My Disagreement with Dave Ramsey – Part 1

Dave Ramsey is well known for his Financial Peace University, Total Money Makeover,and of course, the Debt Snowball.  I have to say, I have a bit of a disagreement with Dave Ramsey.  I do not wish to discredit the work that he has has done, as his message has helped thousands of people get out of debt and reclaim their lives.  Rather, I would like to “enhance” his first two baby steps and his stance on credit cards a bit.

Baby Step 1

$1,000 to start an Emergency Fund

An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen. Learn more

Undoubtedly, the Emergency Fund (EF) is the single most powerful tool in the personal finance toolkit.  Dave Ramsey advocates for a $1,000 EF, but I disagree.  To shield yourself against the unexpected, you need to have twice your highest insurance deductible in your EF at all times.  What happens if you have a $2,000 home insurance deductible and a tornado levels your house?  I don’t know about you, but since I am still paying off debt, coming up with the extra $1,000 to cover the deductible would be challenging, to say the least.

What happens if you have 2 disasters happen within a short period of time?  This would result in 2 hefty deductibles, and a $1,000 EF would not cover it.  For peace of mind, stick with an EF twice your largest deductible.

Baby Step 2

Pay off all debt using the Debt Snowball

List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first. Learn more

The Debt Snowball Method is based upon the concept that paying off one small debt first gives you mental motivation to continue to pay off larger ones.  My lowest debt amount is not at the highest interest rate, and I’m guessing many Americans are in the same boat.  Pay off debt using the Debt Avalanche method (wherein you pay off the debt with the highest interest rate first) and use a loan amortization calculator to find out how much interest you are saving yourself every month when you pay extra towards the principle.  When you pay off the loan with the highest interest rate first, you save more money interest.  Money in the bank!

Let me be clear: Dave Ramsey’s Program has helped thousands regain control of their finances and I have great respect for him.  I simply believe that there are ways to make his plan more efficient.

What do you think of Dave Ramsey?  Is he a hypocrite or a hero?  Do you have any critiques of his programs?





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  1. I really like what you had to say. My finance teacher this semester had us study Dave Ramsey. I would get so angry because some of his philosophies didn’t make sense. My husband calmly reminds me that he makes money selling books and seminars–and those books and seminars contain material that many people find out of date or impractical, but it gets people to buy to find out! I love your emergency fund idea. Yes, if there was an earthquake tomorrow and my home and car were destroyed I would have to pay a deductible on the home and the car–totaling over $2,000 plus the cost of living expenses until insurance money came in. I also like the snow avalanche idea although on that one I do see his point that paying off a small debt can be a motivating factor for some to continue paying off debt that otherwise seemed insurmountable before.

  2. I don’t know a TON about Dave Ramsey (I’ve only read Total Money Makeover,) but I think I would agree with both of your points, especially the emergency fund one! They definitely make sense. Stopping by from Creative Mondays! :)

  3. I definitely see your points, but I’ve always been under the impression Dave Ramsey’s program was targeted toward people who were truly drowning in debt and on the verge of stripping on bankruptcy to pull themselves out of a bad situation. In those cases, $1000 is definitely better than zero, and making any dent possible in your debt is a help. HOWEVER, if you’ve been reasonably sensible with your finances in the past and you’re hoping to build your way to a stronger financial platform, saving tons and avalanching your bills is a much better option.

  4. Great post! I agree with Katie about who Dave Ramsey’s target audience is, and love his advice for them, however, I totally agree with you on your two points. An EF twice your largest deductible, at the minimum, is a super smart idea. We were going with the snowball when we first started to pay off debt, but it made me sick watching all of that interest go out the door, so we switched to the avalanche. I do think though, that if you’re having trouble with willpower, the snowball might be the way to go.

  5. While I disagree with Dave Ramsey on things, I don’t think his advice is always bad. It works for some people. A $1,000 emergency fund is better than what most people have. I didn’t use the snowball method because I could save a lot more with the avalanche. Some people need that motivation that comes with the snowball though.

  6. I am kind of like you, I think Dave Ramsey has some great ideas and has helped tons of people financially… but I do have some minor critiques to his Money Makeover. I agree that the emergency fund needs to be bigger. The debt snowball I think it really depends on the person. I know some people really need those small successes early, so paying of the largest first makes sense, while others can pay off larger higher interest loans and still stick with it!

  7. Great piece! I totally agree with your second point. My goal is to save money at all costs so choosing to pay the low interest smaller debt wouldn’t give me a mental high. Paying off the high interest one would make me feel accomplished.

  8. I have to give a dissenting opinion. I think the point is that you should have atleast $1,000 in cash. From there you pay off debt, and after that you invest. If you need more than $1K you can use some of the credit you paid off, or you can pull from an investment account if you’ve gotten that far. The goal is to get your money working for you. Don’t stash it out of fear.

    Also, you have a long time to pay up if you do have some sort of disaster. A couple years ago we had severe storm damage to our home and needed $12K worth of repairs. The contractor’s quote asked for 100% payment up front. I said no. He said 50%. I said no. He said 25%. I said no. These things are negotiable.

    • You were so right to negotiate! However, the point of an EF is to have cash available at a moment’s notice, and using credit as an EF is a dangerous and slippery slope that I myself have been down, and it is not pretty.

    • Not to harp on it, but I don’t think you understand.

      Let’s say you have $5K in CC debt and your budget is maxxed out. You cut your budget so you can save a few hundred bucks a month. After 3 months of saving you have your $1K EF. Now you should start paying off the debt. Don’t keep accruing REAL interest and fees so you can save up for an IMAGINARY disaster. The worst case scenario is you have to dip back into the debt that you already paid off. You’re still ahead because of the avoided interest.

    • Also, when it comes to credit cards you’re not just paying interest, you’re often also paying fees. That’s why the snowball method works out mathematically. When you knock out a credit card you’re not just knocking out the accruing interest, you’re getting rid of a monthly fee that is unrelated to the interest rate.

      It’s important to do the math on these things. Don’t do yourself a disservice.

  9. I could probably describe myself as a “hard core” Dave Ramsey fan. The $1000 emergency fund is more of a guide. As stated above, it’s a lot better than a lot of people currently have and Ramsey would probably recommend those people who don’t have the EF of more than $1000, to not have that high of deductibles.

    But it also is for those people who have $20,000 in the bank and have $50,000 in debt. It may sound silly to be in that situation, but we were. So in that instance, Dave Ramsey wants you to use some of your emergency fund to pay off some of your debts. We never went below $10,000 in our EF (we own an older home, so we didn’t feel comfortable going below that point).

    As far as debt snowball vs. avalanche it really depends on your personal finance situation. Our highest interest debt was my student loans at 6.75% ($38,000) and we had two car loans one at 2.9% and one at ~6% ($6000 and $4000 respectively).

    We went with the snowball because if we would have started at the student loan, the $38,000 mountain would have been very disheartening. Plus, we were able to knock out the auto loans within the first 2 months. So, interest wise it wasn’t going to make that much impact and the triumphant feeling of getting rid of those two small loans is what we needed to tackle the monstrous student loan.

  10. I agree and disagree with some of your points.

    1. $1,000 Emergency fund. I also think it should be more. However, I don’t feel like it should be the hardcore focus of your finances to go over $1,000. Let’s be realistic though. Our brand new health insurance has a $2,500 deductible for each person in the house. HELLO! My husband has been in the hospital every year he has been here (3 years) for something. It would be wise to have $2,500 in savings.

    With that being said, we are going to start with $1,000. Then I am going to budget in more money a month to slowly continue to build it while knocking out debt.

    Bottom line: Dave Ramsey doesn’t know every situation in every household in the world, but his general guidelines help a lot of people change their way of thinking.

    2. I also think which method you chose depends on your individual situation. I NEED that joy of knowing I paid off 2 bills in 2 months, even if I only paid off $25.00. It lets me know I am getting somewhere and seeing progress. Would you rather stand on a scale for 1 every day for a year and see a 50 pound weight loss all at once or 2-3 pounds a week? Which do you think would keep you more motivated?

    Additionally, if you want to pick the numbers apart let me give you an example from my own life. Right now, I am mailing out 19 checks a month. 19 stamps per month. 19 envelopes per month. If I continued to make minimum payments for the amount of time it would take to pay off the big debt first, in one year I would pay over $100.00 JUST IN STAMPS. (No, those bills cannot be paid online.) I would pay about another $100.00 a year in checks and another $30.00 or more in envelopes. Not to mention the amount of time it takes for me to keep records and write out ALL those checks!

    P.S. As an insurance agent, I can tell you there are some companies out there who don’t double charge deductibles if your home and vehicle are damaged in the same event, they only charge the higher of the two deductibles one time.

    • Wow! I never thought to do the math on all of the stamps….really they’re getting pretty expensive, so great point there! Also, I did not realize that about the deductibles, but I do have a question, What if you had 2 different insurance providers for your home and car. In that situation is there a chance that you would only be charged one deductible, or would you definitely be charged both? We have the same insurer for both car and home, but I am just curious :-)

      • Hmmm, I thought I already responded to this, but I guess I didn’t submit!

        If you have different providers, you will likely have to pay both dedutibles!

  11. We were hardcore Dave followers for years…and never really made any headway other than getting out of the cycle of disconnect notices. I was even a member on his forums and seeing everyday how his system was working for people in all sorts of situations. But why wasn’t it working for us?! Well, because the debt snowball method doesn’t exactly work when you have all your debt in collections, not open debt. And yes, the small EF bit us in the butt a few times with deductibles and such. We’re finally making headway working with a different finance mentor (Belinda at Own Your Money). I think DR’s program is meant to be a one-size-fits-all sort of thing…and well, it doesn’t always!

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  13. I agree about the emergency fund. $1,000 seems to me to be too little of an amount. My emergency fund is close to $5,000.00. Also, I never let my checking go under $1,000.00! I’m doing the debt snowball method right now. Paying off my smallest loan first (student loan) and then tackling my car. Soon to be debt free! yay!

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  15. I understand why he gives a low number for an emergancy fund. Most of my family would give up and say it was impossible if they thought they had to save $2,000. We did the Dave Ramsey program and the dept snowball worked really well for us. I understand that paying off the highest interest rate makes more sense but paying off a credit card was a huge motivator! I felt like we could do this after every victory.

  16. We are in the middle paying off six figures of student loan debt, so we have opted for a bigger emergency fund. Between health insurance deductibles, three young kids, a business in the beginning stages, and debt that will take longer than 18 months to pay off, we feel much safer with a slightly larger emergency fund.

    The only debt we’ve ever had is student loan debt. We have no minimum payment because we’re on income-based repayment and we don’t make enough (with our family size) to have to pay yet (though they are still accruing interest), but we are determined to wipe them out asap. We weren’t worried about psychological benefits, so we paid off the 7.9% interest ones first and then onto the 6.8% ones.

  17. My husband and I have read Total Money Makeover. I agree he has helped thousands of people and I respect him very much. We do however, have a few disagreements with him as well. The only debt we have is our mortgage and student loans. Both of which are at incredibly low interest levels and since they aren’t considered “bad debt” we aren’t worried about paying them off at a super accelerated rate. However, our mortgage used to be higher but has continued to flex lower, we never reduced the amount we pay, so we are actually putting more towards it each month than the minimum. We also felt that we wanted 6 months of salary in an easily accessible bank account. Should my husband loose his job (our only real income) I know I could cut expenses and make it last for 9-12 months before we would have to incur any debt. We do also have about $2k set aside if something unexpected comes up, like a big car payment or deductible so that if we ever needed to we could get to that quick also.

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  19. I agree with your thoughts about an EF. My husband and I are currently in this step and he wishes to stop since we have exceeded Dave Ramsey’s advice, but I wish to add just a little bit more before moving onto step 2.

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  21. Dave Ramsey is certainly great for those with crippling debt who cannot control themselves around plastic and need someone to guide them. Sadly, there are too many people in this category.

    The reality is we do not really require these financial guru’s to tell us what to do. Their advice usually boils down to 4 key points 1) Income 2) Budget 3) Eliminate Debt 4) Save and grow money. People like Dave Ramsey simply add their own flavours and twists to the formula.

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  23. For me, knowing we only had $1k in the bank while paying off debt was MORE motivating to pay off the debt. (We had half of Baby Step 3 done before starting Dave’s plan.) I knew that, if an emergency happened before Step 2 was done, we’d have to hit the credit cards. Psychologically, we were more motivated AND, luckily, had no emergencies over $1k while attacking Step 2 for 2.5 years. That said, if people are going to take longer than 1-3 years to complete Step 2 (which is not having Dave’s recommended ‘gazelle intensity’), then a larger ‘starter’ emergency fund makes more sense. You’re right, if people choose to do Dave’s plan in an ‘a la carte’ manner, then Dave’s plan won’t work – HE EVEN SAYS SO often on his radio show!

      • Yes, I’m 37 and work in accounting also. My wife is 32 and stays at home with our 1-year-old twins. We became debt-free (except for our house) late last year and will be done with our 3-month’s-of-expenses emergency fund at the end of this month! Woo hoo! In the meantime, though, we have been putting 8% of our income into the Roth 401k so that we don’t miss out on the matching. Saving for a ‘new’ car, though, is not fun… Best of luck to you!

  24. Everyone’s situation is different and while Dave may not work for everyone he does work for most and is the only one who really makes it easier on others to understand the plan and what needs to be done. I do not believe he is in it just for the money. Does he make money? Of course he does how could he afford to continue to do what he is doing if he didn’t? It is not just about debt with him its your lifestyle change, it is helping us determine the right amount of insurances and the correct mortgages to take – he doesn’t just stop with debt. He is also helping out small businesses with advice on how to be successful. It is not just simple principals to him he lived a life with bankruptcy and he survived as well as starting a multi-million dollar company so not only is he giving advice he is giving us real life experiences.

    That being said. I personally would rather have a larger emergency fund, but lets face it-if I waited until I had 2K -5K saved it would be another 2-3 years before I could even begin getting out of debt. Secondly the debt snowball not only works because of the quicker victories but it also allows you to pay higher balances on those larger loans/cards so that their balances go a little quicker. Think about it if I had 4 small loans paying $25-50 each and I knocked them out in a year or so then I now have $100-200 more to pay on on the higher amount – whereas if I could only pay say $25 more on my regular payment it would take me a much longer time to actually get out of debt.

  25. Dave has made a plan to help as many people as possible, and while I am sure he makes a nice living off sales of his materials, I believe his heart was in the right place when he started this! You have to adjust the plan to fit your life! No one is forcing you to follow it word for word, but the way he has laid it out is simple enough for a massive number of people to follow! We are following most parts of his plan, but like you we are concentrating on the debts with the highest interest. With that said, I personally don’t need that reinforcement, that “pat on the back” feeling to keep me going, but some people need those small victories to see and feel their progress!! Just a thought!!

  26. Dear Blogger, I realize your heart is in the right place and that’s great. But it’s obvious you never read Dave’s books or gone through his class. It’s okay to have a different opinion. I’m just saying do some research next time.

    • Hi Tommy,
      Actually, I have read a couple of his book – and been through the class, I just don’t disagree with him at all. What is obvious to me is that you didn’t do your research, because you don’t even know my name.

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  28. While I think your idea about having a larger Emergency Fund is great (and one I’ve never thought of before), he is making $1000 set aside Step #1, not the end goal. For the majority of people he is targeting, this is a good starting point. His goal is they won’t need to use the credit card to pay for an unexpected car repair for example. If they have an emergency and need to dip into it, they then stop paying off debt until the build the $1000 back up, so they always have it at hand. I think for most people, worrying about paying the deductible if a tornado levels their house is not their very first step in learning to manage their money better.
    I’ve not heard of the Debt Avalanche either and it certainly makes sense. As you and many commentors have said, the psychological plus of paying off your smaller debts first works for many people. I think that is what he is seeing time and time again with people who previously felt very little hope of changing their patterns and getting out of debt.
    There is never one way to achieve something, it’s finding what works for each of us and thank God when we do!
    Regarding him making money, I love that he is able to make a great living doing what he loves and is good at. We should all be so blessed! :)
    Looking forward to reading more of your blog and being inspired!

  29. I agree with you about DR not being for everyone. Since I only have 2 debts, it wouldn’t feel particularly gratifying to pay off the one before the other. They are about $1500.00 apart, and the smaller one has the lower interest, so if I put all extra money on the bigger one, I save a lot more.

    I think that the $1000 is a good START, but if that is where you stop, then you aren’t following the whole program. I am not sure that it wouldn’t make sense to split those priorities after the first thousand, though.

    I mean, if you have the first thousand, then the following month or pay period put half toward your debt and half toward your EF. That is just my idea for me, since I only have a $500 deductible insurance right now.

  30. We took the class at church a couple years ago. It’s such a joke! We took the class because we couldn’t pay our bills. There was not enough income to do so. So, even paying off the smallest bill was only a dream to us. You’re telling me that all of your other debtors will just wait patiently while you focus on just one bill?! As a one income family (I homeschool our kids) we felt SO out of place in the class. I cried in the car on the drive home every week. His philosophy is fine for people who actually have the money to pay off debt and just haven’t done so yet out of laziness or disregard… Sitting through his videos was nauseating. Watching him walk around with his chest all puffed out. Easy to be arrogant when you are making millions off of books peddling false hope to the little people.

  31. Hi, :)

    I just came across your retiredby40blog today. What I have read of your articles I have enjoyed and see as very helpful. My husband and I read Dave Ramsey’s Total Money Makeover about 9 years ago, and through his plan paid off $14,000 in debt in a year (which was all of our debt). My husband initially had a really hard time paying the smaller balances off first, but it is true once you have paid them off one by one you add that amount to the next and keep tackling the debt. We found it to be very effective. Recently, my younger brother passed away from drug use that had taken it’s toll on his lungs. Long story short, there was no money to pay for his burial. My husband and I took part of the debt on by use of our credit card. We now have $7,000. of debt again and other expenses that are making it challenging to get out of debt. I am looking forward to reading through your information. Thank you

  32. The one thing I can’t stand with regards to paying off debt that goes on every website is the assumption you make enough to pay it. I can’t get rid of our phone (we are down to 1 to save $) because both of our jobs require us to be able to contact us at any given time, we have chosen the cheapest phone and plan available in our area. Internet… yep need that for our jobs as well. Also have chosen the cheapest plan. We have cut corners at every possible turn. We have had 6 job losses in 5 years and then I was out of work for 6 months due to a car accident after that. I can’t work as many hours as I used to because of this accident. My husband works very hard, but is paid just above minimum wage. When it comes to bills piling up… yep… we know the feeling. I get no less than 4 calls a day from various collectors. When I tell them there is no extra money, they don’t believe me. We even took FPU at our church last year to see what we were missing… imagine the shock when the leader realized there really was no extra money. We have not had credit cards for 3 years now. No credit card debt (just before the car accident we claimed bankruptcy). WE chose at that time to not get another credit card. Best decision ever, even though we live hand to mouth some weeks. SO yeah, I get the debt snowball/avalanche/tidal wave etc. Applying doesnt’ work for us because then the student loans we owe on will never get paid and we can no longer put them on deferrment. We seem to be out of options. I think what you are doing is fantastic. I really do. Love the encouragement you are giving everyone. I seriously don’t know what to do anymore.

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  34. The baby steps have more to do with emotions and achievements than math.

    Baby Step One: this is meant as a “starter” step for those who have nothing in savings. It is intentionally meant to be a goal that is quickly achievable so (1) small emergencies won’t derail their plans to get back in control and (2) they will not be demoralized by a first step that might seem insurmountable if it is too big. $1000, of course, is not enough for many larger emergencies. That is why it gets supercharged in Baby Step Three.

    Baby Step Two: you are right when you say you can save more in the long run by paying the highest interest rates off first, but as Dave would say, it is not an issue of math most people struggle with, but an an issue of emotions. If people were governed by math, then they would most likely not need a debt snowball or avalanche, because they would not have overextended themselves in the first place. The endorphin release of kicking one of the small debts to the curb and crossing it off the list shouldn’t be underestimated… especially for someone who has been crushed by debt for years. That small moral victory may keep them going where the Math may not.

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