Money Rehab with Nicole Lapin - Why Dave Ramsey's Zero-Credit Advice is Severely Damaging

Episode Date: February 23, 2024

Nicole has an issue with "financial expert" Dave Ramsey. Well, more than one. But the one that’s really making her blood boil today is his zero-credit philosophy. In this episode, she debunks it. To hear the first episode where Nicole went in on Dave Ramsey, click here. $ Investors: Robinhood has the only IRA that gives you a 3% boost on every dollar you contribute when you subscribe to Robinhood Gold. Learn more at Robinhood.com/boost  $ Want the kiddos in your life to become money masters? Check out Greenlight, the best money app and debit card for families (and get one month free!): http://greenlight.com/moneyrehab $ Is mental health a resolution for 2024? Get 10% off your first month of therapy with BetterHelp at: http://betterhelp.com/moneyrehab  $ The secret to health and wealth is in your gut. Literally. Get 20% off a 90 day bottle of Just Thrive Probiotic and Just Calm. Try it at: justthrivehealth.com and use promo code: MONEYREHAB. $ Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits

apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. All right, guys. Today, I have a bone to pick with Mr. Dave Ramsey. One of the heavyweights in the money expert space is Dave Ramsey. In general, I have a more the merrier outlook when it comes to financial experts. Instagram and TikTok are not finite resources. There can be more than one person giving financial advice online, and there should be. But there shouldn't be people spewing crap advice like having a zero credit score.

So today, I want to debunk that specifically. Dave Ramsey has built an empire on advising people to live life completely credit-free. He tells people to cut up their credit cards. He shouts out mottos like, live like no one else so later on you can live like no one else, which barely makes sense to me. But again, I'm not here to just be a hater. If you followed a trusted, legit expert on finance that gives you good advice, I love that for you. But this specifically is bad advice. So let's dissect it. First of all, if you don't have credit, you don't have a credit score. And your credit score is your financial report card.

In Ramsey's utopia or dystopia, credit scores wouldn't matter because you'd never need to borrow money. But back here on planet Earth, credit scores are crucial. They're not just for getting loans. They affect your interest rates. They affect your insurance rates, security deposits on rentals, and sometimes even your job prospects or your romantic life in the case of a new dating app that filters by credit scores. I have said this forever now. Thank you for doing it. Opting out of the credit system entirely doesn't make you financially savvy. It makes you financially invisible. And let's talk about the supposed evils of credit cards, which is one of Dave Ramsey's biggest gripes against credit. Yes, credit card debt is a massive issue in the US with Americans owing over

$1.13 trillion in credit card debt. Ramsey's solution, though? Get rid of credit cards entirely. But that's like saying, some people get food poisoning, let's just all stop eating. Credit cards, when used responsibly, offer a ton of benefits. Cash back programs, travel rewards, fraud protection, and hello, building a credit history, to name a few. Ramsey's zero credit lifestyle also completely ignores the nuance of responsible credit use. Not all debt is created equal. There is a world of difference between high interest rate credit card debt and low interest mortgage debt that enables you to buy a home. By lumping all debt together as inherently evil,

Ramsey's advice completely blocks his fans from understanding how credit can be used as a tool for good and therefore prevents them from navigating the modern financial world successfully. I can't help but think, too, how this advice affects people psychologically. Money is a mind, you know what, no matter what. And Dave Ramsey's fear-based approach to credit can lead to a scarcity mindset where people are so afraid of debt that they miss out on opportunities to invest in their futures. Education, home ownership, and even starting a business often require some level of borrowing. By demonizing all forms of credit, Ramsey's philosophy potentially hurts financial growth and personal development. This all-or-nothing, no-credit-under-any-circumstances stance leaves

no room for middle ground. Personal finance is personal for a reason. It's about finding a balance that works for your unique circumstances. For some, that might mean using credit cards for monthly expenses and then paying them off in full to reap the rewards without paying interest. For others, it might mean strategically taking on a mortgage to buy a home. Absolute rules in personal finance are rare, and Ramsey's zero credit rule is no exception. Ramsey's approach is also just straight up out of touch with the realities of so many Americans. For those living paycheck to paycheck, the advice to just save up and pay cash for significant expenses is not only impractical, it is so freaking patronizing. He completely fails to understand the ways the financial system is broken and the real challenges people face in

achieving financial stability. Let's not forget, because I never will, how Dave Ramsey told his audience during COVID that if they needed a stimulus check, they were already screwed. I tore into the guy at the time, and if you really want to hear me pop off again, I link that episode in the show notes. For today's tip, you can take straight to the bank. The reality is that credit, when used responsibly, is a tool that can enhance your financial well-being. And while credit history, which is exactly what you won't get by listening to Dave Ramsey, is a factor in determining your credit score, it only factors into about 15% of your score. Payment history, aka whether or not you pay on time, makes up 35% of your score.

How much debt you have accounts for 30% of your score. The number of times you've officially checked your credit is 10%, and the mix of credit you have is another 10%. So net, the biggest determinant of your credit score is not whether you have a ton of debt or not. It's whether or not you pay on time. So if you're looking to do some credit hygiene and you're down here on planet Earth with the rest of us,

put all of your bills on autopay so that your credit score gets a glow up. And I am not saying this to be patronizing because I literally made this mistake today. I thought my electric bill was on autopay. It was not. I have a Jugundo bill that I now did not expect to have to pay. Learn from me, as usual. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say,

you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property,

or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host, so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future

and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a time checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime.

Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie.

Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.