Dave Ramsey Is Wrong About These 4 Financial Takes, According to Experts
Dave Ramsey is a definite force in the personal finance space. His financial advice is all over the internet, and his site claims he’s helped millions of people get out of debt — and many financial experts agree that Ramsey is good at helping people crush their debt.
Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth, said Ramsey might be one of the best resources for getting out of debt. However, he thinks Ramsey’s advice about how to manage your finances after you get out of debt, such as putting 15% of your income toward retirement, is generic and may not apply depending on who you are.
Zigmont is not alone when it comes to a negative opinion about some of Ramsey’s financial advice either. Here are four financial takes other experts say Dave Ramsey is wrong about and why.
You Don’t Need Any Credit Cards
“While this approach may work well for some people, it’s not necessarily the best option for everyone,” said Anokye Miller, financial advisor at Ambitious Investor.
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“Credit cards can be a useful tool for building credit, earning rewards and providing fraud protection. If used responsibly and paid off in full every month, they can be a valuable part of a person’s financial toolkit. Of course, it’s important to avoid overspending and accumulating high levels of debt, but that’s true of any type of financial instrument.”
You Should Pay Off the Smallest Debts First
Doug Carey, chartered financial analyst and the founder and president of WealthTrace, said that while Ramsey’s snowball method is popular, it might not be the most financially optimal strategy.
“The debt snowball method involves paying off debts in order of smallest to largest balance, regardless of interest rates,” said Carey. “But mathematically, it is better to prioritize paying off high-interest debts first to save more money on interest in the long run.
“Here is an example: Let’s say you have two loans. One has a balance of $50,000 with an interest rate of 15% and the other has a balance of $25,000 with an interest rate of 5%. Using the snowball method, you would pay off the smaller balance first. But this means the larger balance continues to accrue interest at the high rate of 15%. If you would have instead focused on the larger balance and higher interest rate loan first, you would save over $7,000 over a five-year period.”
Don’t Invest While Paying Off Debt
“Dave Ramsey is wrong about a lot of things in my opinion — but his biggest miss is telling young adults to pay off their debt entirely before they start investing,” said Michela Allocca, financial analyst and entrepreneur specializing in Gen Z and millennial money management and owner of Break Your Budget. “This is so skewed because it deprioritizes the value of investing and makes you feel like your entire life and financial goals revolve around paying off your debt.
“Beyond the emotional aspect, it’s just bad advice from a mathematical standpoint. If you were to put off investing for say 10 years because you were solely focused on paying off your student loans, you’d miss out on 10 years of compound growth in the stock market that you could have earned even by just putting $50 a month into a 401(k) or IRA. The difference can result in hundreds of thousands of dollars in your lifetime.”
You Should Invest in Actively Managed Mutual Funds Over Passive EFTs
“Dave Ramsey has repeatedly touted actively-managed mutual funds over passively-managed exchange-traded funds,” said Jesse Cramer, founder of The Best Interest and relationship manager at Cobblestone Capital Advisors. “He’s said it’s fairly easy to study mutual funds and pick them that outperform. But the evidence is stacked against Ramsey. Study after study shows that actively-managed funds rarely outperform passive funds. In other words, Ramsey is praising the worse product.”
Cramer also pointed out that Ramsey’s claim that “it’s fairly easy” to pick mutual funds that outperform couldn’t be further from the truth.
“Funds that have outperformed in the past tend to underperform in the future and vice versa,” he said. “This has been recognized and shared for decades by investing experts — Warren Buffett, John Bogle, Burton Malkiel, etc. There’s no excuse for Ramsey to be unaware of this truth.”
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