Dave Ramsey has heard it said that if you tell a lie often enough, loudly enough, and long enough, the myth will become accepted as a fact. Ramsey believes the financial and banking industries have successfully propagandized the following myths often, loudly, and long enough that they now are the American way of thinking. In Part 1 of our review, we will look at the first eight myths.
1. Myth: Debt is a tool and should be used to create prosperity.
Truth: Debt adds considerable risk, most often doesn’t bring prosperity, and isn’t used by wealthy people nearly as much as we are led to believe.
2. Myth: If I loan money to friends or relatives, I am helping them.
Truth: If I loan money to a friend or relative , the relationship will be strained or destroyed. The only relationship that would be enhanced is the kind resulting from one party being the master and the other party a servant.
Proverbs 22:7 says, “The rich rules over the poor, and the borrower is slave to the lender.” The lesson is that while it is fine to give money to friends in need if you have it, loaning money will mess up relationships.
3. Myth: By cosigning a loan, I am helping a friend or relative.
Truth: Be ready to repay the loan; the bank wants a cosigner for a reason, which is that they don’t expect the friend or relative to pay.
If you truly want to help someone, give money. If you don’t have it, then don’t sign up to pay it, because you likely will.
4. Myth: Cash Advance, Payday Loans, Rent-to-Own, Title Pawning, and Tote-the-Note Car Lots are needed to help lower-income people get ahead.
Truth: These rip-off examples of predatory lending are designed to take advantage of lower-income people and benefit only the owners of the companies making the loans.
The lending rates of these types of operations are over 100 percent interest, and if you want to stay on the bottom, keep dealing with these guys.
5. Myth: “Ninety day same as cash” equals using other people’s money for free.
Truth: Ninety days is not the same as cash.
If you will flash cash )$100 bills) in front of a manager who has a sales quota to meet, you will likely get a discount. If you don’t get a discount, go to the competitor and get one. You do not get the discount when you sign up for the finance plan.
6. Myth: Car payments are a way of life; you’ll always have one.
Truth: Staying away from car payments by driving reliable used cars is what the average millionaire does; that is how he or she became a millionaire.
Ramsey says, “If you put $495 per month (the average car payment) in a cookie jar for just ten months, you have nearly $5,000 for a cash car….Then you can save the same amount again and trade up to an $10,000 car ten monts later and up to a $15,000 car ten months after that. In just thirty months, or two and a half years, you can drive a paid-for $15,000 car, never having made a payment, and never have to make payments again.
7. Myth: Leasing a care is what sophisticated people do. You should lease things that go down in value and take the tax advantage.
Truth: Consumer advocates, noted experts, and a good calculator will confirm that the car lease is the most expensive way to operate a vehicle.
Smart Money magazine quotes the National Auto Dealers Association (NADA) as stating the average new car purchased for cash makes the dealer an $82 profit. When the dealer can get you to finance with them, they sell the financing contract and make an average $775 per car! But if they can get you to lease the car, the dealer can sell that lease to the local bank or GMAC, Ford Motor Credit, Toyota Credit, etc., for an average of $1,300! The typical car dealer makes their money in the finance office and the shop, not in the sale of new cars.
8. Myth: You can get a good deal on a new car at 0 percent interest.
Truth: A new car loses 60 percent of its value in the first four years; that isn’t 0 percent.
A new $28,000 car will loose about $17,000 of value in the first four years you own it. That is almost $100 per week in lost value. That is like opening your car window on your way to work once a week and throwing out a $100 bill.
In Part 2, we will examine the final myths.