How's Everyone Doing in LTL Right Now?

I get what you're saying but when you're dealing with a large majority of people out here if some of them are wanting to get out of debt what you're saying is all wrong. Mathematically yes you're right but pyschologically wrong. People who have acquired a bunch of debt and have bad spending habits will look for any reason to justify debt. Your way encourages that bad behavior. Dave Ramsey's way is a better way than yours. The debt snowball is a better way. It just is. I went through his process 20+ years ago and cleaned up a mess. Back when he was just a local Nashville area radio personality and maybe had a station out in Midland Odessa.

The reason you don't look at interest rates and instead pay the smallest debt off first is because pyschologically a person needs the gratification of making some progress in what they're doing. Most people if they choose to start with a higher debt that has a higher interest rate after some time of seeing no progress they'll simply give up reverting back to old habits. You gotta knock out the small ones and get some victories. Pyschologically that's important it keeps one motivated. Instant gratification is what gets everyone into debt so there needs to be some of that if someone is paying it off. Does that make sense? If you listen to him I think you'll see the method to his madness is well thought out and works. Like I said I followed his advice and it worked great and I never bought any service he hawked either.

Debt is ALWAYS slavery and the real cult are the people who try to justify their finances being in a shambles, throwing up their hands and just saying that's how it is. It's funny though I learned something I didn't know. The definition of leverage. I thought leverage meant you had all the control of a situation. You set the terms. For me in the trucking business it meant twisting an arm to get the rate I knew I could command. I had all the leverage in that scenario. It's oxymoronic that leverage in a financial sense is using debt to make money. The bank has all the leverage there (the house doesn't lose!!) and the borrower has none!

 

Also, anyone who defaults on a car loan is not seriously trying to get out of debt. That's just outright dumb because I can post any car for sale on Facebook marketplace right now and have it sold by tomorrow morning. Problem solved, even if I owed more than what I got for it.

 

If we're talking about a low interest debt that can be paid off in a short term (less than 6 months), I might agree. I'd definitely agree if there are multiple small accounts. I might also agree with someone who is just beginning to get their finances in order. But none of that is what I was talking about.

If a person has their finances in order and has a plan to aggressively pay down their low interest mortgage but is facing a large expenditure in the near future that would require a high interest loan it makes sense to slow down the mortgage repayment to stack cash for the large expenditure - both mathematically and psychologically. Going from a $30,000 debt to $0 debt to $30,000 debt isn't going to feel like you've made any difference, particularly when the minimum payment doubles.

I have listened to Ramsey. His advice is over simplified and not conducive to building wealth. The overwhelming message he sends is using credit is bad because he over leveraged himself with short term debt and got burned - as a result he hates fire. He claims to have a 'zero fico score', which is kinda true - until you look at his businesses which have healthy credit profiles. Businesses that also subsidize his personal life. And let's not ignore the 'debit cards' that he issues to employees are functionally credit cards with spending limits.

Ramsey likes to say that paying in cash makes people think about their spending more. The idea isn't wrong, but it also isn't right. Give one 14 year old a $20 bill and give another $20 in singles and set them loose in the county fair. Odds are the one who got a $20 bill will end the night with more money left over and will have gotten more value for their money than the one who got $20 in singles. Give a third a debit card with $20 and they'll be broke the fastest. Give the 4th a credit card and they will spend $80 by the time the night is over. The key isn't using cash over credit, it's being cognizant of spending and making value oriented choices. Neither 'snowball' or 'avalanche' methods will work without a determined effort.

As to leverage - the only way the bank has leverage is if they want the borrower to default. There are definite scenarios where that happens which I won't discuss on the open forum, but if you wish me to elaborate PM me. The bank wants to make money off the interest, they have a vested interest in the borrower being successful and are incentivized to avoid the loan going into default. Imagine someone working a McJob who is looking to better their lot in life. $5,000 will get them a CDL, but they don't have $5,000 and it will take 3 years to save it. Borrowing a personal loan from a bank will cost them $5,700 over two years at 6%. After 4 weeks in school and three weeks in orientation a mega will pay them 60 CPM and give them $5,000 in tuition reimbursement over 1 year. The third option is to go with company sponsored training which lasts 3 months at $600 a week. Two of the three options include leverage, one where the lender has advantage and one where the lender and borrower team up so they both make money. The third option leads to nowhere.

The idea of 'leverage' is to put yourself in a position to move others OR to move yourself. You can use a lever to move an object or you make the lever into a catapult to you over the object. The key is you DECIDING what to do with the lever and not others deciding what to do with you.

If a person has 2 loans - a home mortgage and an auto loan, and they only have enough money to pay one of them this month, only an idiot would pay the mortgage and skip the auto loan. The auto loan can be called in immediately (ie repo) whereas the home loan will take months before eviction and in that time the person has a chance to cure the default. If I needed to borrow money for a car I would rather take a HELOC than an auto loan, unless I got a FANTASTIC deal on the auto loan.

 

Ok I got you. And I dont believe for a minute you've listened to the advice. Mostly you will argue just for the sake of it, that's your MO here, and think you have an answer for everything. I'm kinda the same but even I have limits. You're just another of the Ramsey haters out there making excuses and really don't have a better way. And you also know more than a guy who's built a multi-million dollar media empire over the last 30 years teaching people how to get out of debt and be financially responsible. So I have to ask, where is your radio show?

 

The first time I heard of Ramsey, my first thought was "well duh" because it was nothing different than what was drummed into me from the time I was knee high to a whipper snapper. Live within your means, buy for value not for price, don't try to keep up with the Jones. That was in 2006, when my school district adopted the "Ramsey Solutions Curriculum" at a cost five times as much what was the standard Illinois Consumer Education Curriculum , despite it not meeting both the Bush era No Child Left Behind financial literacy standards and the Illinois Consumer Education Curriculum, causing the district to lose a HUGE chunk of federal funding in 2008. I literally taught Ramsey's philosophy for 3 years (please see above about untenable work situation). At the time, he advocated forgoing employer matched 401K funds to pay down debt faster. This made kinda sense in the mid 90s when interest rates were higher than 401k match rates, by the mid 2000s this advice was dumber than spit.

Do you also carry water for Kevin Rutherford? He built a multi-million media empire, but doesn't seem to have a good reputation on TTR.

As for me, I should be able to retire by the time I'm 50. I probably won't due to how ingrained work is to my self worth (which is a problem I'm working on - taking vacations shouldn't cause me stress, but they do). A large part of my financial portfolio is rental properties which I bought with *gasp* DEBT. I could have sold equities to pay cash, but those equities payed a higher dividend than the interest - not to mention paying cap gains on selling the equities.

I don't know where I've made excuses for anyone's bad choices in this thread. I have pointed out better avenues to get out of debt faster for those who have their spending under control. My initial response was about how it could possibly be beneficial to slow down repayment of a low interest loan to avoid initiating a high interest loan (which by the way is part of the "Ramsey Solutions Curriculum"). Beyond that, studies show the 'avalanche' method pays off debt more effectively than the 'snowball' method, especially when participants are presented with a complete balance sheet every month.

That last line is really the key - looking at a complete balance sheet every month. The snowball method feels like it works by eliminating a payment, but if a mystical entity summarizes all the debt and applies total payments optimally the physiological impact is the same because the person sees the balance decreasing. Yet Ramsey suggests that consolidating debt is a bad thing, for reasons that elude me. If a person can consolidate all debts to one payment at a lower overall interest rate AND doesn't open new lines of credit, what's the harm? Now if consolidating results in a higher APR/total costs, then forget that - but Dave doesn't really talk about how to do the math to figure that out.

 

So where's your legions of people who followed your method and what channel is your radio show on? Consolidating debt ain't paying it off. It's just making it one big payment. Next thing you know another credit card creeps back in. And another. It's the ridiculous notion you and others have about "leveraging" debt that doesn't do anything productive all it does is lead to more of the same bad behavior that led to the debt in the first place. Until you have a single minded determination that debt is bad it's ok to play games and have it hang around.

 

You should have ran Yellow. Those guys should have been barred from owning CC after 2008.

 

Where are my legions of people who followed my method? The better question is whose method I followed - Carnegie, Rockefeller, Vanderbilt, JP Morgan, Steve Jobs, Bill Gates, Warren Buffet, Charlie Unger, Sam Walton, Richard Duchesois, Larry Fink, Carl Moyes, Al Schneider, Chris Lofgren, Elon Musk and Donald Trump, et al.

Debt isn't a problem if it is PLANED debt with an OBJECTIVE. Preferably an objective that pays off the debt without other capital investment. The important part is doing the math to figure out if it's a good deal or not. Would you invest $80,000 if you knew it would result in owning a $500,000 asset in ten years? I don't know anyone who would say no to that. But what if it was a choice between a $380k cash investment or an $80K investment with a $300k mortgage that is paid off in 10 years with no other investment? Which is the higher yield? Then calculate the return on paying $1,000 a month on a rental unit over 10 years (including rent increases).

The problem isn't debt - it's the careless spending that leads to unexpected debt. It's also the regulations that allow for spiraling debt - all unsecured debt should have a minimum payment that results in total pay off inside 9 months with a suspension of the ability to recoup credit over that. Credit card companies are incentivized to allow debt to spiral out of control - they get to write of not only the debt but the interest and 'collection fees' which far exceed their actual costs.

 

Debt is unfortunately a necessity. And that is because the prospects of homeownership are impossible unless you have a credit score; which is a byproduct of how you can manage debt. There are very few people that can just purchase a home without financing it, much fewer still in our line of work.

The biggest problem I have with debt it is like alcohol. Yeah sure most people will tell ya a glass of wine a day is good for you and maybe the same goes for using credit as needed. But if you give either one of those to a college student that just left the coop, and oh is it on. I mean people get carried away with it. I talked about this before, but my old neighbor was a Category 5 financial moron. She and her family literally went to Disney Land or World (whichever one is in Florida) every 30-60 days. I am not even using hyperbole. They were constantly down there. They were wearing the oversized Mickey ears each time they came back and everything. Her husband was like an office worker and she did one of those Mary Kay pyramid schemes. And they always had next year's model cars by Thanksgiving. There is no way they could afford that.

There are people that collect the points. Personally I put my property taxes on my C/C. The vehicle taxes in July and house taxes in December. I immediately pay them off since I already have the funding in place in a separate savings account. It keeps my credit score up, my oldest (and only) C/C alive, and I get the points to go shopping on Amazon. It's how I ended up with a 7 ft beanbag chair. But what I do is entirely different than people that are supplementing their day-to-day expenses. If that is what people are resorting to, they really need to reevaluate how they are balancing the money going out vs the money coming in.

Oh fun fact, a person that pays off their entire credit card balance before the end of the month is called a "deadbeat" by the credit card companies. True story.

 

You are speaking my language. The people renting the houses in my area are doing so at $1,400 a month. Why would you pay someone else to live in their crap that you can't even modify and make your own. People need to save up for a down payment and get a place of their own to build equity in. Maybe 5-10 years they will have equity or appreciation. This is what happened to me. I bought a place for $139k and sold it for $249K, Then I bought another place for $135K and that is now worth around $250K.