Dave Ramsey-Financial Peace University

wxman1

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exactly. i have never paid one dime of credit card interest in my life.

Those perks you get don't come free. You may not be the problem and I would argue those like you are not his target audience. Those banks and credit card companies are still businesses so those perks are being paid for by the people he is trying to help.
 

dmclone

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exactly. i have never paid one dime of credit card interest in my life.

I'd say you're in the .001% of credit card holders. I haven't paid interest in probably a decade but when I was in my 20's I did. I also pay $95/year to have the credit card.
 

twojman

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I didn't bring up "getting more and more cards to chase various deals" though. Just a single, simple, no fee 2% cash back card, of which there are a variety available. You're constructing a boogieman of the worst way to use cards and then saying that is bad. Of course it is bad to spend more than you can afford to pay off, or to forget to make a payment, or whatever. My issue with this line of thinking is it takes "Credit card debt is bad" or "forgetting to pay your bills is bad" and takes that to mean "Using a credit card is bad".

Another thing Dave talks about is spending habits. People spend more with cards rather than using cash. So yeah you can pay off your balance each month but had you used cash for your purchases you might have spent $1,500 that month but with the card you spent $1,750. You feel more pain using cash, it is a psychological thing.
 

agrabes

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I didn't bring up "getting more and more cards to chase various deals" though. Just a single, simple, no fee 2% cash back card, of which there are a variety available. You're constructing a boogieman of the worst way to use cards and then saying that is bad. Of course it is bad to spend more than you can afford to pay off, or to forget to make a payment, or whatever. My issue with this line of thinking is it takes "Credit card debt is bad" or "forgetting to pay your bills is bad" and takes that to mean "Using a credit card is bad".

If you want to very narrowly define the question to be "Is it good to have one credit card which you always use responsibly?" then the answer is yes. That's not a good way to decide if something has a risk though. You're essentially saying that if you do everything right there is no risk. Of course that's true - but to decide if something has a risk you have to look at what might go wrong if someone doesn't do everything right. You have to ask - what are the risks that someone might make a mistake?

The risks I mentioned are real and there are a lot of people who fall into them. Credit card companies intentionally market to customers with that in mind. Why do you think that every big box store tries to get you to apply for a credit card in the checkout line? For a lot of people, these are real reasons not to use credit cards. Are they huge risks? No, but the rewards you can get from using a credit card vs. a debit card or cash also aren't huge. What my line of thinking says is not "Using a credit card is bad" but that "Using a credit card makes it easier to make financial mistakes." There are a lot of people out there who can and do use credit cards responsibly but there are also a lot of people who can't.
 

LarryISU

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I think FPU is a great idea for those who desire to be self-reliant, responsible adults who contribute to society in a positive way and see value in accumulating some wealth, minimizing credit fees and interest and also funding your own retirement. You may not follow all of his ideas to a T, but it will give you a lot of good general principles for living. It's not for everyone, because the qualifications I just listed do not fit a lot of people. And that's fine, people are different and disagree on how one should live. But anyway, that's my take on the course, FWIW.
 
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Judoka

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If you want to very narrowly define the question to be "Is it good to have one credit card which you always use responsibly?" then the answer is yes.

The assertion made by Ramsey and people in the thread, that I was refuting, was that a credit card is never a good idea. So that was a simple, but very real, case where a credit card is a good idea.
 

Cyched

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Sure. There are a few risks I see with having credit cards. Just to be clear, I do have one, actually two now, so I'm not saying never have one. The first risk is that for the type of people Ramsey is aiming his program for (people with very little financial self control and/or knowledge) there is a good chance that they will carry a balance on that card. It may not be every month, but even one or two months of carrying a balance is going to eat up any gains really quickly. It is just keeping a temptation out there for them. The second risk is that as you get more and more cards trying to chase those various deals for cash back, points, etc the more likely it is that you'll lose track of a card or two and unintentionally carry a balance. This happens to my wife a few times a year. The last point (not really a risk) is that people can get so caught up in chasing credit card bonuses they waste more time than what it's worth. There is only a very minimal gain from those cash back cards when you add it all up. If you are someone who struggles with credit discipline, the few hundred dollars in possible gains outweigh the risks.

My personal stance on credit cards is to stick to one or two, don't go get every single store's card so you can make 1 or 2 % cash back or a one time savings on your first purchase.

For the store cards I made an exception for the Target credit card, just because I shop there so often for toiletries/home supplies. 5% off each time adds up quickly. Otherwise, getting the sporting goods store's card just so you can save on your gun purchase probably isn't the wisest move.

Other than that, I have a cash back card for gas & groceries, 1 more that I use for miscellaneous items (dining out, entertainment, etc.) and I really don't need more than that (I pay my credit card bills off in full each month). I don't understand the people that carry 10-20 credit cards. Or how they're allowed to get that many in the first place.
 

agrabes

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The assertion made by Ramsey and people in the thread, that I was refuting, was that a credit card is never a good idea. So that was a simple, but very real, case where a credit card is a good idea.

Fair enough. Ramsey does say that a credit card is never a good idea. He does acknowledge that you can get a few perks by using a credit card responsibly, but says he feels the risks of misusing one for even the most financially responsible people outweigh the possible rewards.

I guess my point in all this is to say that while credit cards can offer perks, those perks aren't free. That's why I don't like it when people say you should get this card or that card and go on about the great benefits these cards provide. It's all built on the backs of people who don't know how to control their spending and the companies only offer the perks in order to lure in more people to overspend so that they can make more money. Credit cards can be a good tool if used correctly (and again, I do use a credit card) but the industry in general has a bad image in my mind.
 

CYdTracked

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Jumped into this thread a little late. Haven't taken Financial Peace even though our church offers it all the time and it seems to be well attended. I'm in a very similar position at the original poster, only debt at the moment is our mortgage.

It's hard to say there is a cookie cutter way of maximizing your money because we all have different financial situations but the 1 thing I am a firm believer in no matter your situation is not carrying a balance on your credit card. The interest rates will kill you, I remember before I got my first credit card my dad sitting me down and explaining to me how credit cards work and showing me some figures of how quickly you can dig a big hole of debt in a hurry with a credit card if you don't pay it off every month. Basically his message was use a credit card like you would cash or your check book, if you don't have enough in the checking account to cover your bill at the end of the month then you probably should not have a credit card because you are using it to spend beyond your means. I have one of the cash back cards and try to autopay as many bills as I can on it to get the 1% back along with the 5% back on quarterly categories which sometimes include gas and groceries.

While I would love to pay the mortgage off that's a long term debt we just try to put more towards when we can in an effort to pay it off early. With 2 young children we've been trying to max out the $3239 per child toward the Iowa 529 savings accounts to get the state tax deduction benefits on top of long term saving for their education. Over 18 years if you put that much in a year it is just over $58000 in principal alone not factoring in the earnings you'll get over those years which at the moment with the strong markets over the past year and more it's been earning about 20% so what is in there now has been earning pretty well. Figure regardless whatever college costs when they go to school we can hopefully invest and have enough earnings in those accounts to start them off with around $100k each to help them avoid going into massive student loan debt as young adults.

It's a fine line balancing paying the monthly bills, paying off debt, investing in your retirement and kids education while also living the kind of lifestyle you want. It's up to you how you want to prioritize things while living the kind of lifestyle you want to live and how that will affect your retirement age and long term investing.
 
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HardcoreClone

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A lot of good discussion here, I appreciate all the feedback! A couple more questions....

For those who recommended mutual funds, can you provide some further info/links on what I should look for with those? I assume I would start one and let it sit for next 30 yrs?

If/when we have kids, how do those 529 savings acts work? That might be next week in class...

I paid for my college thru a small savings acct that vanished quickly and primarily student loans. I've always had a thought that I want my kids to be motivated and learn to pay for college themselves and graduate with a job, then on the backend I would have an account setup to pay off those loans as their reward. I assume the 529 probably wouldn't work that way? Does the student have to be enrolled full time?
 

Macloney

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A lot of good discussion here, I appreciate all the feedback! A couple more questions....

For those who recommended mutual funds, can you provide some further info/links on what I should look for with those? I assume I would start one and let it sit for next 30 yrs?

If/when we have kids, how do those 529 savings acts work? That might be next week in class...

I paid for my college thru a small savings acct that vanished quickly and primarily student loans. I've always had a thought that I want my kids to be motivated and learn to pay for college themselves and graduate with a job, then on the backend I would have an account setup to pay off those loans as their reward. I assume the 529 probably wouldn't work that way? Does the student have to be enrolled full time?

You can't pay off loans with a 529. It can be used for any educational related expense at any approved educational institute, including trade schools. Things like housing, tuition and books are covered. Let your kids pay for school and use the 529 for their housing, you will all be stoked.
 

wxman1

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I personally am not a fan of 529s due to the fact that they are restricted to education only and I believe in state schools only as well. We were advised that a Roth is a better option as you can also use it for education as well as your own retirement. The 529 has a penalty for taking it out for non education expenses.
 

BCClone

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Not exactly sure.
A common misconception is that credit card companies like you to carry a balance. They actually prefer you to max your card and pay it off immediately. The most profitable thing.
 

Mtowncyclone13

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I personally am not a fan of 529s due to the fact that they are restricted to education only and I believe in state schools only as well. We were advised that a Roth is a better option as you can also use it for education as well as your own retirement. The 529 has a penalty for taking it out for non education expenses.

529 plans can be used for ANY accredited school in ANY state. In fact, the feds just changed their guidance and now you can use Iowa 529 plan money for K-12 education in-state. The state disputes this but fed law says you can. We'll wait and see.
 
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Judoka

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Another thing Dave talks about is spending habits. People spend more with cards rather than using cash. So yeah you can pay off your balance each month but had you used cash for your purchases you might have spent $1,500 that month but with the card you spent $1,750. You feel more pain using cash, it is a psychological thing.

How many people mean "use a debit card" when they're talking about "using cash" though? You're using a card either way. It's just whether it is directly being debited from your account or whether it is being added to a tally that you pay off once the period closes.

And even though fraud protection for debit cards has improved a credit card is still vastly superior in that department. With a debit card it is your money being held in limbo while things are resolved. They have no incentive to rush things and you can't access it until it is resolved. With a credit card it is the banks money being held in limbo. They have incentive to resolve it quickly and you aren't out anything in the meantime.
 
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Judoka

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I think FPU is a great idea for those who desire to be self-reliant, responsible adults who contribute to society in a positive way and see value in accumulating some wealth, minimizing credit fees and interest and also funding your own retirement. You may not follow all of his ideas to a T, but it will give you a lot of good general principles for living. It's not for everyone, because the qualifications I just listed do not fit a lot of people. And that's fine, people are different and disagree on how one should live. But anyway, that's my take on the course, FWIW.

I'm surprised we can hear you from how high up your horse is.