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re: Dave Ramsey's advice to pay off a car loan, rather than invest
Posted on 1/10/20 at 7:14 am to stewie
Posted on 1/10/20 at 7:14 am to stewie
Who I'm working with are the same people that need the truth of evidence and facts; not emotional drivel and rah rah rallies; the louder one talks, the smarter they are? This is the crux of this entire thread.
Feelgoodism.
Feelgoodism.
0
Posted on 1/10/20 at 8:08 am to iAmBatman
quote:
Then show me the math because you are flat-out, 100% wrong.
As I already said in the previous post ... you aren’t wrong.
But you are missing the point. The goal is to get someone who simply isn’t making payments (or making them with no continuity) to start making continuous payments. Get in the habit of making payments on any debt and seeing the actual reward of a paid off account.
As I said in my very first post in this thread, I don’t follow Dave’s advice on debt management. I don’t recommend it to many people, it leaves to much $$ on the table over time.
However, there is a large swath of Americans that need this type psychological/financial guidance. To ignore its success is rather ignorant and extremely arrogant.
Posted on 1/10/20 at 8:12 am to stewie
quote:
Get in the habit of making payments on any debt and seeing the actual reward of a paid off account.
That's all well and good but why not apply those same payments to the debt that is causing more harm? It'll get the person out of debt faster, which is the main goal correct?
Posted on 1/10/20 at 8:53 am to iAmBatman
quote:
That's all well and good but why not apply those same payments to the debt that is causing more harm?
I would agree and in most instances (pay day loans and credit cards) the loans with the shortest terms carry the highest interest.
But it’s all about forming good habits, seeing a paid off account (one less bill to pay) is a huge motivator.
Posted on 1/10/20 at 9:03 am to iAmBatman
quote:
That's all well and good but why not apply those same payments to the debt that is causing more harm? It'll get the person out of debt faster, which is the main goal correct?
The main goal of Dave Ramsey's advice is to get out of consumer debt, period. Not necessarily faster.
Posted on 1/10/20 at 9:03 am to stewie
quote:
But it’s all about forming good habits, seeing a paid off account (one less bill to pay) is a huge motivator.
I would think seeing the total balance drop faster would be more motivating.
Posted on 1/10/20 at 9:04 am to LSUBoo
quote:
The main goal of Dave Ramsey's advice is to get out of consumer debt, period. Not necessarily faster.
why make it take longer than it needs to though?
Posted on 1/10/20 at 9:07 am to iAmBatman
quote:
why make it take longer than it needs to though?
You've already been told why a hundred times in this thread.
Posted on 1/10/20 at 9:10 am to iAmBatman
quote:The theory is that psychologically, the snowball method (smallest debt first) creates momentum that results in continuation of the plan at a higher rate than the avalanche method (highest interest rate first). Therefore, while mathematically inferior, it is a superior method in real world application.
why make it take longer than it needs to though?
I have no idea if there are statistics to prove this theory. You can either accept it or reject it, but why pretend not to understand it?
This post was edited on 1/10/20 at 9:23 am
Posted on 1/10/20 at 9:29 am to PearlJam
quote:
You can either accept it or reject it, but why pretend not to understand it?
It's understood. I reject it because
quote:
The theory
But whatever makes someone feel good is the mantra. Agree with batman here and not calling anyone here names or questioning intellect. No one need be upset.
Posted on 1/10/20 at 9:36 am to iAmBatman
quote:
That's all well and good but why not apply those same payments to the debt that is causing more harm? It'll get the person out of debt faster, which is the main goal correct?
Dave makes a lot of money selling his advice because it worked for a large enough number of people that it has a reputation has being a plan likely to work for the average person in debt. Your method while mathematically perfectly correct pretty much never works for the average person because the root problem is not one of math, but human emotion, and psychology. I'm done with this too many other trolls to argue with elsewhere.
Posted on 1/10/20 at 9:38 am to BestBanker
quote:That is fine. My post wasn't directed to you.
It's understood. I reject it because
quote:Not really. The mantra as it relates to the snowball is "whatever keeps you going."
But whatever makes someone feel good is the mantra
Fwiw, I'm not a DR disciple, nor do I follow his program.
Posted on 1/10/20 at 9:40 am to PearlJam
I understand why Dave's advice is necessary information for most people. It doesn't mean it's the absolute highest grossing/best way, but it's a very clear, safe, and less stressful way to approach a comfortable lifestyle.
Posted on 1/10/20 at 9:43 am to BestBanker
quote:
The theory
The stubbornness in this thread is the exact reason why it works.
When you deal with someone who has resolved themselves to never be out of debt, it’s real tough to convince them to make a payment that will only go to interest and penalties.
The first step is to save $1000. If someone gets there and can pay cash to fix a flat tire rather than take out a payday loan or take on an overdraft fee, then it’s already worked.
Baby steps, not functioning adult steps.
Posted on 1/10/20 at 10:02 am to Engineer
I’ll add, not to feed the trolls, but because I deal with this and find it incredibly frustrating...
Paying off the debt is one step of the program. Bankruptcy is probably a better solution for most, but unless they stop spending and treating debt like their enemy, they find themselves in the same position again. That’s where the other pet tricks like cash in an envelope, as ridiculous as it is, is effective.
It goes back to the OP and the replies on the first page that this advice is not about coming out ahead, but dealing with very irresponsible people who cannot manage their spending habits.
Paying off the debt is one step of the program. Bankruptcy is probably a better solution for most, but unless they stop spending and treating debt like their enemy, they find themselves in the same position again. That’s where the other pet tricks like cash in an envelope, as ridiculous as it is, is effective.
It goes back to the OP and the replies on the first page that this advice is not about coming out ahead, but dealing with very irresponsible people who cannot manage their spending habits.
Posted on 1/10/20 at 10:19 am to PearlJam
quote:
I have no idea if there are statistics to prove this theory. You can either accept it or reject it, but why pretend not to understand it?
it's not that I don't understand it...the problem is that it's wrong
Posted on 1/10/20 at 10:19 am to PearlJam
quote:
I have no idea if there are statistics to prove this theory. You can either accept it or reject it, but why pretend not to understand it?
Yes, there are several studies and comparisons which have been done over the years. Here’s one from the Harvard Business Review.
quote:
However, the avalanche method isn’t always the most effective one because for many people it doesn’t generate the motivation needed to make debt elimination a priority. In fact, researchers for the Harvard Business Review found that the opposite approach, known as the snowball method, actually proved to be the most effective strategy.
Harvard Business Review
What shows up on a calculator screen isn’t necessarily linked to human behavior. Some people understand that. Some people don’t/can’t. Such is life.
Oh well.
Posted on 1/10/20 at 10:29 am to iAmBatman
quote:
I would think seeing the total balance drop faster would be more motivating.
That's it. You are thinking like a person who makes rational financial decisions and never gets into a debt spiral in the first place.
The people who need help getting out of debt don't think like you, they don't make rational financial decisions.
Let's say they have $16,000 spread out across 7 cards. The lowest card balance is $500.
First month, they pay $500 extra.
Seeing a total balance go from $16,000 to $15,500 isn't going to move the needle for them. In fact, it's so little, in the grand scheme of things, it might actually just cause them to say F it, this will never end.
Now, imagine looking at a single card balance go in one month, from $500 to $0, total cards with balances go from 7 to 6, seeing a statement the next month that says "current balance: $0.00". For people that are having emotional / psychological problems with money, who are depressed, etc, this is a huge win and might be the motivation they need to tackle the next card balance.
Remember, these people don't understand time balance of money, they don't understand saving for the future, compound interest, etc.
The DR method meets people where they are, not where we think they should be. It doesn't require any new financial educational concepts. It doesn't require a new way of looking at debt and interest expense, because Dave hates debt and doesn't want people to have any at all.
You will always be 100 percent correct with the math here, but your lack of awareness of the psychological issues of others is pretty interesting.
I've often said that this MT board residents are in the top 5-10% nationally when it comes to financial sense. But the way things play in your mind aren't the same way they play in the average American's mind.
Dave's method isn't for you and me, it's for the Average American who is an idiot at finances, and is too depressed to learn anything.
Posted on 1/10/20 at 10:32 am to iAmBatman
quote:then produce the evidence
it's not that I don't understand it...the problem is that it's wrong
Posted on 1/10/20 at 11:14 am to iAmBatman
quote:
it's not that I don't understand it...the problem is that it's wrong
It's also wrong to carry balances on high interest consumer debt, but people do it all the time.
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