My wife an I have taken the Dave Ramsey class at church, and we're now taking a second mini-course with our Bible study group. While most of what Dave says is spot-on, we do have some reservations about the program, and we also wonder if his plan goes far enough in its disdain for credit. I wanted to take a look at a few aspects of the class, and also suggest a better ultimate solution for freeing ourselves from the chains of debt using the church as the lending institution.
Dave is right about getting out of debt. He's right that you have to get mad and be dedicated to paying off your debt. While it might make more sense to pay off bigger loans with higher interest first, his advice to pay off any loan first is probably best in most cases, since part of the whole process is psychological. Make a budget, put aside money, and pay off that first debt. Dave's flat out right that you need to get out of paying others to let you use your own money.
I can't entirely agree with Dave on cutting up credit cards and using only cash. I've had several credit cards with insane limits for the past twenty year, and I've never paid interest on any transaction. I used the cards to spend money I had. As a system, I understand that it makes sense to tell people just to avoid the cards, but the fact that there are so many people messing up with their finances makes having cards all the more beneficial to the rest of us, since the cards are almost always free and almost always offer perks. While most people don't know about or use these perks, they can be useful. For example, many credit cards automatically extend the warranty on items you buy. One card I have provides automatic rental car insurance.
Cash also negates the best deal on items that you will need. Lisa goes grocery shopping once a week, but she will often buy a sale item and freeze it for when we need it. This is not a want or a frivolous purchase. She's making the right decision. If she only had $200 in cash to spend, she'd have to wait on the big ham until after the sale. Unlike Dave's example of people spending more when they go out if they have credit cards, I always get the value menu items as McDonald's.
Dave likes to say that if you want to live like no one else, you need to live like no one else, which means budgeting expenses, but also getting another job. I wonder how many of us are really going to do this, and I wonder if it's really the best choice. I can see it as a short-term solution to paying off that first loan, but if I would take on another job, Lisa would always be in charge of the kids and I would not be a relevant part of their lives. While Dave says that this is the way for Americans to throw off the chains of debt, it IS the way to put on the chains of servitude to corporate America. Think about it: instead of saying that we all should be getting paid what we are worth, the suggestion is that we just work harder/more. I agree that it is one aspect that we can control, but we can also form labor unions and support companies that employ Americans with real living wages. Even if Dave believes in these values, I can see why he does not espouse them as solutions to individual debt. However, if we do abandon unions and worker rights in our country, we certainly will continue to have more and more people in need of Dave's advice.
Dave is pretty much wrong on investments. His assumptions are based on a miracle mutual fund that has never existed over time. He does not sell this fund to people, but he sells his program with the idea that it exists. Just invest this amount and leave it in there and you'll be retired in no time. He can be dead wrong on this end of the equation because he'll be dead and his grandkids will be millionaires before anyone really questions his assumptions. For us, his assumption of how much we make was too high and his 12% so wrong that he's probably a good decade off in his one million dollar retirement fund assessment. I don't know the right way to get around Dave's faulty reasoning here. He doesn't either. The right advice, of course, is to invest everything low, move it when the next crash is about to happen, then reinvest low again. Do that three times in your life and retire. Actually, that's about as good as Dave's advice on investing, so please pay me for it.
Lending Institutions Do Suck
Here I can agree with Dave so much so that I want to find the solution. I'm fine if he comes up with the details and makes another billion dollars off of my idea. I just want the banks to basically no longer exist in my life, and I have a great idea. Really. Dave says the churches, once they support his program and help members get out of debt, will get all kinds of money from tithing and whatnot. However, I say the churches need to find a way to be more active than hoping everyone cuts up their credit cards. I say the churches need to be the next great lending institutions.
I'm no accountant or IRS agent, so I don't know how all this works, but I do know that churches have a lot of inflow. I know that churches have a mission to help people. I know that money is a major issue in why people get divorced. I think that some people see money as more important than church. I think that people will help a church that helps them. And so on. What this means is that if a church has a separate campaign to eliminate debt of its members set up like the separate campaigns to build another gym or pastor's office, then it can play the lead role on eliminating the debt of all of its members.
How about this as an example. Start the program out to help, say, Brian and Lisa. People donate money each week. A dollar here, a dollar there. After a year, will the church have $100,000? If so, then the church pays our mortgage, saving us about $100,000 in interest. It's our house, but we either sign some kind of promissory note or allow the church to see our will, etc., that indicates that the house or cash value or something will be theirs. Maybe we can't sell for this term or without church permission or something. Simply, each church can decide its deal. Someone must have experience with this kind of thing.
It just gets me wondering, if the church paid off my house at $100,000 and then I paid the church back at $10,000 for ten years, I could add the extra $5,000 as basically a tithe (closer than I've ever been, anyhow). What if the church reinvested that $10,000 in the next loan, also taking any continuous donations along the way? The next loan can be given even faster, then the next , then the next. At the end of ten years, $100,000 loans are basically self-funded each year. And after ten years and a church that believed in me, maybe I'd be ready to give a little more. Honestly, folks, this is just Dave's idea taken to the appropriate next level, not just some miracle in need situation that he outlines in his videos, but an honest-to-goodness church business venture that will help all members get out of debt.
Churches that do this ought to be in people's business. "No, you're not buying a new car; no, you don't make enough money for this loan." Banks are fine with people stretching and squirming, but churches should want their members to live within their means. Maybe the church would use Dave's method and pay down the lowest member debts first to create the snowball. Start with the $10,000 student or car loan, with that member helping to fund the next $20,000 loan after a couple of years. Big churches could do more sooner, but little churches could do it too.
I don't know how legal all of this is, whether or not the $10,000 a year I'd pay back to my church would be a donation or a no-interest loan. I don't know if it's right for everyone. However, I do know that if every church in our country really wanted to help put its members and our country back in charge of our finances, this could be a huge movement, and, honestly, doesn't it seem pretty darn Christian?