Social media users are scorning Ramsey’s advice

The hashtag #daveramseywouldntapprove has about 67 million views on TikTok, with scores of users posting videos criticizing the finance personality for being out of touch with reality and shaming their money habits.

Benson, for example, didn’t hesitate to jump on the bandwagon with his own content, featuring himself sipping a pumpkin cream cold brew or getting a USD$4 Crumbl cookie before cutting to his Ramsey impersonation watching menacingly from a distance.

It’s clear that Ramsey’s advice, which often includes living frugally or taking on more work to increase your income, doesn’t quite resonate with younger listeners.

Not willing to do anything to get out of debt

In a recent TikTok, Kate Hindman, a 31-year-old administrative assistant in Pasadena, California, emphasizes that her mental health and quality of life are far more important to her.

“I’m not willing to do anything to get out of debt,” she says. “I’m not willing to eat rice and beans everyday, I’m not willing to have three jobs and not spend time with my children. I’m not willing to forgo my favourite salad on a Friday.”

Hindman explains that her bills are so massive that a little extra cash saved here and there isn’t making a major dent in paying down her debt.

“The cost-of-living and low wages is to blame for the financial woes of most,” she says. “Being told that we can incrementally make these big differences if we just give up our quality of life for five, 10 years is absurd.”

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Ramsey’s financial advice isn’t always right

There's another reason for the backlash against Dave Ramsey: His financial advice isn't always the right.

For instance, Hindman decided to convert $30,000 in credit card debt into a debt consolidation loan with an 8% interest rate — a tactic that Ramsey famously despises and claims doesn’t actually work. Ramsey's argument is that the lower interest rate removes the pain of debt and can lead to people carrying debt for longer.

However, the use of debt consolidation loans to pay down debt faster — and at a cheaper cost to the borrower — is undeniable.

Debt consolidation loans can come with varying interest rates, which means you will have to parse through various lenders to find the option that is best suited for your budget. Loans Canada has one of the largest pool of lenders, with most offering pre-approval, that guarantees competitive rates. Learn more about consolidation loans and loans to help pay down debt.

More debt consolidation loan options for Canadians

Other debt consolidation options for Canadians Another option for those who want to pay down their debt quickly is to consolidate higher-interest debts using a low-interest credit card. By dropping your annual credit card interest rate from 22.99% to 12.99%, you can save more than $900 in interest costs (assuming you carry a $5,000 credit card balance and it takes three years to repay the loan). Good options for low-interest credit cards include:

  • Scotiabank Value Visa: Charges an annual interest rate of 12.99% and, until October 31, 2024, new account holders will pay no annual fee — a savings of $29 — and pay 0% interest on balance transfers for the first 10 months.
  • Scotiabank Platinum American Express Card: This card comes with a steep annual fee of $399, but the low annual interest rate of 9.99% means you'll pay much less when carrying a balance. Approximately $4 per month for every $500 owed. Plus, this card doesn't charge foreign transaction fees on any foreign currency purchases — making it a great travel companion — and you earn 2x Scene+ points for every dollar spent. Until October 31, 2024, new account holders can earn up to 60,000 bonus points (a $2,100 in value).
  • MBNA True Line Mastercard: Annual interest rate is only 12.99% and there's no annual fee. Get this card before December 31, 2024, and pay 0% interest for 12 months on all balance transfers completed within 90 days of opening the account, although a 3% transfer fee applies.
  • MBNA True Line Gold Mastercard: A very low 8.99% annual interest rate, but you'll need to pay an annual fee of $39.

Like any debt-solving hack, whether taking on a new, lower-interest loan really works, depends. It can be harder to keep track of multiple credit cards at once than pay off one bill each month. Plus, if you secure a lower interest rate on your loan than what you were grappling with on your credit cards, this can be a great opportunity to save hundreds or thousands of dollars on your debt load in the long run.

On the other hand, there could be additional costs involved with a new loan, such as origination fees — upfront fees a borrower pays in order to get the loan — prepayment penalties or late payment fees.

Rather than consolidate debt using a lower interest rate loan, Ramsey recommends using the snowball method. Using this debt repayment strategy, borrowers pay off their smallest debt (or account with the lowest balance) first and make only minimum payments on all their other outstanding debts.

This method of tackling debt works as it offers behaviourial incentives to the borrower. Paying off a debt is liberating and incentivizes the borrower to repeat the process — over and over, until all debt is repaid. However, tackling small debts, first, without any concern for interest rates can cost the borrower. Larger debts with higher interest rates go unpaid, sometimes for quite some time, and this adds to the overall cost and burden of the debt.

“What Dave Ramsey would say is, ‘I don’t care if paying down the highest-interest debt first is the cheapest, because if you give up midway through, that’s more expensive,’” James Choi, a finance professor at the Yale School of Management, told The Wall Street Journal. As such, Choi isn't convinced that everyone should adopt the snowball method when tackling debt.

While there's little doubt that using the snowball method for tackling debt works, that doesn't mean it's the right solution for everyone.

So, what is the right solution, particularily when it comes to spending on those small indulgences?

What the health experts say

Research shows that when we focus on something that we believe is positive or affirming, this attention brings us joy and has a positive impact on our mental health.1

“A little luxury is something that brings a spark of joy, beauty, or delight to your day. It is not something you need, but it is something that makes your day the tiniest bit more extraordinary,” explained Jillian Amodio, LMSW, Founder of Moms for Mental Health, in an interview with Verywellmind.com.2

Over the last year, a number of surveys show that Canadians of all ages are feeling the pinch of the increased cost of living and, as a result, were making changes to how they spend money.

In the US, more than half (56%) said they'd have to make cuts to their household spending3. Apparently, Canadians agree. According to a recent Ipsos Reid poll4, 57% of Canadians said they'd cut back on dining out, while 47% planned to spend less on new clothes. These sentiments indicate a potential shift in what people consider essential. It appears that not everyone agrees on the relevance of little luxuries like buying a cup of coffee at the local barista.

“Little luxuries are personal and subjective. What feels indulgent to one person may not have the same effect on another," explained Robert Cuyler, PhD, and Chief Clinical Officer at Freespira, a US-based private firm specializing in medication-free treatment of anxiety and panic attacks, in an interview with Verywellmind.com5.

"The key is to find what works for you and make it a consistent part of your self-care routine. Remember, taking care of yourself is not selfish; it's necessary for maintaining good mental health and being your best self for others,” Dr. Cuyler concludes.

— with files from Romana King and David Saric

Sources

1 Journal of Positive Psychology: Does savoring increase happiness? A daily dairy study, by Jose PE, Lim BT, Bryant FB (2012)

2 Verywellmind.com: Little Luxuries Can Make a Big Difference for Your Mental Health, by LaKeisha Fleming (May 6, 2024)

3 YouGov: Ballin' on a budget: Little luxuries that Americans treat themselves to while on a budget, by Hoang Nguyen (Oct 10, 2023)

4 Ipsos Reid: Canadians Cut Back in 2023 and Plan to Continue Cuts in 2024, by Sean Simpson (Jan 1, 2024)

5 Verywellmind.com: Little Luxuries Can Make a Big Difference for Your Mental Health, by LaKeisha Fleming (May 6, 2024)

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Serah Louis Senior Staff Writer

Serah Louis is a senior staff writer with Money.ca. She has a Bachelor of Science from the University of Toronto, where she double majored in Biology and Professional Writing and Communications.

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