Dave Ramsey on Debt Negotiation & Debt Settlement – Wrong Again?
Published by Logan
In a recent post we took a look at Dave Ramsey’s view of credit cards as I debunked his “debt snowball” strategy as well as his quite laughable view that “Responsible use of a credit card does not exist… There is no positive side to credit card use.” (Yes, Dave Ramsey actually said that and stands by that statement believe it or not).
Leaving those two issues aside for this post there is one other thing about Dave Ramsey’s advice that “sticks in my craw” maybe even more than his ridiculous view of credit cards and that is his advice when it comes to debt negotiation and debt settlement (side note: I have no idea what “craw” really means as I have never used that expression before but it just sounds funny so why not – for all of you know-it-all’s out there please do not attempt to describe for everyone what exactly you think a “craw” is as I would rather not know – definitely a Google search that probably falls in the “don’t even go there” category).
All talk of “craws” aside my major issue with Dave Ramsey is that his advice is marketed as being Christian financial advice and yet in the area of debt negotiation and debt settlement Dave Ramsey gets this one so wrong according to Biblical principles that it should bring about some cause for concern.
Dave Ramsey: “Reduce debt by directly negotiating with your lenders.”
If you have ever listened to Ramsey’s TV show on the FOX Business Channel or his call in radio program then you have no doubt heard him counsel many many people to avoid debt consolidation companies, debt negotiation companies, debt settlement companies, etc. (which for the most part is actually really smart advice as the legitimate companies that are out there are few and far between as we illustrate in our feature piece on debt counseling ).
This is great advice because there are many scam artist debt negotiation companies out there BUT Dave Ramsey’s solution is just to go directly to your credit card companies and other lenders and get them to reduce the amount of money that you owe.
HOWEVER, Christians can respectfully disagree about many different areas of finances that the Bible addresses in more of a principle form rather than a direct and specific command BUT one area that is crystal clear in the Bible is that if you owe someone money then you should pay it all back.
The wicked borrows, and pays not again: but the righteous shows mercy, and gives. – Psalm 37:21 (NKJV)
Why Does Dave Ramsey Advocate an Un-Biblical Approach to Debt?
If the Bible states that we should pay back all of the money that we owe and not try to weasel out of debts by negotiating or settling with a lender to repay less than what we originally promised to pay then why does Dave Ramsey in no uncertain terms advocate this approach?
The 7 Year Israelite Debt Release
No doubt some Dave Ramsey fans will point to the passage of scripture in Deuteronomy that mentions a release of debt every 7 years for the Israelites:
At the end of every seven years you shall make a release. And this is the manner of the release: Every creditor that lends ought to his neighbor shall release it; he shall not exact it of his neighbor, or of his brother; because it is called the LORD’s release. – Deuteronomy 15:1,2 (NKJV)
While the above verse does mention the release of debts it is important to note that all of the Bible applies to everyone but not all of the Bible is specifically directed towards everyone (i.e. certain Old Testament passages are directed specifically towards procedural regulations for the nation of Israel and we can all gain practical application today but that does not mean of course that we should trim our beards a certain way or sacrifice goats in a certain manner, etc.).
Additionally, the above verse is directed towards lenders and not towards borrowers. Nowhere in the above verse does the Bible promote backing out of debt that one owes but rather the Bible promotes the principle of mercy and leniency on the part of the lender (i.e. the lender initiates a forgiveness of a debt rather than a borrower attempting to hardball a lender into reducing the debt that is owed by threat of non payment).
Although I love about 90% of what Dave Ramsey says on his show this debt settlement/debt negotiation issue is a big issue that I have with Ramsey as he markets his financial advice as being Christian personal finance advice that is based on Biblical principles.
Ouch the Cognitive Dissonance Has Gotta Hurt!
To go so very wrong in this area is even more unsettling because of the truck load of cognitive dissonance that he brings to the table when Ramsey on one hand preaches the importance of personal responsibility and on the other hand preaches that “it’s the credit cards and evil credit card company’s fault for your debt” as if an inanimate object like a piece of plastic forces people to spend more than they should (this is akin to an obese person blaming their lack of self control at the dinner table on their fork and setting out to “cut up all forks” and say mean things about fork making companies instead of getting to the root of the problem which is of course discipline, self control, wise nutritional choices, etc.)
What do YOU Think?
What do you think about Dave Ramsey’s advice to reduce debt by directly negotiating with credit card companies?
Do you think that Ramsey’s do it yourself debt negotiation advice is in line with Biblical teaching? If so, in what ways? If no, should Ramsey retract certain statements or change the marketing of his financial planning programs?
(NOTE: If you would like to address some of the Dave Ramsey’s statements about credit cards rather than debt negotiation/debt settlement then head on over to the Dave Ramsey and credit cards post to leave a comment there as well)
42 Responses to “Dave Ramsey on Debt Negotiation & Debt Settlement – Wrong Again?”
I am confused. I have never heard Dave Ramsey recommend that the borrower should threaten to not pay back anything at all. This is why he doesn’t recommend debt settlement companies who hold the payments until the lender is afraid that he won’t get paid and therefore ready to settle.
After his own bankruptcy Dave paid back everyone he owed money to. He believes in paying what you owe.
Dave Ramsey frequently advises callers to try to settle debt for pennies on the dollar by negotiating directly with their lenders and using a “take it or leave it – this is all you are gonna get” approach.
The reason he doesn’t recommend debt settlement companies is because he has plainly said that he thinks that they are a waste of money (which most of them are).
The only way that both parties will ever agree to a debt settlement is if the lender is convinced that the reduced amount is the greatest amount that they think that they will ever be repaid.
Dave may personally believe in paying back what you owe, as he should, but practically speaking that is not consistent with the advice that he doles out.
I certainly see your point and if it truly comes down to either paying all of the debt one owes or being able to eat then of course taking care of one’s family and putting food on the table comes first but I think that one thing that is very telling is found in the comment that you just left over on the other Dave Ramsey and Credit Cards post where you say:
You can’t have it both ways as it appears that whenever Dave Ramsey says to not pay back the entire amount owed, no matter what the circumstances, then people will still justify their own behavior in not paying off their entire debt even if they really could make some sacrifices and do so if they really wanted to (by working a second/third job, canceling cable, eating beans and rice, not going on vacation, etc.) – you really can’t have it both ways with this logic wouldn’t you say?
I listen to Dave’s radio show often and also have gone through his Financial Peace University class.
Dave’s teachings, in my opinion, have been extremely consistent. He states very clearly over and over that if you have the money to pay a legitimate debt, you need to pay. Simple as that.
I can understand how in soem cases it can be confusing or seem misleading when he tells callers or discusses settling a debt, but this teaching is consistent as well. You can want to pay the money back and have integrity and good intentions, but if you simply don’t have the funds, a settlement may be the only way to satifsy both parties.
I heard a caller yesterday who had a terminal illness and has a few years left to live. She owed around $10,000 and is living off of disability income. About 90% of her income was going to an assisted living facility. The credit card collecters call every day hounding her. Dave told her to not pay and save up any money she could to settle.
She really has no other options other than not to pay and eventually get sued (I don’t think she really cared) or file bankruptcy. To me, to save any money possible to try and settle is the right thing to do.
This is an unusual case, but it is consistent with his teachings. People get so scared by the credit card collectors that they pay them first and leave no money for food and shelter for their family. How insane is that? People are responsible for their
own situations, but when they asj Dave’s opinion after the fact, their options are limited at that point.
Credit card collectors are mean, nasty, lie, and have no concern except their own. Believe me, I know. Ten years ago I was stupid and fell be behind on payments.
I have also heard Dave say many times, that if you are behind and can not pay your credit card bills that borrowing more on the cards is the same as stealing!
I have heard Dave say hundreds of times, if you have a legitimate bill and have the money, you are obligated and should pay it. I have no problems with his teachings and the more I understand his principles and philosphies the more and more I agree with him.
Just my two cents.
My concern would be that Dave Ramsey recommends debt settlement in so many cases that it is doubtful that each and every one of those scenarios are as extreme as the example that you mentioned above.
This is a great comment that you mentioned from Ramsey though: “I have also heard Dave say many times, that if you are behind and can not pay your credit card bills that borrowing more on the cards is the same as stealing!”
You mention that “if you have a legitimate bill and have the money, you are obligated and should pay it.” which is very true but it is also true that if you have a legitimate bill and even if you do not have the money, you are still obligated and should pay it.
Even if one does not have the money then they should still figure out a way to pay the full bill even if that means working a second/third job, working overtime, canceling cable TV, etc. etc. as it does seem that Ramsey’s debt settlement advice to many if not most gives many listeners license to just settle their debt rather than making sacrifices to be able to pay back every penny.
You make a great point though that “a settlement may be the only way to satisfy both parties” which if true then certainly a debt settlement makes sense. Great comment!
Thanks for responding. I do agree that my example was extreme, but there are many cases where people try to everything they can do, but can make the payments.
I also agree that if you can work an extra job, make sacrifices, etc. to pay your pill you should do it. If you listen to his show at all, Dave often times tells people to work a second, third, fourth job, and sell everything to pay your bills and pay off debt.
When people get trapped and have little to know options, I think settling a debt is a fair and practical idea. The usual fallout from this situation is to file bankruptcy (certainly worse for the creditors than settling) or not paying anything and getting sued (sometimes leading to bankruptcy).
I certainly see your points and I think in essence we agree. Dave prides himself on personal and fiscal responsiblity. I don’t think that telling someone to settle in certain cases is hypocritical. I think it’s smart, practical, and better than most alternatives.
Brent is correct. Ramsey is very consistent in his teachings and advocates paying ALL debt if it is feasible. The second-job and super tight budget is understood. He certainly mentions getting on a “beans and rice” budget much much more than settling debts with collectors.
That being said, if one is in a situation where life circumstances make paying the full debt impossible (which is the situation many of DR’s callers present), a settlement in which both parties are in agreement is the best solution to maintain one’s integrity. The goal, of course, is to avoid bankruptcy in which the creditor would receive nothing at all.
It is also a good option to explore alternatives to bankruptcy, debt settlement, debt consolidation, ect. by finding out what it would take to make yourself judgment proof. Being judgment proof makes it so you don’t have to payback any creditor a penny unless you want to.
The term judgment proof is most commonly used in tort law contexts to refer to defendants or potential defendants who are financially insolvent. Even if a plaintiff were to secure a legal judgment against an insolvent defendant, the defendant’s lack of funds would make the satisfaction of that judgment difficult, if not impossible, to secure. In such cases plaintiffs might move for wage garnishment based on the judgment. However, if the debtor is retired or collecting Social security or other social welfare this is not possible, there are also other ways debtors can protect non-exempt wages from garnishment
Judgment proof is not an official defense. If sued, the defendant does not claim “judgment proof” the same way they would claim assumption of risk or contributory negligence; rather, judgment proof kicks in after the judgment has been rendered, and it is time to collect.
Once you are judgment proof creditors can sit around and cry all they want and still collect nothing. After enough time has expired you can offer your creditor pennies on the dollar. Eventually the creditors will decide that it is better to take the pennies then to sit and receive nothing.
I for one have to take up for Dave on this. If you ever listen to his show on a regular basis you will find that the majority of the callers are in pretty bad shape. I thought I could play the credit card game, consolidating to lower interest cards and what it lead to was the misguided belief that if I could make the payments I could afford it.
This came crashing down when I got lazy and missed that an automatic payment from bank fell after the due date but before the closing date. I had done extremely well, for far to long, in out earning my stupidity. I had a $13000 card go from 5% interest to 32% in one month. My payment went from $246 to $435. It was the straw that broke the camels back.
I will say I had been trying Dave Ramsey’s plan trying to turn things around. The problem was priorities. I was still try to pay everyone first before me. I felt like I was getting nowhere until this happened. At that point I put myself in the league with the folks who were in trouble on his show. I had been in denial that I was already there for a long time. So what I did was, I started taking care of the family first and paying the CC what I could. This is what Dave’s plan is all about.
The CC companies started calling in force and after about 4 months I had negotiated 4 out of 6 cards to 0% with affordable payback terms. The other two CC went to 5% This freed up a huge amount of money!
Dave’s plan is about the fastest way to get out of debt. It is very difficult to follow it but, it does work. When followed I equate it to financial bootcamp. You take everything away from yourself and as progress is made, you you are far more wary of the the practises that put you that situation in the first place.
Yes, you can use CC responsibly. You can also make the same claim of drugs and alcohol. If you are in a bind with CCs, it is best to go cold turkey and rise above the debt. That is why Dave says not to use CC. You really do not NEED to. More to my point is that you can negotiate on your own.
I have paid off $70K in two years and will be debt free but, the house, thanks to Dave’s baby steps.
Thanks for reading my rant. LOL
Joel, it seems that your disdain for either Dave Ramsey or his teachings has colored what you hear him say. I’ve listened to him for years (and we are debt-free except for the house, have an emergency fund and are investing for retirement, plus saving up for things like cars, vacations, Christmas, remodeling, etc. and putting extra towards paying off the house).
The only times I’ve heard him advocate negotiation to pay off creditors are when the debtors are unable to pay off the demanded balance and still house and feed themselves (and their family). I’ve heard him many times say that if you can, you should pay your debts in full. He has counseled many people NOT to file bankruptcy (thus avoiding paying off the full debt balances), rather to work on paying off legitimate debts fully, if possible. He has told his story of paying off the full amount of his debts that were legally eliminated through bankruptcy many times, not advocating that as part of everyone’s debt elimination program, but leaving that between them and God.
I find it strange that you are using a single “proof-text” verse to slam Ramsey’s advice, when there are more scriptures that counsel us to first provide for our own, which is Ramsey’s counsel as well.
Finally, credit cards are the junk food of the financial market. A quick fix and feel-good security that belie their foundation of sand (or, more appropriately, quicksand.)
I’d rather sleep with rattlesnakes than get in bed financially with credit card companies again!
I actually like Dave Ramsey quite a bit but that doesn’t mean that I should blindly accept everything he has ever said. This post and the other Dave Ramsey post mentioned explains quite clearly some evidences for why those particular Dave Ramsey statements are not something that should just be blindly accepted as fact.
This is a good point that you make and I don’t disagree with you at all. That being said, a lot of people use this as an excuse to just not pay off debt because they need to “provide for their own” with cable TV, going out to eat, and other excesses.