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Dave Ramsey’s Financial Peace University: An Unbiased Review

Wondering if Dave Ramsey’s Financial Peace University is for you? Ramsey motivates millions to get out of debt, but his program’s not perfect.

Dave Ramsey screen shotAmericans are up to their ears in debt. According to the Federal Reserve, the average American household has just over $15,000 in credit card debt as well as over $31,000 in student loan debt, as of September 2013.

If you’re one of the millions looking to pay off debt and gain financial stability you may have heard buzz about Dave Ramsey’s Financial Peace University. Let us take an unbiased look at Ramsey’s advice and the FPU program.

I’m including insight from a young married couple with two children who have been on the program for several months now. You may find that the program isn’t right for you, or you may be ready to find the classes in your area today. Either way, you’ll gain understanding of the basics of the program, its background and its outcomes.

Who is Dave Ramsey?

Dave Ramsey is a well-known financial author and speaker. He has a popular syndicated radio program and has been featured on TV shows due to his expertise in the field. Ramsey created a financial program which he calls “Financial Peace University” (FPU). FPU is an integrative program which involves live classes, small group discussions, video teaching and a book. You can find classes in your area here.

If you like the sound of what Ramsey has to offer but aren’t ready to commit to taking a class, his book The Total Money Makeover provides a solid introduction to the concepts he teaches.

Biblical influences, but not just for Christians

Dave Ramsey is a Christian. As such, Financial Peace University does have a Biblical base to its teachings. In addition there some scriptures quoted in the materials used to teach the program.

However, it’s presented in a very non-offensive way that anyone can relate to, so you don’t have to be a Christian to benefit from the program. A close friend of mine is currently in Financial Peace University. She explains, “I am Buddhist. However, I still relate to a lot of the passages they reference.”

Dave Ramsey’s “Seven Steps”

The meat of the program is the seven steps which Dave Ramsey calls “the 7 Baby Steps”. The baby steps are as follows:

1. Save $1,000 to start your emergency fund as soon as possible.

  • That means no spending on anything you do not need. Have a garage sale if you need to, and do everything you can to get that first $1,000 put away.
  • By completing this first step you have to commit to a budget and follow through with the rest of the steps.

2. Pay off all of your debt using the Debt Snowball method.

  • The Debt Snowball method is the greatest way to get rid of your debt. Simply put, you pay off the debt with the lowest balance first. Once that is paid, apply what you would have continued to pay monthly to the next debt and so forth. By doing so, you create a snowball effect and before you know it, your debt will have been paid off in a much shorter amount of time.

3. Save 3-6 months’ worth of expenses to further complete your emergency fund.

  • A real emergency fund should have about 3-6 months’ worth of expenses, according to Dave Ramsey. Once you have established an emergency fund you will find that credit cards are no longer needed to be kept for those so called “emergencies”.

4. Invest 15 percent of your household income into a retirement account.

  • By this step you should have eliminated all debt except for your home mortgage. Dave suggests investing 15% of your entire income into a Roth IRA.

5. If you have children, start saving for their college education now.

  • Start saving for your kid’s college with Education Savings Accounts (ESA’s) and 529 plans. DO NOT use insurance, savings bonds, zero-coupon bonds or pre-paid college tuition.

6. Pay off your home.

  • Start pouring all of your extra money into paying off your home mortgage. This is the last debt you will ever have to pay.

7. Build wealth and give!

  • Donate money regularly and bless others with your successes.

Criticism of the debt snowball

While it’s clear to see that following the seven steps taught in Financial Peace University can help a person pay off debt and grow their savings, it’s also easier said than done. Financial Peace University is far from a “get rich quick” scheme; it’s more a slow and steady wins the race program.

Some financial advisors criticize the debt snowball method because it isn’t necessarily the fastest way to reduce debt.

Mathematically speaking, paying off the debt with the highest interest is actually a better idea. However, Ramsey claims that the debt snowball method is effective because it is more of emotional accomplishment when people can see credit cards being completely paid off and therefore they are more likely to stick with the program.

Criticism of FPU and real estate

The idea of putting extra money down each month to pay down your mortgage as quick as possible (once you’ve paid off other debt) is solid because it eventually gets you out of all debt.

However, one thing that some people have a tough time swallowing from Dave Ramsey’s program is that he recommends only buying real estate with cash or — if absolutely necessary — with a 15-year fixed rate mortgage. Depending on what area you live in, that may be reasonable. But for some parts of the country, that idea is essentially impossible for many families, even if they save up for years and years.

There’s also the fact that many Americans successfully carry mortgages at low interest rates while investing money and earning a far greater rate of return. Still others take on additional mortgage to buy investment properties, which Ramsey would never recommend. I don’t think either approach is right or wrong; it depends on your financial priorities and risk tolerance. Do you want to be debt-free at all costs, or are you willing to shoulder some debt (and some risk) for the chance to build wealth more quickly?

Most of FPU is reasonable for many

If you have debt to pay off like the majority of Americans, the first steps of FPU are good ones. The difference between paying the smallest debts first (as opposed to those with the highest interest rates) may cost you a few hundred dollars in lost interest, but both plans will work if you stick to them.

My suggestion is to implement a personal program for your family based on the seven baby steps, but suited to meet your needs. Only you know exactly what will work for you.

If you want to buy a home but can’t pay all cash, save up as much money as possible first. Put as much money down as you can and make sure that your monthly payments are comfortable even if you do have unforeseen live changes.

Have you ever tried Financial Peace University or a similar program? How has it worked for you? Share your best tips for getting rid of debt here.

Published or updated on October 1, 2013

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About Sarah Davis

Sarah Davis is a real estate broker in San Diego, Calif. She enjoys helping both buyers and sellers and was voted one of the top 10 best real estate agents in San Diego in 2013 by Union Tribune readers. In her spare time she talks about real estate on a local radio show and manages her website RealtorSD.com.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Melanie says:

    I’m actually going through Financial Peace University in the Philadelphia, PA region. I’m in about week 5 at this point (out of 9). It’s pretty exciting because I’m a 28 yr old female, will be debt free by Jan 1, 2014. I own my car outright, and my undergrad and graduate degrees will be paid for. It’s exciting to feel prepared for retirement, saving for a downpayment for a home, and an emergency fund, and future purchases. Overall, it’s a pretty great plan. I disagree with stopping retirement until you’re debt-free–I find it more important to consistently save for retirement. Also, Dave Ramsey is completely anti-credit cards, and I am someone who uses credit cards, pays them off in full every month, and enjoys the rewards. It’s certainly a course worth considering if you need some solid, conservative advice.

  2. Brian Osborn says:

    Good article about a Great program and a Phenomenal Financial educator.

    I am bemused by all the KBFAs (Key Board Financial Advisors) that strut out of their Pro Mortgage chicken coops and hen peck Dave Ramsey’s methods and logic.

    Let me ask you a question by proposing this scenario. Imagine that you owned your home right now FREE & CLEAR with the Title tucked nicely away in your safe. Has it sunk in yet? (Pretty AWESOME feeling huh.)

    Now at what what point would it make ‘good financial sense’ for you and your family to take that same Title to Bank of America, hand it to the loan officer and remortgage your home for the next 30 years as collateral – so you can take that hard earned money and invest (gamble) it in the stock market or any of the more “prudent” KBFA recommended investments?..

    How is that scenario any different than what many in America are doing and (even worse) advising people to do right now?

    Now, can anyone logically tell me why they should NOT pay off their home mortgage first before investing their hard earned money in the plethora of more ‘prudent’ investment alternatives?

  3. Slinky says:

    Dave Ramsey is a great place to start for people who want to take control of their finances, but need some guidance and somewhere to start. But I hate one size fits all advice and think you should always analyze other people’s systems and advice for how they do or do NOT work for you.

    Personally, Dave Ramsey doesn’t work for me. I’m fairly disciplined with my money and prefer to take the mathematically advantaged route. That means I pay off high interest debt first and will happily sit on a debt if it has a low enough interest rate and there are more advantageous places for my cash. Advantageous can indicate a higher return or other intangible benefits like increased cash flow or accomplishing goals. Likewise, I don’t sit on a large emergency fund unless I need one.

  4. Jessica says:

    I’ve known a few people in the military who’ve done the program to great success–it works best if you’ve got lots and lots of credit card or other consumer debt that you just want to get rid of. However, I also have issue with the Roth IRA recommendation–most people CAN’T put 15% of their income into a Roth, because it maxes at $5,500…you should have one, and you should max it, but your employer might offer a Roth 401K which is a much better deal most times–and if you’re that short on cash, dropping your money into a traditional 401K cuts your tax burden up front. I also have heartburn with the recommendation to pay off your mortgage early. It’s a tax write-off as long as you’re paying interest on a mortgage. Just like with student loans, you have to be VERY careful about what you pay off and at what rate (both the interest rate, and the time you take to pay it off). Yes, being free of those debts may feel good, but for longer term financial decision-making, take the tax deductions for as long as you can. So you hold on to a little bit of debt for a little longer, but a mortgage balance doesn’t really hurt your credit score and the deduction helps your marginal tax rate.

    • Mercedes says:

      Dave says pay off those tax deduction items because for most people, if you made charitable donations to causes important to you versus paying a bank your deduction comes out the same. I’ve taught FPU and the example he uses is having about $125k mortgage with about $10k I’m payments nets maybe $2500 deduction. But charitable giving of $10k nets the same deduction for the average person in average tax bracket. It goes back to his Christian teaching of giving and how it feels better to give freely versus paying interest.

    • Gee jack says:

      The money you would pay in interest isn’t worth the tax write-off. If you, instead, pay your house off then apply the same amount that you would’ve payed monthly on your mortgage in an IRA or other retirement account, you would be better off.

  5. Lucas says:

    Havn’t been through it myself. But just looking at the advice it seems pretty good for most of the people I know. Basically it would apply to 50% or more of americans who have issues with budgets and debt. However the advice is not strictly speaking “ideal”. Highest paid debt would make more sense to be paid first, ROTHs don’t make as much sense as Traditional IRAs for 401ks for most people (don’t get me started on how many things people have wrong with this, but it boils down to paying Full marginal tax rate going into a ROTH but only paying average tax rate coming out of a Traditional IRA), paying off house ahead of investing isn’t ideal for most people especially with just low interest rates, etc. . .

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