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Living Debt-Free Dave Ramsey Style: Budget and Baby Steps

Updated on December 20, 2011
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Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache.

Dave Ramsey has spread the good word of living debt-free since 1991, the year he started his company, the Lampo Group. I saw Dave for the first time on the Fox Business Network in late 2007 and was impressed by his common sense approach to money management. For years, I worked with my clients using many of Dave’s ideas. Listening to Dave allowed me to expand what I already know.

Dave preaches the “debt-free living” mantra. I agree with him 100%. Some people think there are advantages to having debt. After all, you can deduct mortgage and investment interest. Unfortunately, debt is a cancer no deduction can cure. Sending $10,000 in interest to the bank to get $3,000 back from this IRS is crazy. If you really must spend the $10,000, give it to a non-profit organization and you can get the same tax deduction.

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Shortly after meeting Dave, I became an Endorsed Local Provider (ELP) for tax issues. When people in my community contact Dave for help he sends them to me. This is some the most rewarding work I do. The best part about people that contact Dave is that they are ready to make the changes in their life necessary to get their financial life back. It is nice working with people that already buy into the concepts Dave expresses.


People also receive ancillary benefits from following Dave’s debt-free living advice. Money problems are a leading cause of divorce. An improved financial condition can improve interpersonal relationships. When money is no longer the leading issue in life, quality time can be spent with family and friends. As money becomes nothing more than a tool, rather than a task-master, opportunities open up unavailable before.


Money doesn’t buy happiness, but debt certainly buys grief.


After the interest tax deduction scam is revealed, another truth becomes apparent. As debt is paid down, you are getting a tax free pay raise. Think of it this way: If you are paying $3,000 per year in credit card interest, once it is paid off, you don’t send it to the bank anymore. You keep it. Your taxes don’t go up, but your disposable income does, by $3,000. Many people pay over $10,000 per year in mortgage interest. The interest may be deductible if you itemize. If you have no mortgage interest, you still get the standard deduction. Once the mortgage is paid off, you have $10,000 more per year in disposable income, not including the principle payoff. The tax benefit may have been $2,000, give a little each way (remember, only the amount over your standard deduction is a real tax saving deduction). This leaves you with $8-10,000 extra per year. And you didn’t have to beg the boss for a raise either.


When a new business owner or young couple comes in, they frequently try to get me to endorse their desire to buy now and pay later. I remind them that they can’t go bankrupt without a loan. No one has ever entered my office in distress over losing their home to the bank without a mortgage. Likewise, no one has ever come in my office distressed and said, “I can’t take it, Keith. I am lost without having to make a mortgage payment every month.” Instead, people tell me they feel better going on extended vacations when there are no bills back home. And the vacation can be paid for with money that in the past went to the bank.


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    • Victoria Lynn profile image

      Victoria Lynn 6 years ago from Arkansas, USA

      Awesome! I have always been frugal and saved money. I don't have debt except my mortgage which I'm been working extra hard to pay off as fast as possible since I listened to Ramsey's CDs a couple of years ago. Sound, practical principles. I never want debt again! Great hub. Voted among others!

    • profile image

      stessily 6 years ago

      Keith Tax, Sage advice! I'm not a fan of debt. You make really good points and represent Dave Ramsey's style well.

      Thanks for sharing.