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On Dave Ramsey and Why You Shouldn’t Cut Up All Your Credit Cards

First of all, this isn’t a “bash Dave Ramsey” post. Rather, I greatly admire Dave Ramsey and his overall philosophy on personal finance.

I’m sure most of you have heard of Dave Ramsey (he seems to be everywhere these days), but for those of you who haven’t, Dave Ramsey is a popular financial guru –he has a radio show as well as a TV program on the Fox Business channel.

Dave teaches what he calls “The Baby Steps“. The Baby Steps comprise of 7 steps that Dave believes anyone can take to achieve wealth (or as he calls it, “financial peace”). Dave outlines these steps in great detail in his book, The Total Money Makeover.

I first read his book about a year ago and I have been listening to his free podcast on iTunes for about 4 months. I definitely recommend this book to anyone who is just starting to get a handle on their personal finances.

The process Dave uses in The Total Money Makeover is to take the reader through a journey as though they are completing each baby step during the read. Before discussing the particulars of each step and the subsequent reward, Dave methodically strives to hammer one idea into the reader’s head: Your money problems are your fault and it’s only through self-decipline in handling money matters that you can achieve financial peace. Basically he says that his steps will only work if you change your behavior in regards to money. I couldn’t agree more.

I am not going to review each one of Dave’s baby steps in this post (you can get them from his website), but I want to touch on the first two and express what I believe to be inconsistent (and potentially unhelpful) advice. I’d also like to open the discussion up so please comment or email me with your thoughts.

Dave’s first baby step is to save $1000 in an emergency fund –that is, money that should only be used if you find yourself in dire straits while you’re working on baby step 2.

As a prelude to outlining baby step 2, Dave suggests that you get intense and do something drastic: cut up all your credit cards (he calls this a “plasectomy”). He tells the reader to close all credit card accounts that are paid off and pay off any credit card account with a balance as quickly as possible and then close the account.

Baby step 2 says to pay off all your debt (except the house), smallest to largest. At this point, he is assuming the reader has sworn off credit completely –forever.

This is where I find several inconsistencies. First of all, there is a big fat elephant in the room which Dave cannot avoid: closing all of your credit card accounts is going to ruin your credit score.

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