Three Drawbacks to the Dave Ramsey Plan

Carly writes in:

I recently bought The Total Money Makeover on your recommendation and I’ve been enjoying it. It seems like a lot of your ideas and Dave Ramsey’s ideas overlap. What differences are there between your ideas?

Before I get started on this article, I want to point out that I agree with Dave Ramsey’s personal finance plan on about 99% of the specifics. I totally agree with putting debt freedom above all else. I totally agree with him in terms of psychological milestones. I totally agree with him that a simple plan is usually the one that works the best.

Still, there are a few specific recommendations of Dave’s that I do not agree with. I’m pretty sure that across the thousands of hours of Dave’s show and the many books he’s written that he might have said somewhat contradictory things on these issues. However, the stances I’m describing here are ones I’ve heard him advocate before either in writing or on his show at some point.

First of all, I don’t think cutting up all of your credit cards is a good idea. That’s really the biggest disagreement that I have with him.

Dave Ramsey often advocates for people to just completely cut up all of their credit cards and completely disavow them. I think that credit cards have some limited uses and some value and that simply chopping them all up and closing all credit card accounts does more harm than good.

For example, I feel much more safe when I’m out and about with a credit card in my wallet than with cash in my wallet. A credit card takes care of virtually all purchases that I might make. If I’m robbed, I can just call my credit card company and report the robbery. If I lose my wallet, I can do the same. On the other hand, if I have just cash on hand, that cash is lost. It’s gone.

What about debit cards? I don’t feel comfortable carrying around a card that offers total access to my checking account. If someone swipes that number without my knowledge, I’m going to have a mess of a time getting everything cleaned up. It’s just not worth the risk to me.

Using a credit card and paying it off in full every month means that you have to have some degree of self-control, whereas cash-only does more to force that self-control on you. Still, I’m more uncomfortable with the risks of going cash-only than I am with the risks of using a credit card.

Second, I don’t think your credit score is useless. I’ve heard (and read) Dave advocating for people to just stop worrying about their credit scores.

While I know that paying attention to credit scores adds complexity to the situation, credit scores are used all of the time for situations that have nothing to do with debt. Do you have car insurance or homeowners insurance? Those guys are checking your credit. Have you applied for a job? Those people are probably checking your credit. In both cases, they’re assigning rates and deciding whether to hire you based, in part, on your credit score.

Yes, just ignoring this factor and focusing entirely on debt repayment will probably have relatively positive results. However, you need to be checking your credit report regularly, just to keep bad things off of it for the reasons mentioned above. You can engage in that process by starting at the FTC’s website,

Third, the financial returns he expects are completely out of this world. When Dave starts talking about investing, he starts referring to models that involve a 12% annual return. Unless you’re investing in something illegal, there’s nothing you’re going to find that will return anything close to 12% year after year like clockwork.

Warren Buffett, whose investment advice I deeply trust, has suggested that people should expect a 7% annual return over a very long period in the stock market, with much more fluctuation over the short term. I don’t even expect that much, to tell the truth, mostly because I tend to make conservative estimates on my investments. I usually figure on 6%.

Yes, I know that optimism is going to push people to really invest hard, but I don’t agree with selling an unrealistic picture of the future.

Those are the three points that Ramsey sometimes makes that I just can’t agree with. All three of them are minor points and don’t really change the meat of the plan, but they do change some of the details of it.

I think, to some extent, Dave argues on the other side of these points for motivational purposes. It’s thrilling to chop up your credit cards! It’s awesome to think about getting big returns when you invest! However, the results of those stances will often let you down.

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