Lead Us Not Into Debt

On a fine summer day at the end of August, I paid $220 for front-row seats on the floor of a minor-league hockey rink in Detroit, just to hear Ramsey talk for five hours. The ostensible topic: getting your financial life in order. Afterward, my fiancé, who grew up in the Bible Belt, called me to ask what I’d thought.

“I think I just attended my first prayer meeting,” I told him.

There was, of course, a great deal of talk about money, and what to do with it. But the format was more tent revival than accounting seminar, with the first 90 minutes or so mostly devoted to Ramsey’s personal story of ruin and redemption. We heard how, during the second half of the 1980s, a young Ramsey built up a multimillion-dollar real-estate empire—then lost it all as the bank got nervous and called his loans, ultimately forcing him and his wife into bankruptcy. How, searching for help in his hour of need, he turned to the Bible and discovered Proverbs 22:7: “The rich rule over the poor, and the borrower is slave of the lender.” At that moment, he told an audience so hushed that we could hear the ice squeak, Ramsey decided to never borrow another dollar again.

By all accounts, he hasn’t—a commitment that many business owners would like to catch him out on, since his disciples routinely shun lucrative financing deals at car dealerships, furniture stores, and electronics warehouses. The merchants’ loss is Ramsey’s gain: he has become rich spreading his debt-free gospel. The Dave Ramsey program got traction in evangelical churches, which are still one of the biggest distribution networks for his 13-week video program, Financial Peace University. Ramsey is not the first evangelical to sell financial advice to his co-religionists, of course. Jim Sammons, Crown Financial Ministries, and others all offer similar messages to get out of debt, tithe, and so on—not to mention the far more numerous proponents of the so-called prosperity gospel, who encourage consumption rather than restraint because they believe that God will shower the faithful with riches (see “Did Christianity Cause the Crash?,” page 38).

But although other evangelical financial advisers flourish mostly within their religious communities, Ramsey has made himself the breakout act, bringing his basic message to the wider world. His programs are available in high schools and on military bases, and Ramsey himself can be heard through his daily radio show, his nightly Fox Business broadcast, his Web sites, his live events, and his many books, including a special line of children’s stories. His company, the Lampo Group, now has hundreds of employees.

Ramsey offers some investment advice (much of which would have struck horror in my business-school professors), but for most of his followers, the main attraction is a simple program: give 10 percent of your income to charity, save 15 percent for retirement, build up a sizable emergency stash and a college fund for your kids, and above all, stop borrowing money. Ramsey devotees pay cash for everything they can. They are allowed only one exception to the no-more-debt rule: a 15-year fixed-rate mortgage. He is so serious about shunning debt that his Web site takes only debit cards; try to pay with a Capital One Visa, and the system rejects the card, then tut-tuts at you. These simple, austere, unbreakable rules are, as Ramsey likes to say, “the advice that God and Grandma gave you.”

Most things sound a lot crazier from the outside, and so once I’d decided to write about the friendly, slightly bombastic man on the television screen, I thought I should try his program, as outlined in his book The Total Money Makeover. At the beginning of August, I had dutifully sat down with Peter, my fiancé, to draft a budget. Once we’d given every dollar a name (as the book puts it), I drove to the bank and withdrew 1,800 of them. Huddled over the wheel to hide this stupendous wad of cash from prying eyes, I doled out the money among various envelopes for groceries, parking, entertainment, clothing, and so on, as recommended by Ramsey—and, funnily enough, by my grandmother, who invented a nearly identical system to manage my grandfather’s meager earnings from delivering groceries during the Great Depression.

When you pay for something with a credit card, or even a debit card, you can easily spend a few extra dollars here and there. But as Ramsey explained—while waving a handful of hundred-dollar bills to illustrate the point—if you have to actually hand over some of your dwindling cash supply, you tend to ponder every purchase. That impulsive latte buy becomes a little less enjoyable when every time you haul out your wallet, a quavering voice inside your head asks, “You want to send Uncle Abe away?” And sure enough, though we thought we’d budgeted conservatively for just the necessities, we nonetheless finished the month with extra money in every envelope.

It’s also hard to spend cash, because so many people look at you funny when you try. The very first day, I spent almost 20 minutes trying to check out in the “better dresses” section of a department store. The saleslady stared at the hundred-dollar bill in her palm as if I’d just handed her an eel. After a series of plaintive looks at my obviously card-free wallet, she started stabbing at the cash-register keyboard with a sort of bleak despair. To my immense surprise and relief—and clearly, also to hers—the cash drawer eventually opened.

Ramsey calls this “being weird.” The phrase came up over and over again in his five-hour spiel, always punctuated with the same rejoinder: “Normal is broke.” During our first month on the Dave Ramsey program, I was startled to find out how true this is. When I described my project, a really shocking number of people, many of them married professionals with good incomes, confessed that they had no control over their money.

They aren’t much different from most of America. According to a recent survey from CareerBuilder, six of every 10 workers “always” or “usually” live paycheck to paycheck. Affluent, educated people do a little better, but they certainly aren’t immune—three in 10 of those with salaries above $100,000 also report that they’re spending it as fast as they make it.

In fact, in some ways, education makes living above your means easier. In business school, my fellow students and I became big fans of the idea of “consumption smoothing,” as laid out in the work of economic luminaries like Milton Friedman and Laurence Kotlikoff. At least as we read it, the theory told us to do what we wanted, which was to spend money on stuff we didn’t quite need. After all, we’d be making good money when we graduated, so why not borrow a little against that future income to buy a car or go to Cancún?

Ramsey could have told me why not, but I doubt I would have listened; it’s a lesson you can perhaps learn only firsthand. I graduated into the teeth of the 2001 recession $100,000 in debt. My six-figure job offer evaporated when the consulting firm fell on hard times. It took me two years to find a permanent job, and when I did, that job was in journalism, which paid about a third of what I’d been expecting.

Just like me, our nation has experimented with the “educated” overuse of leverage, aka debt. Homeowners who believed that they would have been fools to rent when a mortgage-interest tax deduction was available have poured their savings and their hearts into homes they are now losing to foreclosure. M.B.A.s are shuttering the companies they leveraged to the hilt as they chased tax deductions and higher returns. Even our politicians speak of deficit spending as a sort of investment opportunity. In industries from autos to housing, even as the private sector has retreated to repair its balance sheets, the government has dangled money it has borrowed in front of potential buyers to tempt them to further purchases.

Debt magnifies our fortunes, whichever way they’re going. When incomes are rising, debt helps us live even better. When incomes are falling, fixed debt payments can push us into the abyss. If you have substantial assets, you can lose a lot more than your sterling FICO score in a bankruptcy, and bankruptcy makes it hard to save, or start over. Even if you don’t go bankrupt, debt payments make it difficult for you to accumulate wealth, or to take the kind of risks that can make your life better, like switching jobs, starting a business, or getting married. And of course, if everyone takes on too much leverage at once, the whole system can collapse.

Really, we know all this. We knew it before. Just as G. K. Chesterton once remarked of Christianity, the Grandma Plan hasn’t been tried and found wanting, so much as found difficult and left untried. It’s hard to make a collective decision to delay gratification—and even harder to “get your grandma on” when everyone else is out charging the good life to MasterCard.

After all, many people who got caught out in the housing bubble didn’t exactly want to take out an adjustable-rate mortgage with a 3 percent down payment. But there was no other way they could afford even a modest-size house in a decent school district. Houses were being priced, not on some notion of intrinsic value, but on the maximum payment that likely buyers could afford. As other buyers and many bankers became more willing to take absurd risks, even previously prudent consumers felt they had to follow suit. They couldn’t get “weird” without sacrificing their children’s education.

Dave Ramsey has little patience with this sort of argument. Some of his most scathing mockery is reserved for people who take out loans to pay tuition at an expensive private college. No school, he avers, is so much better than the local college that it’s worth gambling with your financial future.

There’s some evidence that he’s right about this; a study by the economists Stacy Berg Dale and Alan Krueger famously found that students who were accepted by schools with high average SAT scores, but chose to go somewhere else, earn about the same as those who actually attend the higher-ranked school. But there is also evidence to the contrary; and what nice upper-middle-class family is willing to, well, gamble with their child’s financial future?

This may be why Ramsey and the other evangelists for a debt-free existence have thrived most in a subculture that offers something even more sacred than a Harvard education. Though Ramsey’s television and radio shows have attracted a large secular audience, his hard-core followers still seem to be overwhelmingly evangelical. Ramsey closed his talk in Detroit with a sober lecture on taking care of yourself mentally, physically, emotionally, and of course, spiritually. “Bluntly,” he said, “I’m talking about this man named Jesus, and if you don’t know him, you need to be introduced.” The arena erupted in a joyous roar.

Though I did take the audio CD of Ramsey’s personal witness being handed out free at the exit, I’m afraid that Jesus and I aren’t really any better acquainted than we were before. Nonetheless, Ramsey has made a convert out of a secular journalist with one of the pricey M.B.A.s he likes to poke fun at. I have never felt as serenely in control of my finances as I have during these months of knowing that every single dollar is where it is supposed to be: either in the bank, or on a well-chaperoned date with our envelope organizer. The process has been surprisingly painless but, even more surprisingly, pleasant.

Of course, both my fiancé and I have already acquired our expensive educations and a pair of decent cars. We don’t have any kids, we don’t own a home, and it won’t hurt us to rent a few extra years until we have paid off the last of our student loans and can afford a 20 percent down payment on a house. It is easier for us to be weird than for most of our peers.

On the other hand, Americans aren’t going to fix our national financial problems until a lot more people decide to drop out of the “normal” competition to see who can borrow the most money in order to bid on a fixed number of homes in affluent school districts and places at selective colleges. You don’t need to be a Christian to look for a better way. Even an unbeliever knew enough to listen up when he saw the bright light on the road to Damascus.