Personal Finance Interview on Getting Out of Debt with Dave Ramsey
Dave Ramsey is a well known financial guru around the world. He is the author of several New York Times best-sellers, is heard on more than 500 radio stations across the United States and Canada, has a huge following on his Dave Ramsey Show podcast and also frequently appears on TV (he has appeared on the Oprah Winfrey Show, 60 Minutes, The Early Show on CBS and on Dr. Phil, to name a few). He was also the host of the Dave Ramsey Show, which aired on Fox Business Network until June 2010. He's also a motivational speaker and, in 2009, he was named the Marconia Award winner for Network / Syndicated Personality of the Year.
Dave has many products, tools and courses at daveramsey.com, which also links you to his books, his blog and a myriad of other resources.
We managed to catch up with Dave and ask him a few questions about getting out of debt and staying there. It all starts with his own, personal story.
Tell us a bit about your story.
Starting from nothing, I built a real estate portfolio worth more than $4 million by the age of 26. But even though I was a millionaire, I had built it on a house of cards. The banks started to call my loans, and over a period of three years my wife and I lost everything.
This led me on a quest to find out how money works, how I could get control of it and how I could have confidence handling it. I read everything I could get my hands on and talked to older rich people who had made money and kept it. That quest led me to realize that if I was able to control the person I shaved with every morning, I could win with money.
As we got back on our feet, people began to ask how we were doing it and what they should do. That put me on this path of helping others, so they don't have to go through all the mess and heartache that I did.
You hate debt and your work about this topic is absolutely fantastic. Why do you think we get ourselves into debt and do you consider all debt to be unnecessary?
Too many people buy things they can't afford to impress people they don't even like. Everyone's trying to keep up with the Joneses, but the Joneses are broke! If you're going to get out of debt and stay out of debt, you may have to say "no" sometimes, make some sacrifices and have patience. That's called being an adult! You can buy a car without a car loan, you can go on vacation without debt and you can make large purchases without using a credit card. I believe that all debt is avoidable, but the only debt I don't get mad about is a mortgage.
Do you think we learned our lesson from the recession?
The recession was a wakeup call for a lot of people. They realized they can't spend every penny they have coming in, and then go into debt for all of the other "stuff" they need or want. Since the recession, we've seen more people avoiding debt and living within their means. My hope is that this behavior with money continues.
What's the biggest obstacle preventing us from taking action against our debt?
Change is painful. Most people won't change until the pain of where they are exceeds the pain of change. If you keep doing what you're doing, you're going to get the same results. You have to decide that the pain of change is better than the pain of not changing.
What do we do if we feel that defeating debt is just too a big a mountain?
When you're facing a lot of debt, it's hard to feel like you'll ever be able to pay it off. That's why I teach people to pay off debt using the Debt Snowball. The Debt Snowball focuses more on behavior change than mathematics. People attack their debts one a time and are able to get some quick wins, which helps them to stay motivated.
List your debts, smallest to largest, in order of pay-off balance. Put every extra penny you can find towards your smallest debt, while making minimum payments on the others. Once the smallest debt is paid, take the payment from that and any extra money and put it towards the next smallest debt. Continue this until you're able to pay off all your debts, except for your mortgage. By the time you get to the bottom, you're able to make large payments on the biggest debts.
How does the present culture continue to encourage us in the wrong ways when it comes to money and how can we ensure we get our thinking right?
There's a lack of patience in our culture. When we want something, we want it now. If we want a new car, we get a car loan. If we want new clothes, we put it on a credit card. This way of thinking leaves people with a bunch of nice stuff, but no money. We have to remember that in order to get ahead with our finances, we may have to make some short-term sacrifices. But by living like no one else now, you'll be able to live like no one else later.
Is being rich the goal?
Having a sense of peace when it comes to your finances is the goal. This comes from getting control of your money, getting out debt and saving for your future. Your largest wealth building tool is your income, and when you eliminate debt and costly payments, you're then able to build some serious wealth! All of these provide a sense of peace and security with your finances.
How do you see technology these days helping us manage our debt? Do you feel it's easier or more difficult these days to manage our finances?
There are a lot of great tools out there to help people manage their money. Simple tools make it easier for people to pay attention to their finances, instead of discouraging them from doing so.
Do you think that the amount of information available to us around investments, etc. is helpful? Or is it being unhelpful? How can we keep it simple?
Information is always a good thing. You should never invest in anything you don't understand. While it's helpful to have a lot of information on investing, I also recommend speaking with a professional. Find someone you trust and who explains things to you in a simple way.
Check out daveramsey.com for more and also follow Dave Ramsey on Twitter, like the Dave Ramsey Facebook page and check out the financial advice at the Dave Ramsey Show on YouTube.