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I tend to agree with Dave Ramsey on this point. A home loan is just about the only “good” type of debt for an individual to have. Because it tends to retain or

by vlunkr 2y ago

I tend to agree with Dave Ramsey on this point. A home loan is just about the only “good” type of debt for an individual to have. Because it tends to retain or gain value with little risk. He also recommends a 15 year loan instead of 30, which has been amazing for me.

tombert 2y ago
I thought Dave Ramsey was pretty much completely wrong about student loan debt, at least if I remember his position on it being "you shouldn't have student loans". But I agree that most debt is probably bad to have.
- CalRobert 2y ago
  It might be extreme but 15 years ago he was telling people not to be so flippant about taking on enormous amounts of debt for degrees with a questionable payback and I think he was right. I always thought the snowball method was dumb but as time goes on I can see how it makes sense psychologically, even if not mathematically.
  - tombert 2y ago
    Sure, I've said a few negative things about Ivy Leagues being overpriced here in the last few weeks, so I'm not saying you should necessarily get into $400,000 of student loan debt. What I didn't like about his take was that it also kind of also excluded getting into like $20,000-$40,000 of debt to go to a decent state school. That's a bad take; getting a degree (at least in a technical field) substantially increases your earning potential, and while $40,000 is a lot of money, it's not out of reach for virtually anyone working in tech or engineering or something adjacent, at least not in the US. I guess my frustration with his perspective is that it felt extremely reductive; he acts like the only student loan debt you can get into is Harvard-level stuff, but I think that's just not true, and not even the average case. Most people don't get into Harvard, (I think) most people who go to college end up at a state or local university, and as such they're not getting into the obscene levels of debt that you'd get from these yuppie private schools, particularly if they state within state.
    - bluGill 2y ago
      State schools are not ivy league expensive, but they are not cheap anymore. of course the degree matters. You pay about the same for art and engineering degrees but one will earn far more than the other.
    - somenameforme 2y ago
      You age is showing a bit with your post. Randomly picking Penn State you get annual costs of $60k+ for out-of-state and $40k+ for in-state. [1] The cost listed on the page is only for tuition/housing. Use the calculator to get estimates for everything else. And that's an anti-cherry picked example, as I wanted to avoid absurdly expensive places like California, but while also going for a well regarded school. You can easily get well into the 6 figures of debt even at state schools now. You'll find even rando state universities are hitting $30k+/year. Education costs have done exactly what you'd expect them to do when you convince people something is priceless and then give them unlimited and near unconditional loans to buy it. I don't really see the point in this when you can instead attend English language programs in e.g. Europe or Asia and pay less for your entire education than you'd pay for a semester at rando state school in the US. Do a work-study program and you could graduate with a tidy chunk of change saved up, instead of graduating buried in enough debt to buy a house. The ironic part is that this advice is even more pertinent for those coming from low income backgrounds, or from parents with limited education. But they're probably the people most unlikely to take advantage of such options, if not only because they probably just don't consider it. [1] - https://admissions.psu.edu/costs-aid/tuition/ https://admissions.psu.edu/costs-aid/tuition/
      - tombert 2y ago
        Fair enough, but in fairness not all state schools are created equal. For example, at least one SUNY college (SUNY Empire) is only about $3,535 per semester (at least for tuition) for in-state [1], so assuming eight semesters roughly $30,000. I grew up in Florida, and the first college I went to was Florida State, and tuition is roughly $5,500 as of last year for in-state [2]. I feel like there are plenty of options for perfectly decent universities that fall roughly into that price range I specified in most states, so I think my point still stands. That said, I'm a huge fan of European/UK universities. I do graduate school in the UK, it's a lot cheaper than a comparable program in a lot of American universities. I've been trying to get my considerably-younger brother in law to consider applying to European schools. [1] https://catalog.sunyempire.edu/undergraduate/tuition-fees/#text https://catalog.sunyempire.edu/undergraduate/tuition-fees/#t... [2] https://admissions.fsu.edu/first-year/finances/ https://admissions.fsu.edu/first-year/finances/ ETA: Sorry, I didn't see the "housing" part of your first sentence. That certainly does make the costs add up, particularly if you stay in the dorms, which I think are kind of a scam in most schools. I think to save money, a lot of people would benefit from trying to stay with their parents a bit longer instead of partaking in the dorms.
  - vlunkr 2y ago
    > I can see how it makes sense psychologically, even if not mathematically He acknowledges this. It's about the psychological effect of seeing your list of debts grow smaller. I think a big part of his audience are people who have historically been very bad with money, which is why some of his advice seems strange to people who are already financially responsible. People with a bunch of maxed out credit cards and loans on ATVs and crap.
  - muffinman26 2y ago
    I do think the snowball method also makes sense mathematically, depending on the loan terms and what you're optimizing for. If your loans have a minimum payment and a penalty for missing a payment above and beyond interest (which seems to be common for loans in the US), the snowball method gives you more flexibility. Paying off a loan completely eliminates that part of your monthly minimum payment. If in 2 or 5 years your income decreases unexpectedly (layoff, etc.), but by that point you've completely eliminated 1 or more loans, you're more likely to be able to continue making minimum payments.
    - CalRobert 2y ago
      You know, that's a fair point I hadn't considered much before. Thanks for sharing the perspective.
avgDev 2y ago
While I think Dave can be helpful for some, having 30 year old loan makes more financial sense if you are financed at 3%. You can pay it off sooner if you want. The further you get from the initial purchase date the dollar will have a lower value, and in theory you should be making more money. Plus, even tbills are returning over 5% and are state tax exempt.
- yowlingcat 2y ago
  That's not always the case if you have a prepayment penalty on a mortgage (which isn't always the case but certainly something to watch for).
  - avgDev 2y ago
    Very uncommon in the US but one needs to do their due diligence.

by vlunkr 2y ago

tombert 2y ago

I thought Dave Ramsey was pretty much completely wrong about student loan debt, at least if I remember his position on it being "you shouldn't have student loans". But I agree that most debt is probably bad to have.

CalRobert 2y ago
It might be extreme but 15 years ago he was telling people not to be so flippant about taking on enormous amounts of debt for degrees with a questionable payback and I think he was right. I always thought the snowball method was dumb but as time goes on I can see how it makes sense psychologically, even if not mathematically.
- tombert 2y ago
  Sure, I've said a few negative things about Ivy Leagues being overpriced here in the last few weeks, so I'm not saying you should necessarily get into $400,000 of student loan debt. What I didn't like about his take was that it also kind of also excluded getting into like $20,000-$40,000 of debt to go to a decent state school. That's a bad take; getting a degree (at least in a technical field) substantially increases your earning potential, and while $40,000 is a lot of money, it's not out of reach for virtually anyone working in tech or engineering or something adjacent, at least not in the US. I guess my frustration with his perspective is that it felt extremely reductive; he acts like the only student loan debt you can get into is Harvard-level stuff, but I think that's just not true, and not even the average case. Most people don't get into Harvard, (I think) most people who go to college end up at a state or local university, and as such they're not getting into the obscene levels of debt that you'd get from these yuppie private schools, particularly if they state within state.
  - bluGill 2y ago
    State schools are not ivy league expensive, but they are not cheap anymore. of course the degree matters. You pay about the same for art and engineering degrees but one will earn far more than the other.
  - somenameforme 2y ago
    You age is showing a bit with your post. Randomly picking Penn State you get annual costs of $60k+ for out-of-state and $40k+ for in-state. [1] The cost listed on the page is only for tuition/housing. Use the calculator to get estimates for everything else. And that's an anti-cherry picked example, as I wanted to avoid absurdly expensive places like California, but while also going for a well regarded school. You can easily get well into the 6 figures of debt even at state schools now. You'll find even rando state universities are hitting $30k+/year. Education costs have done exactly what you'd expect them to do when you convince people something is priceless and then give them unlimited and near unconditional loans to buy it. I don't really see the point in this when you can instead attend English language programs in e.g. Europe or Asia and pay less for your entire education than you'd pay for a semester at rando state school in the US. Do a work-study program and you could graduate with a tidy chunk of change saved up, instead of graduating buried in enough debt to buy a house. The ironic part is that this advice is even more pertinent for those coming from low income backgrounds, or from parents with limited education. But they're probably the people most unlikely to take advantage of such options, if not only because they probably just don't consider it. [1] - https://admissions.psu.edu/costs-aid/tuition/ https://admissions.psu.edu/costs-aid/tuition/
    - tombert 2y ago
      Fair enough, but in fairness not all state schools are created equal. For example, at least one SUNY college (SUNY Empire) is only about $3,535 per semester (at least for tuition) for in-state [1], so assuming eight semesters roughly $30,000. I grew up in Florida, and the first college I went to was Florida State, and tuition is roughly $5,500 as of last year for in-state [2]. I feel like there are plenty of options for perfectly decent universities that fall roughly into that price range I specified in most states, so I think my point still stands. That said, I'm a huge fan of European/UK universities. I do graduate school in the UK, it's a lot cheaper than a comparable program in a lot of American universities. I've been trying to get my considerably-younger brother in law to consider applying to European schools. [1] https://catalog.sunyempire.edu/undergraduate/tuition-fees/#text https://catalog.sunyempire.edu/undergraduate/tuition-fees/#t... [2] https://admissions.fsu.edu/first-year/finances/ https://admissions.fsu.edu/first-year/finances/ ETA: Sorry, I didn't see the "housing" part of your first sentence. That certainly does make the costs add up, particularly if you stay in the dorms, which I think are kind of a scam in most schools. I think to save money, a lot of people would benefit from trying to stay with their parents a bit longer instead of partaking in the dorms.
- vlunkr 2y ago
  > I can see how it makes sense psychologically, even if not mathematically He acknowledges this. It's about the psychological effect of seeing your list of debts grow smaller. I think a big part of his audience are people who have historically been very bad with money, which is why some of his advice seems strange to people who are already financially responsible. People with a bunch of maxed out credit cards and loans on ATVs and crap.
- muffinman26 2y ago
  I do think the snowball method also makes sense mathematically, depending on the loan terms and what you're optimizing for. If your loans have a minimum payment and a penalty for missing a payment above and beyond interest (which seems to be common for loans in the US), the snowball method gives you more flexibility. Paying off a loan completely eliminates that part of your monthly minimum payment. If in 2 or 5 years your income decreases unexpectedly (layoff, etc.), but by that point you've completely eliminated 1 or more loans, you're more likely to be able to continue making minimum payments.
  - CalRobert 2y ago
    You know, that's a fair point I hadn't considered much before. Thanks for sharing the perspective.

avgDev 2y ago

While I think Dave can be helpful for some, having 30 year old loan makes more financial sense if you are financed at 3%. You can pay it off sooner if you want. The further you get from the initial purchase date the dollar will have a lower value, and in theory you should be making more money. Plus, even tbills are returning over 5% and are state tax exempt.

yowlingcat 2y ago
That's not always the case if you have a prepayment penalty on a mortgage (which isn't always the case but certainly something to watch for).
- avgDev 2y ago
  Very uncommon in the US but one needs to do their due diligence.