I’m a CFP: 7 Reasons You Should Listen to Dave Ramsey’s Advice on Paying Down Debt
While financial experts often disagree on debt management strategies, two certified financial planners (CFPs) weigh in on why many of Dave Ramsey’s core principles for debt elimination have merit – with some important caveats.
Here are several reasons people should take heed of Ramsey’s advice on paying down debt.
The Power of Having a Plan
Creating a structured approach is essential, according to Stephen Kates, certified financial planner (CFP) and principal financial analyst for RetireGuide.com.
“Understanding how much debt you have, how much it is costing you in interest payments, and outlining a budget to establish your resources to combat that debt are the foundational elements necessary to take action,” he noted.
The Psychology of Small Wins
Eric Kirste, founding principal and wealth manager for Savvy Advisors, explained why the snowball method can work psychologically.
“You’re going to start to knock out the smallest debts first, regardless of the interest rate, and you’re going to start to take those wins,” Kirste said. “It just helps psychologically, it feels like you’re getting closer and closer because you’ll have also less responsibility.”
The Budget Blueprint
Both experts emphasized the importance of budgeting.
“When you’re trying to allocate specific… every dollar has a job,” Kirste remarked. “Whether folks follow something called the envelope method, or the zero budget… you want to make sure that you’re allocating a job to each dollar.”
The Retirement Question
On Ramsey’s advice to pause retirement investments, Kirste stated a key exception.
“If you have a 401(k) plan and your employer is doing a match, I would probably still move forward and at least put enough towards a 401(k) or some other type of retirement plan where your employer is giving you a match,” he said.
The Modern Envelope System
While Kates pointed out that “the envelope system is not compatible with consumers living in 2024.”
Kirsty suggested a modern adaptation: “A lot of people don’t have cash anymore… but it’s going back to either using an application or a spreadsheet… creating some sort of job for every dollar.”
High-Interest Considerations
Both experts suggest flexibility with the snowball method when dealing with significantly higher interest rates.
The Vehicle Decision
While Ramsey strongly advocates selling cars to eliminate payments, Kirste offered a more nuanced take.
“Maybe you can downsize a vehicle… but I think this is one of the tougher ones to overcome, especially when you have other responsibilities,” Kirste said.
‍
Meet
Eric Kirste
Hello there 👋🏼 I'm Eric, and I have over 20 years of experience as a financial advisor. Eric offers holistic financial advising beyond just investments, focusing on a client's overall financial health. With expertise in retirement planning, tax planning, estate planning, and Social Security timing, he assesses individual circumstances to create a comprehensive financial plan.
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I’m a CFP: 7 Reasons You Should Listen to Dave Ramsey’s Advice on Paying Down Debt
While financial experts often disagree on debt management strategies, two certified financial planners (CFPs) weigh in on why many of Dave Ramsey’s core principles for debt elimination have merit – with some important caveats.
Here are several reasons people should take heed of Ramsey’s advice on paying down debt.
The Power of Having a Plan
Creating a structured approach is essential, according to Stephen Kates, certified financial planner (CFP) and principal financial analyst for RetireGuide.com.
“Understanding how much debt you have, how much it is costing you in interest payments, and outlining a budget to establish your resources to combat that debt are the foundational elements necessary to take action,” he noted.
The Psychology of Small Wins
Eric Kirste, founding principal and wealth manager for Savvy Advisors, explained why the snowball method can work psychologically.
“You’re going to start to knock out the smallest debts first, regardless of the interest rate, and you’re going to start to take those wins,” Kirste said. “It just helps psychologically, it feels like you’re getting closer and closer because you’ll have also less responsibility.”
The Budget Blueprint
Both experts emphasized the importance of budgeting.
“When you’re trying to allocate specific… every dollar has a job,” Kirste remarked. “Whether folks follow something called the envelope method, or the zero budget… you want to make sure that you’re allocating a job to each dollar.”
The Retirement Question
On Ramsey’s advice to pause retirement investments, Kirste stated a key exception.
“If you have a 401(k) plan and your employer is doing a match, I would probably still move forward and at least put enough towards a 401(k) or some other type of retirement plan where your employer is giving you a match,” he said.
The Modern Envelope System
While Kates pointed out that “the envelope system is not compatible with consumers living in 2024.”
Kirsty suggested a modern adaptation: “A lot of people don’t have cash anymore… but it’s going back to either using an application or a spreadsheet… creating some sort of job for every dollar.”
High-Interest Considerations
Both experts suggest flexibility with the snowball method when dealing with significantly higher interest rates.
The Vehicle Decision
While Ramsey strongly advocates selling cars to eliminate payments, Kirste offered a more nuanced take.
“Maybe you can downsize a vehicle… but I think this is one of the tougher ones to overcome, especially when you have other responsibilities,” Kirste said.
‍
Meet
Eric Kirste
Hello there 👋🏼 I'm Eric, and I have over 20 years of experience as a financial advisor. Eric offers holistic financial advising beyond just investments, focusing on a client's overall financial health. With expertise in retirement planning, tax planning, estate planning, and Social Security timing, he assesses individual circumstances to create a comprehensive financial plan.
