises choosing a 15-year mortgage over a 30-year one and working to pay off your mortgage early.
However, this advice can also make your life more difficult. A shorter mortgage repayment term means that you'll have higher monthly payments, which can make it more difficult to qualify for a loan and which can impact the flexibility you have in your budget.
It makes little sense to commit a huge portion of your monthly income to a housing payment and leave yourself with less money to invest. That's especially true as mortgage interest rates are very low right now, and interest is tax deductible for borrowers who itemize.
With inflation very high right now and likely to be for the foreseeable future, it makes even less sense to choose a shorter loan term or to focus on early mortgage payoff now. That's because inflation makes your mortgage costs cheaper. If you have a fixed-rate mortgage, your payment remains the same over the life of the loan, but the value of your money falls due to inflation, so you're paying your loan with dollars that are worth less in real terms.
Rather than paying off your mortgage early or struggling to live without credit, work on building a good credit score and getting a home loan at the lowest rate you can. With your affordable mortgage payments, you'll be able to use your money for many other things that help you build wealth over time -- and your good credit can help in the process.
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