When the credit card industry lobbied successfully to have bankruptcy law changed in 2005, it reinforced the stereotype of "deadbeat creditors:" people who charge more than they can afford on their credit cards and file bankruptcy as a way of avoiding making payments.
But, as most Americans who have had to file for bankruptcy know, that image is largely mythical. Sources estimate that fewer than 10% of bankruptcy filings are a result of simple consumer irresponsibility. But some people aren't convinced.
Dave Ramsey, a radio host and former real estate agent, is one of them.
Ramsey, a Washington State resident, made $4 million dollars in the home-selling business in his early 20s, according to the Yakima Herald Republic. Four years later, he'd reportedly spent it all and declared bankruptcy. Today, Ramsey apparently writes books and leads classes to help other Washingtonians with their finances-but his methods are unconventional.
Reports indicate that Ramsey teaches debt-free life as a Christian life, citing biblical quotes to support his points. While his message may at first seem appealing, his specific teachings reflect his misunderstandings of the main causes of bankruptcy, which probably stems from his own experience.
Sources say that Ramsey teaches his students to avoid all debt except home loans, including car loans. He allegedly tells his students to only use cash, and has a canceled credit card destruction ceremony at the beginning of the courses he offers.
This, though, is hardly a wise decision. In order to have a good credit score, you must have a credit history-which is impossible to obtain without loans or credit cards. Ultimately, then, the only home loan available would likely have difficult payment rates because the lender would have no way of assessing your credit capability and risk.
He evokes students' nostalgia by reminding them of the golden days when families saved extra cash for years to pay for a vacation, according to the Herald.
But is all this anti-credit preaching useful when more than 90% of people who file for bankruptcy do so because of unforeseen life crises like divorce, personal injury, serious illness, foreclosure proceedings, or loss of jobs? Many people believe not.
Nonprofit organizations like Consumer Credit Counseling Service (CCCS) also offer useful advice like Ramsey's. And they offer one thing Ramsey's program reportedly lacks: negotiation between debtors and their creditors. While advice like Ramsey's may be useful for budgeting in the future, it isn't very helpful for those who need to consolidate and pay off debts.
Officials from the CCCS have reportedly criticized Ramsey's approach, saying that credit cards-as well as debt collectors, payday lenders and attorneys -are a necessary part of modern American life. For the majority of consumers, who use credit responsibly, credit cards make life easier.
So why are Ramsey's classes, which are apparently taught by him and by his followers, so popular? Maybe it's the location. The bankruptcy rate in Yakima, WA is reportedly three times the national average, possibly because of many residents' reliance on seasonal work and payday lending companies.
And maybe some people appreciate Ramsey's straightforward message that debt is bad and savings is good. After all, for anyone who has ever seen a 20-page credit card contract, a clear-cut message about saving and spending is probably welcome.
If you're thinking about getting counseling for financial problems, consider contacting a nonprofit credit counseling service or a bankruptcy lawyer.