If you spend any time in personal finance groups or reading about personal finance, you’ve likely heard about Dave Ramsey. He’s an author and personal finance expert, likely best known for his book The Total Money Makeover and his step-by-step program for getting out of debt. Many people struggling with debt turn to him for help paying down debt and building wealth.
He says you should live below your means and use the snowball method to pay off debt. This method involves tackling your smallest debt first, then using that freed-up payment amount to take on the next debt, gradually building momentum as you go. That’s solid advice for anyone.
But he has some questionable hiring practices (like requiring spouses to interview as well as potential employees) and some even worse advice. Here are three pieces of his advice you should definitely reconsider.
1. Don’t invest until debt is paid off
Dave Ramsey’s “The 7 Baby Steps” are meant to help people take control of their money by creating an emergency fund and paying off all debt besides your house. Then (and only then) are you supposed to start investing for retirement.
Getting out of debt is important, but the average American has more than $6,000 in credit card debt and nearly $24,000 in auto loan debt. That could take years to pay off — years you’re missing out on compounding interest and, possibly, a 401(k) match from your employer (which is essentially free money for retirement).
Instead, try to put at least enough into your 401(k) to get the full match. If you have high-interest debt, aim to pay that off quickly, but don’t entirely put off saving for retirement until all other debts are paid off. Taking a balanced approach will help you get out of debt and build momentum for retirement.
Need help getting out of debt? These budgeting apps help you track where your money goes.
2. Don’t focus on your credit score
Ramsey argues that credit scores are unimportant, calling them an “I love debt” rating. But here’s the thing: A good credit score doesn’t mean you’re planning to take on more debt. And a personal finance expert telling people to ignore their credit score isn’t just bad advice; it’s downright dangerous for some.
Having a good credit score can help you afford a safe place to live, either by landing a lower mortgage rate or being able to rent an apartment in a safe area. Employers sometimes use credit scores when they do background checks for potential hires. Car insurance companies and cellphone service providers may base your rates on your credit score, so a low credit score can cost you money.
Having an 850 credit score doesn’t mean you’ve reached the pinnacle of financial success. But having a good credit score (or even a bad one!) is not a moral failing, and it’s important to remember that credit scores are used for more than just opening lines of credit.
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3. Pay off your mortgage early
Ramsey typically advocates for paying off your mortgage early. He says being completely debt-free, including mortgage debt, provides financial freedom and security. Once other debts are paid off and you have an emergency fund, he suggests directing extra funds toward your mortgage.
But it doesn’t always make financial sense to pay off your mortgage early, especially if you have a lower interest rate. I recently wrote about how I stopped making extra payments on my mortgage because once I did the math, it didn’t make sense.
My mortgage rate is below 4%, while the S&P 500 has an average return of 12.8% over the past 10 years. That means I can likely earn 8% more by putting money into investments. There are risks of market fluctuations, of course, but the potential return is worth it — at least in my case.
There are some times when it makes sense to pay off your mortgage early. If you’re planning to retire soon and want to get rid of your largest expense, for example. Or maybe you just want to lift the burden of having to make that payment every month.
Just take the time to make sure it makes sense for your financial situation and your goals — in fact, that’s a good idea no matter where you get your personal finance advice.