Originally Posted by UncleHuck

I don't think I am smarter than Dave Ramsey, but I don't understand his recommendation to pay off or avoid zero percent or low percent loans, and instead buying or moving from your savings. I use other people's money as much as I can. I could pay off both our vehicles if I wanted to do so, but both loans are at 1.6%. The worst account I have right now is double that return year to date, even with the lousy market performance this year.

I know a couple who had a Kubota loan at zero percent, and they took his recommendation to get rid of the payment. Pulled $15,000 out of savings to eliminate a $300 payment. That makes no sense to me, as the payoff was the same as the sum of the payments.

Another guy I know wanted a new truck, not a used truck. To avoid dealer/Ford financing at ZERO percent, he took over $50,000 from savings to buy the truck. Said he couldn't stand the thought of having a payment. Just thinking about him doing that made me a little nauseous, but to each their own.

Other things he recommends, like paying off credit cards and avoiding high interest loans are spot on.

His paying off debt deal assumes 3 things, in order to make sense (particularly when you're taking from an existing savings or investment account to pay it off):

1. you're paying interest on the debt, otherwise it's a wash
2. the loan interest was greater than the profit you were making from the account the money was sitting in (for savings, that's probably the case. for many types of investment accounts, likely NOT the case)
2. Once you pay off the debt, you take the monthly payments you were making and put it back into savings or reinvest it in something that will earn money

If those 3 things aren't true for a given situation, then pulling from savings or an investment account to pay off a debt may NOT be the best option.

The wild card in the whole deal, though, is Peace of Mind.......for example, our interest rate on our home is low.....like, a hair over 2%. If I came into a large sum of money tomorrow and had to choose between paying off the home vs investing it in something, I'd be leaning really hard toward paying the house off first. Would it be the "right" decision from a purely-financial standpoint? Probably not............but the peace of mind from knowing my home is paid off would likely be "worth" more than the opportunity cost of investing that money elsewhere. (unless the sum of money was great enough that the ROI was enough to cover the house payments, in which case invest it)

EDIT....................................BUT...

All of ^^^that^^^ also assumes 2 things about the individual:

1. They're moderately intelligent when it comes to managing money
2. They're disciplined with their money.

But the people that Dave Ramsey "preaches" to typically don't check one of those boxes......and often don't check either, and are most likely already in money trouble.....in which case his way is probably the only way you'll get out of trouble

Last edited by GomerPyle; 09/09/20 01:21 PM.
Isaiah 5:20