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MOB #50 – U.S. Financial Rescue Proposal & Personal Debt Reduction

September 25th, 2008 · podcasts

On this episode of Millionaire or Bust, we have our second midweek short episode. The financial markets are still very rocky, so first off, I had to give an update on the markets, including Warren Buffet’s purchase of 9% of Goldman Sachs for $5 Billion on Tuesday.

Then I talked a little bit about the details of the $700 Billion financial rescue proposal made by the Bush administration. I’m not too keen on how much latitude might be given to the Secretary of the Treasury, Henry Paulson.

Then going back to the roots of the show, I pull out a tool and a tip for debt reduction. The Tool is a Debt Reduction Planner courtesy of money.cnn.com. It helps you to figure out how quickly you can pay off your debt or how much you need to pay a month to reach a time related credit payoff goal.

The tip is courtesy of me, by way of a slight disagreement with Dave Ramsey. He seems like a great guy and he’s helped a lot of people, but he made one small mistake with the Debt Snowball and I’ll tell you what it is. Not only that, I’ll tell you a way to address the issue that led him to suggest the Debt Snowball in the first place. Have a listen, you just might find it helpful.

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6 responses so far ↓

  • 1 Brian // Sep 26, 2008 at 11:26 pm

    If you want to become a millionaire, then maybe you should take the advice from a multimillionaire like Dave Ramesey.

    What you left out of your review was Dave Ramsey’s “Power of Focus”. I have completed the Dave Ramsey Debt-Snowball and paid off $75,000 with it in 2 years. Dave teaches you to get angry at your debt. You need to start mad, then accelerate your way through the whole debt. That acceleration is powerful!

    Why don’t you stick to giving gas pump price updates instead of critiquing a proven system.

  • 2 David // Sep 27, 2008 at 12:03 am

    Sorry, Brian but your email address was incorrect so I couldn’t send you a personal email. I know you’ll probably never read this, which is a shame, but hopefully someone else will.

    I didn’t mean to offend you by giving my opinion of a portion of Dave Ramsey’s teachings which is fundamentally wrong (from a financial, not necessarily mental standpoint).

    I’m glad that his teachings have really worked for you. As I said, he’s a very smart person and he’s helped a lot of people. That, however, doesn’t mean that everything he says is gold.

    What I meant to say, if it didn’t come across, is that if you have the mindset to be focused and work off your debt without getting discouraged by how long it takes, there is no reason to make it take longer by incurring more interest charges than necessary. If you’re really angry at your debt, you’ll be determined and pay it off, no matter which credit card you pay off first. As a bonus, the means I suggest, which is suggested by many others as well, will pay it off faster. That is a proven fact. The less you pay in interest, the faster the debt will come off.

    If you call up Dave Ramsey and tell him that you have the discipline to do it the way I mentioned, I doubt that he’d tell you to do it the other way. If you doubt that, give him a call during his show and then get back to me.

    Thanks for listening to the show and I wish you good finances and increased wealth!

  • 3 Brian // Sep 27, 2008 at 6:29 am

    You are right. Based purely on math and hindsight you pay less. But pure math and a set long term debt payment plan will keep real people in debt longer. Dave’s snowball builds as you accelerate it with additional effort along the way.

    You have good advice for financial nerds.
    Bad advice for everyone else.

    You are leaving out the “personal” finance side of things. If real people are smart enough and disciplined enough to to do it your way, then what are they doing in debt in the first place?

  • 4 David // Sep 27, 2008 at 11:55 am

    Brian! Glad you came back. I really appreciate a good discussion. I refuse to believe your hypothesis that real people are stupid. I believe people sometimes have financial hardships or make mistakes early on, especially when in college and starting out that they need to dig themselves out from. I wouldn’t say that most people are spendthrifts that buy a 65″ tv when they have $10,000 in debt, although there are those out there. Often, people just get discouraged when the debt is large and it might take them years to pay it off.

    Obviously, you were able to make quite a bit more than you need to live on to be able to pay off $75,000 in debt in two years, so don’t pretend to speak for the masses. Many don’t make that much after taxes in two years, more or less after taxes, housing, food, utilities & other necessities as you obviously do.

    So, for them, any way that will help them to pay off their debt faster will be helpful as long as they stay focused on their progress rather than their level of debt. Besides, to be honest, unless one credit card has a very low balance and one a very high balance, the order of the cards being paid off won’t affect their motivation that much.

    Now as far as your point about a set long term debt payment plan, you’re incorrect. I never encouraged people to take a long time to pay off debt. I encourage them to do it as fast as possible. The “only” disagreement I have with Dave Ramsey, that I know of or that I mentioned, is his believe in paying off the lowest balance first rather than the one with the highest interest. So, I don’t think there is as much of a distinction in our beliefs as you previously thought.

    You can believe that people are stupid, while I’ll continue believing that they sometimes make bad decisions. When giving advice, I believe in giving good advice and allowing people to make their own mistakes. I won’t make it for them. It would be irresponsible for me to give them the second best advice and say, “Well you’re too stupid for the truth, so here’s what you can handle.” But, as always you’re welcome to your opinion. Thank you so much for voicing it.

  • 5 penny // Jul 7, 2009 at 2:00 pm

    Not so much that people are stupid, but there’s such a thing as job loss of one spouse, loss of overtime. We’ve always paid our bills but now we’re falling behind, my husband thinks bankrupcy is best, I find that idea hideous, medically I can’t work we don’t talk about finances anymore because I only get frustrated so everyday I’m holding my breath wondering when is the other shoe goning to fall. I’d love to totally refinance everything. I’m at a loss. We’re good, honest people and this isn’t supposed to be happening. I’m helpless because I can’t help him. I love him and I can’t fix this

  • 6 David van Sunder // Jul 7, 2009 at 2:41 pm

    Penny, I’m sorry to hear about the situation that you’re in. There are all too many people in a similar situation. I even know a couple of them. It is extremely stressful.

    The difficult thing is that when you would most benefit from the savings of a refinance, sometimes you don’t qualify because of new banking rules, a lost job, etc.

    People have been getting very creative as of late in ways to save money & ways to earn a little extra income from home, but sometimes it isn’t enough and they still fall behind. Hopefully, your own efforts will sustain you until your husband finds a better work situation. If all else fails, bankruptcy is an option. Obviously that should be a last resort because it will devastate your credit rating for 7 years, but unfortunately many people who never expected to have filed for bankruptcy recently. I hope that things turn around for you and your husband.

    Best wishes,
    David

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