Reflecting on the Dave Ramsey approach to buying a car

Some friends of ours recently knocked it out of the park by paying off one of their cars 2 1/2 years early!  We understand that it was taking a look at the video above (from Dave Ramsey’s Financial Peace University) which really encouraged them to get serious about getting rid of the debt.  Posting the news on Facebook (along with the video) unleashed a fury of great thoughts and discussion related to the revolutionary idea that owning a vehicle doesn’t mean owning a payment as well.  We thought it would be great to add our two cents to the discussion

******
“It’s great in theory. I would venture to guess 95% of Americans lack the discipline to make this happen. I also like how during the stepping up process they fail to account for depreciation in the used vehicles.”

We absolutely agree that most people probably lack the discipline to make this happen, and the truth there gets at a bigger issue — behavior.  We’ve been indoctrinated with the idea that our credit score is somehow reflective of our self-worth, and that causes many people to view debt as a means to an end.  We would argue that no debt should be what we’re working towards and with some amount of discipline and education, anyone can get there.  Having a good credit score doesn’t really matter when you have no need of borrowing money, right?

The second point is valid as well; the video does a poor job accounting for depreciation.  However, the chapter in Ramsey’s The Total Money Makeover that describes this same vehicle purchase process points out that within the time frame between car purchases in this plan, most used vehicles are unlikely to depreciate all that much.  This is particularly true if the buying and selling transactions are taking place among private parties, rather than with a dealer.

“The video makes it seem easy but there are quite a few holes. 1) you can buy and sell a car with ease (and get your money back!) 2) the average cost of a car keeps going up but you still only have 17K 3) discipline to not touch the car fund.”

1)  This is a good point — we think buying a car is pretty easy to do, but selling it (particular to another private party) could be a little tricky.  It’s definitely possible, though, if you take advantage of all the opportunities to freely market items.

2)  $17,000 will buy you a nice car for some time to come (particularly used) — we don’t know if this argument holds much water.

3)  Ah, yes, discipline.  This is the major variable when it comes to Ramsey’s car-buying proposal.  He presupposes that you will stick to the plan.  We would argue that those who would be going through his program are very likely to have started with or developed the discipline to make this plan happen, but observing from the outside it does seem like a drastic measure.

“I do think the 12% interest is extremely aggressive. And my car payment is no where near the ~$450 mark, more like $250, which also makes it longer to accumulate enough to buy up to the next car.”

Both points here are well-taken.  12% does seem pretty aggressive, but even 6 or 8% is going to get the job done.  As far as contributing a lower amount goes, that makes sense as well, but the timing of Dave’s plan is fast.  Stretching out the time frame by a few months probably wouldn’t make a particularly significant difference in the outcome.
******

Again, we’re pumped about our friends’ taking on the challenge of paying off their car loan, and in such quick fashion!  Their posting of this video opened the doors to some really nice conversation.  It definitely reflects the fact that there are many ways to think about the issue of buying vehicles.  Dave’s video is striking because it challenges us to think differently about the process.  Is it a “one size fits all” plan?  Not necessarily, but the principles embodied within it — saving, delaying gratification, stewardship — are the kind of principles that we believe will help anyone win with money.