Dave Ramsey’s Controversial Debt Relief Programs

The changes made to bankruptcy law in 2005 reflected millions of dollars of lobbying money spent by credit card companies. Provisions like the Chapter 7 bankruptcy means test helped promote the image of the “deadbeat debtors” who charge up lots of money on credit cards and then file for bankruptcy rather than paying their debts.

This stereotype, as most Americans who have sought bankruptcy protection can verify, is largely false. Experts estimate that less than 10% of bankruptcy cases result from careless consumer practices. But some people remain unconvinced.

One of those people is former real estate agent radio host Dave Ramsey of Washington.

Maybe Ramsey’s disbelief comes from his own experience. In his early 20s, Ramsey made $4 million in real estate, reports the Yakima Herald Republic. After only four years, he’d reportedly blown all his money and filed for bankruptcy. Now, sources say, Ramsey is an author and teacher whose favorite subject is financial wisdom—but some of his teachings are questionable.

Ramsey’s reported platform is that a life without debt is a Christian life, and he’s got Bible quotations to back up his claims. Though his enthusiasm for and dedication to his subject matter can be catching, some of his advice reflects his misconceptions about the causes and effects of bankruptcy—probably as a result of his own experiences.

The Republic reports that Ramsey instructs his classes to live with no debt except home loans, and to use cash for everything else, including car buying. The courses he leads allegedly include a ceremony during which students destroy their recently-cancelled credit cards.

But this advice doesn’t really hold water in contemporary American society. Ramsey’s advice neglects the simple fact that, to have a good credit score, you must have a credit history—which is impossible to obtain by using only cash. Even if you have zero dollars in debt, lenders will be unlikely to offer you attractive mortgage rates without proof of your credit risk and capability.

Reports indicate that Ramsey invokes the “good old days” when families saved cash for years to finance a vacation.

But how useful is Ramsey’s anti-credit message in a world where more than 90% of bankruptcy filings result from life crises like personal injury, serious illness, divorce, job loss or foreclosure proceedings? Not very, according to some experts.

Consumer Credit Counseling Service (CCCS) and other nonprofit organizations also provide helpful budgeting tips like Ramsey’s. And these organizations provide something Ramsey’s program apparently lacks: negotiations between debtors and their creditors.

Ramsey’s concepts may provide useful guidelines for future spending habits, but they’re not much good for people who need immediate help consolidating and paying off debts.

CCCS workers have apparently criticized Ramsey’s suggestions, pointing out that the American credit industry is an essential part of American life these days. And, for the majority of responsible credit card users, credit makes life easier. Still, though, Ramsey’s classes enjoy great popularity.

Whether it’s because the bankruptcy rate in Yakima, WA is three times the national average, because many of Yakima’s residences depend on seasonal work and payday lenders, or because people just like Ramsey’s straightforward approach to debt counseling, no one knows.

But, in a time when credit card contracts can span 20 pages and “preapproved” offers arrive in the daily mail, a dose of old-fashioned debt advice may be welcome to some.

If you need counseling about your finances, you should considering contacting a chapter 7 bankruptcy lawyer or a nonprofit credit counseling service.