I am a HUGE Dave Ramsey fan. I make my Ga Tech students read his material. Last Friday I was listening to his show. Friday is the day that people call in and scream "WE'RE DEBT FREE!" Some of them are lying though - they still have a house payment. A house payment doesn't count as debt on freedom Friday. That's fine with me. I am waiting to call the show myself.
I have vertical bars (a bar graph) on my white board that represent our debts. When we first moved we had some credit card bills (moving expenses) that took a few months to clear. Then we had some medical bills that took a few months to clear.
Now I am looking at my bars... most of them have gone away.
We have a house payment. I wish we didn't. Maybe we won't in a few years.
We have a student loan.
That's it.
Dave doesn't like the student loan.
I want to call Dave and scream "We're debt free except the house and the student loan but thats ok because my savings account is paying three times the interest that the student loan costs."
1.8%.
Would a rational person pay off a 1.8% loan? The math just doesn't work out for the rational person. The rational person puts all their spare cash into a "sinking fund" and then uses the interest on this sinking fund to pay off the student loan. It turns out that you only have to put a little more than half what you owe into savings and then let compound interest do its magic. You still have your savings account when you are done because the interest on the savings account has been enough to pay the loan.
The rational person balks at Dave's advice.
What about the spiritual person?
Would a spiritual person pay off a 1.8% loan?
A spiritual person owes no debt but a debt of love. A spiritual person does not become servant to a lender after they have been set free from their bondage of sin and death. A spiritual person does not go in to debt at all because that is presuming upon the future. A spiritual person believes that God will provide in supernatural ways if he will stay out of debt....
... but on the other hand... the spiritual person is a good steward of God's resources. If super cheap debt is available for a constructive purpose, does the spiritual person pass on the opportunity? Does the good steward pay off cheap debt when they would be better off by keeping their cash and letting it work harder than 1.8% (tax free) for them?
Perhaps our family should have bought a mobile home for cash and paid off all student loans and then saved up for a house before we bought it.... maybe God would have blessed us in ways that we could not even imagine.
... or maybe God gives us wisdom and the ability to do math so that we can make good decisions and not just roboticly follow the over-simplified systems of popular financial advisers.
I want to be the spiritual person...I really do want to be that guy... but my rational brain is telling me that walking in the spirit is a little more complicated than following Dave's baby steps. But the heart (our thinker) is deceitful and wicked...
What do you think?
Is Dave right? Is ALL debt dumb?
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4 comments:
we too can't wait until the day we can call in and scream "we're debt free". we are hoping to have the house paid off in a few years too- i think you should have to have the house paid off before you can really call and scream. won't that be a glorious day when our only debt in this world is the same debt we owe in the next... to out Savior and Lord for all He has given to us out of His riches!
i can't answer your other question, call dave for that one.
here is one thing that might help...
1 corinthians 10:23 All things are lawful for me, but all things are not expedient: all things are lawful for me, but all things edify not.
strong's definition of expedient...
1) to bear or bring together
2) to bear together or at the same time
2a) to carry with others
2b) to collect or contribute in order to help
2c) to help, be profitable, be expedient
does the debt fall into this definition? you could justify a lot through this verse (i mean, i could justify that a new outfit will contribute a lot and bring our family together, plus those new shoes and a BIG old diamond ring, but we are talking about you and not me.....)
Dave is right. All debt is dumb. (But I must confess we do have a mortgage, and once upon a time we had a car payment and a student loan.)
Something I wonder about is what would happen to the price of things if people were not willing to go into debt in order to obtain them? Houses, cars, whatever- wouldn't the price of these items drop? Barry, Dr. Finance, isn't that what would happen?
Also, if we had known at a young age that we were not willing to go into debt even for a mortgage, what would we have done differently and could we be at the same place we are today except without the mortgage? I remember hearing an older woman chastise our generation for trying to maintain our parents' standard of living when just starting out in life. She and her husband are quite well off now, but they started out in a rented basement.
i know that when adam and i got married when had a few years in apartments (and one year in a REALLLLLL fixer upper house that we bought for 50k, ooh, what i wouldn't give to have that house payment back again).
i find that most of our college students are getting married and buying pretty large houses as a first step. taking on that burden, PLUS car payments, PLUS college loans as well.
of course, when i was in college i had NO credit cards (thus no credit card debt). and now the national average credit card debt for a graduating college student is around 20k for a boy and 40k for a girl.
Maybe the most spiritual person I ever knew or will ever know (Howard) was a big believer in not paying off debts when you could make more on interest (and tax deductions, etc.) putting that money elsewhere. I am terrible with math and scared of debt, so I have not continued that practice.
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