Dave Ramsey has been helping folks manage their finances for well over two decades. People from all over the world have sought his advice on effective money management and climbing out of debt. Ramsey has had much to say about debt over the years, but below are a few words of advice that stick out.
Culturally we've come to accept debt as a part of our lives. Debt is normal and everyone has it, even the wealthy, right? Not so, says Ramsey. According to the money management expert, the wealthy are far less likely to be in debt than we are led to believe. Using loans to make big purchases has become a natural step in consumer behavior, but if you had the money, wouldn't you buy your house and your car outright? Ramsey believes the key to building wealth lies is how effectively individuals are able to prioritize their spending. Instead of spending money on things that are definitively outside your spending bracket like paying off a car, he suggests getting rid of the car and repurposing that money for building a nest egg or funding your children's education.
If you're deep in debt, chances are building an emergency fund is the last thing on your mind. As part of his "Snowball Plan" for getting out of debt, Ramsey insists debtors immediately get to work on building a nest egg to this effect. Having a little bit of money set aside to cover the costs of unforeseen circumstances like being laid off will stop you from using loans or credit to get you through. Emergency funds help minimize the likelihood of falling further in debt.
While some people might regard debt consolidation as a way to lessen their debt load, Ramsey argues nothing could be further from the truth. Ramsey says debt consolidation is simply a way of shifting the debt around even though factors like a lower interest rate and turning your debts into one lump sum might give you the impression that you've made progress. In reality, the source of your financial problems, which includes bad spending and budgeting habits, have yet to see any real solutions.
According to Ramsey, fragmented focus is a weakness for debtors. Instead of attempting to tackle multiple debts at once, Ramsey suggests sticking to making principle payments on all of your debts and zeroing in the majority of your efforts and attention on paying off one debt at a time. This strategy is a key step in Ramsey's "Snowball Plan." Ramsey believes checking off one debt at a time will help build a momentum which will in turn motivate you to keep paying off your debt.
Ramsey tends to get hounded by financial gurus on this point, but supporters of his debt management program are more than happy to supply proof of this tip being one of the most important steps to becoming debt-free. Paying off smaller debts before larger debts seems to defy logic, because after all you'll be spending more on interest rates for the larger debts. However, Ramsey's philosophy tends to move beyond considering just the numbers into making permanent lifestyle changes. Successfully paying off smaller debts requires less time but still gives you a feeling of accomplishment that can motivate you to keep going. Essentially, it uses positive reinforcement as way to alter your behavior.
The road to becoming debt-free can be a long one. Regardless of how much debt you've accumulated, if you want Dave Ramsey's advice the solution is clear: stay persistent and start now. Freedom from debt is possible.