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Make sure you’re listening to the right financial advice this year.
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Dave Ramsey is a well-known financial expert and he’s given some great advice, including his suggestions on which retirement account to invest in and why you should steer clear of borrowing for a new car.
But, Ramsey has also given some very bad advice. And if you’re considering how to manage your finances during the upcoming year, here are four Ramsey suggestions you should absolutely stop listening to ASAP.
1. Don’t worry about your credit score
Ramsey has repeatedly said you shouldn’t care about your credit score. Essentially, he believes that only people who have a lot of debt have good credit and that you’re better off just steering clear of borrowing.
There’s a few problems with this advice. First, you’re probably going to have to borrow money some time — such as to buy a house. And while Ramsey said lenders will do “traditional underwriting” and look beyond your credit, this isn’t always the case.
Your credit score also matters for other things, like renting an apartment or getting affordable insurance. You need to care about it, and if you’re listening to Ramsey and not paying attention to whether your credit score is good or not, you should stop following this advice right now and start working on earning a score that opens doors for you.
2. Avoid credit cards
Ramsey also says you should never use credit cards, opting for a debit card or cash instead. This is also a bad move.
Credit cards help you build credit. They can also give you the chance to be rewarded for spending you’d have to do no matter what. If you pay off your balance in full, you can earn hundreds or even thousands of dollars a year in extra credit card rewards.
It’s also easier to rent a car or hotel with a credit card than a debit card since you aren’t forced to tie up actual money when you make a deposit. Unless you have proven in the past to be completely irresponsible with using credit and you don’t trust yourself not to run up a huge balance you won’t be able to repay, you should have a credit card.
3. Pay off your mortgage early
Ramsey has advised paying cash for your home if possible, or taking a 15-year mortgage if you can’t do that. He’s also suggested it makes sense to pay off your home loan early.
This is bad advice. A mortgage is one of the most affordable loans out there, and interest on it can be tax deductible if you itemize. You should get a 30-year mortgage and not pay off even $1 extra on it. Instead, you should invest the extra money you’d otherwise be using to pay off a loan that has an interest rate below what you can likely earn investing in a safe S&P 500 index fund.
4. Invest in mutual funds
Finally, Ramsey said you should opt for mutual funds over ETFs. And he advises actively managed funds.
This doesn’t make sense. You’ll pay higher fees and have more restrictions and, in many cases, fewer options. ETFs that track market indexes are usually the best bet for most investors.
You should stop following all of this advice in 2023, as doing so can help put you in a better financial position in the long run.
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