Subscribe to AFM

Subscribe to AllFinancialMatters
by Email

All Financial Matters

Promote Your Page Too

The American's Creed

Site Sponsors

AFM in the Media

Money Magazine May 2008

Real Simple March 2008

Blogroll (Daily Reads)

« | Main | »

Dave Ramsey: Give Up a 401(k) Match in Order to Pay Off Debt

By JLP | February 15, 2007

I’m listening to the Dave Ramsey Show from yesterday. At about 1:06:38 (that’s hr:mm:s) into the program, Dave takes a call from a guy who wants to settle a disagreement with his wife. His wife wants to take their 401(k) contribution down to zero while they pay off their debts. Apparantly Dave suggests that people forgo putting money into their 401(k) while they are getting out of debt even if they receive a company match. WOW! The guy on the phone told Dave that he would be leaving $6,000 – $10,000 on the table if he took Dave’s advice.

I’m surprised that Dave would suggest this over the phone without getting a firm grasp of this couple’s situation. I mean shouldn’t he (Dave) find out this couple’s cash flow situation before he tells them to stop contributing to their 401(k)?

When the caller asked Dave about this, Dave said something to the effect that, “personal finance is 80% behavior and 20% head knowledge.” This sounds like one of those sayings that people say without really having any proof to back it up.

Now, I realize that I’m not a “GURU” like Dave Ramsey is, but here are my thoughts on this:

1. Prioritize your finances. Take a look at your cash flow and see what areas are most important. Contributing to a 401(k) should be one of the top prioritieS

2. If you have to cut costs, cut them by getting rid of unnecessary monthly expenses.

3. ONLY touch the 401(k) IF you have no other resources to pay off your debts.

I have to totally disagree with Dave on this one. What are your thoughts on this?

Topics: 401(k), Budgeting, Dave Ramsey, Retirement Planning | 65 Comments »

65 Responses to “Dave Ramsey: Give Up a 401(k) Match in Order to Pay Off Debt”

  1. Foobarista Says:
    February 15th, 2007 at 11:59 am

    This is one of those “heart vs. head” debates, where it is obvious from pretty much every measure that objectively, funding the 401K is enormously important, for numerous reasons: tax savings, getting the employer match (a guaranteed 50-100% return on your investment!), and starting the “compounding clock” as early as possible.

    That said, I can see where he’s coming from; many people aren’t disciplined enough to both save and pay debt down at the same time, and these sorts of people would be the ones more likely to have gotten into debt in the first place.

    But I still think he gave bad advice, for the reasons you gave…

  2. Doug Says:
    February 15th, 2007 at 12:25 pm

    This is completely consistent with his book “Total Money Makeover” and the “Baby Steps” found within. In both he encourages people to not move on to the next step without completely finishing the proceeding one. It helps people focus. Therefore, I see it as him being consistent rather than giving bad advice. Personally, from a host with a large audience, I’d rather have consistent clear advice for the majority of situations than specific advice for each individuals situation. That way, even if you can’t get through to the radio show you’ve been given relevant advice that you can apply to your situation. Otherwise, each person would either have to wait to get through or pay for a personal financial counselor.

    Just my opinion.

  3. eR0CK Says:
    February 15th, 2007 at 12:28 pm

    I’d never minimize my 401k contributions to 0% of annual pay. You’d be leaving free money on the table! Especially for someone my age, the more you save now can really add up down the road.

    The only event in which I’d zero out my contributions is if I really got into some HUGE financial problems. Otherwise, I’d much rather contribute 6% while I pay off my debt.

  4. Ry Says:
    February 15th, 2007 at 12:41 pm

    I am stuck with the same decision currently. Expecting my first child at the end of Sept and I have to start saving up. I’m still trying to do a debt snowball and get as much debt paid as possible while saving as much as possible for the time away from work that I will experience.
    Currently I am contributing 5% without a match to my 401k. I’m going to take that down to 3% immediately. I don’t receive a match and won’t until my 1 year anniversary in July. They only match 3% until next year when it goes to 8%. But at least it’s a 3-to-1 match.
    But I do agree to not put off contributing at least something. The magic of compounding will pay off many years down the road whereas the debt could and should be paid off asap.

  5. KMC Says:
    February 15th, 2007 at 12:41 pm

    Definitely contribute for the full company match. That’s 100% return. Unless you have a debt that’s greater than 100% APR, you’re losing. After that, like others have said, it’s a psychology thing.

  6. Chris Brooks Says:
    February 15th, 2007 at 12:56 pm

    There’s no right or wrong answer here, and Dave is always clear to point out that what he says sometimes doesn’t make sense on paper, but that it works in practice. So many of his callers are in a world of hurt and need to delay long-term goals to rescue themselves from a sea of debt. If I was facing foreclosure, would I stop paying into my 401(k) to make sure I could make payments and dig myself out of the hole? Of course.

    I’ve also heard Dave temper his comments for less drastic situations, recommending that someone only contribute up to the matching while they work on babystep 2. But in general he is dogmatic about his model and it appears to work for a lot of people.

  7. JLP Says:
    February 15th, 2007 at 1:04 pm


    I’ll admit, I’m not a regular listener to Dave’s program so I don’t know how he deviates in his advice from one caller to the next. But to tell a guy to stop contributing to his 401(k) (and leaving money on the table by losing out on the employer match) until he pays off his debt without knowing how much that debt is, is crazy.

    The math is always right. People just need to learn to control themselves.

  8. Dus10 Says:
    February 15th, 2007 at 1:20 pm


    I have to agree with you; the answer to having a lack of discipline is not to accept it and half-ass your way through life… but rather to build of some discipline and be successful. I hate circular logic.

  9. the7thlover Says:
    February 15th, 2007 at 1:24 pm

    Well..if your yearly interest going towards debt is $10,000 (hypothetically) and you are losing $10,000 by not contributing to your 401 for 1 year…

    This boils down to each family’s circumstances. For some the above may apply and for others they may receive $10,000 in 401 contributions but lose $2,000 in interest. Choose your poison…carefully.

  10. NCN Says:
    February 15th, 2007 at 1:29 pm

    I am a big fan of Dave’s, but I have always disagreed with him about this particular advice. If a company matches any portion of your contribution, that’s a GUARANTEED “return on investment.” Plus, for every dollar that you contribute before taxes, you also reduce your taxable income. Personally, I reduced my retirement contributions to the match, and then I used the remaining for debt repayment. Once I got out of debt, I jacked my retirement contributions back up.

  11. Joseph Bales Says:
    February 15th, 2007 at 2:16 pm

    Dave’s advice is good advice, but ONLY if you stick to his plan. Dave is making some assumptions here and if you aren’t familiar with his plan, this advice would be bad for you (something Dave has admitted in the past).

    Dave’s first assumption is that you are devoting your life to paying off debt. This means you’ve put together a plan that will get you out of debt as quickly as possible. This involves working overtime and cutting out anything extra to get the debt down ASAP.

    Dave’s second assumption is that you plan to STAY debt free once everything is paid off. This will allow you to make larger contributions later, because you will have plenty of cash to work with.

    I cannot site a particular show, but I know that Dave has said in the past not to stop 401k contributions if you are only going to go half way with his plan. He will tell you to keep doing what you are doing now and be poor all your life.

  12. crm Says:
    February 15th, 2007 at 3:02 pm

    Dave Ramsey is a clown! Telling a nation with a negative savings rate that they shouldn’t accept free money from an employer for retirement savings is absolutely irresponsible. He’s nuts, or perhaps he’s consistent–it’s all schtick anyway. Follow his advice and enjoy retirement in the trailer park…

  13. jtc Says:
    February 15th, 2007 at 3:20 pm

    I say, contribute to the match and then pay off debt. This creates a pattern of behavior where saving is a priority. Creating the pattern is the first step toward wealth. Paying off debt is supposed to hurt. It keeps you from getitng in debt again.

    Terrible advice!

  14. Chris Brooks Says:
    February 15th, 2007 at 3:24 pm

    Hold on folks.

    If you are doing well on the way to retirement, are you carrying consumer debt around? If you are doing so well, then why are you borrowing money on cards? If you pay off your cards every month and have no debt but your home, then if you follow Dave’s program you would absolutely fund your 401(k) to the maximum extent possible.

    Those of you criticizing Dave’s advice have to consider the context of why you would even be at step 2 in his plan: you are carrying consumer (bad!) debt around, and struggling to get free of that debt. You probably have a track record of spending more than you earn.

    To CRM – if someone is carrying around consumer debt and making payments on cards that they can’t pay off, then they are by definition either (1) broke or (2) stupid.

    The secret here of course is to not get yourself in the position where you need to be at step 2 and don’t carry consumer debt around. Why does it make sense to carry credit card debt but still sock money away for retirement? That’s a dangerous game.

  15. bigbuddha Says:
    February 15th, 2007 at 4:07 pm

    Chris Brooks wrote .. “Why does it make sense to carry credit card debt but still sock money away for retirement? That’s a dangerous game.”

    Let’s look at the numbers, you put in $1000 into your retirement account, your employer matches it $1000. So you effetively earn 100% roughly, taxes aside.

    Pay down a debt of $1000 your save maybe what 15-20% so your effetively losing out on 80%.

    100% return vs 20% return … doesn’t sound to dangerous to me

  16. sam Says:
    February 15th, 2007 at 5:28 pm

    Dave’s advice is consistent with his financial world view that people should get out of debt, and stay out of debt (except for a mortgage). Only then should they save and invest. That is his KISS (keep it simple, stupid) advice.

    JLP, you and other commenters are right about taking the 401k match whenever possible. That is what I would do. On the other hand, too many people get wrapped around a mathematical wheel trying to calculate the cost of debt versus return on an investment. Dave would probably say that – almost always – you will pay more in interest on consumer debt than you would make by investing the money instead. And that is why it is better to get out of debt before investing. I agree with him there. The 401k match is one exception to that, but overall his advice is sound.

  17. Chris Brooks Says:
    February 15th, 2007 at 6:17 pm

    Not to beat a dead horse here, as we should probably just agree to disagree, but…

    Would you take a cash advance on a credit card to invest in a 401(k) and get matching?

    The math makes sense, but when I say “dangerous game” I’m referring to the problem so many folks have today where they assume that things will work out in the end, that they’ll keep their jobs, etc. Dave’s mantra is about freeing up cash flow so that you can do things like invest for the future. Not paying off credit card debt to pay into a 401(k) is no different than borrowing money to invest, which is senseless. Get rid of the consumer debt then maximize your investments. If you’ve been reasonably intelligent (meaning: you don’t have much debt) you can probably get away with doing both by knocking out your debt quickly and still maximizing your annual employer match.

  18. lorax Says:
    February 15th, 2007 at 6:58 pm

    Sigh. Dave’s obviously very wrong analytically, but then consider to whom he’s speaking. These folks aren’t reasoning things out when they go into debt with usury rates. And most probably aren’t financially sophisticated enough to understand how to get the match on their 401k, put the money in a MMA and then take a loan against it.

    I’m surprised anyone here 1) has uncovered credit card debt and 2) listens to Dave.

    I’m starting to wonder if this is financial darwinism.

  19. gmv Says:
    February 15th, 2007 at 7:04 pm

    Dave’s advice on the phone, as others have noted, is very consistent with his message in his books.

    Frankly, this is one of my personal huge stumbling blocks with Dave too. Back in 2005 when I first found Dave, I got really fixated on working Dave’s plan exactly to the T — so I did stop my 401(k) contribution for about 1 month. It REALLY felt lousy to me — I mean it gave me stomach cramps — so I flipped it back on to the minimum with which I can get a full corporate match.

    I think it might work for somebody who can put together a game plan for getting rid of all their Baby Step 2 debt in under a year. If you can’t, then I wouldn’t.

    I’ve really never understood how people managed to start Dave’s plan and within just a few weeks or months pay down huge amounts like 15K or 25K or 50K. I assume they’ve done that by liquidating savings or selling spare houses/boats/cars.

    I was already living pretty lean. I’ve been working on it 18 months and have paid down around 15K in that time (I’ve also had periods of back sliding, or having to do things like put a $500 emergency vet visit on the card). But that’s beside the point.

    Anyway, I’m still plugging away at it, with my little minimum 401(k) contribution — periodically I get anxious and raise it for a few pay periods and then drop it back down again. ARGH.

    The other thing I totally decided not to listen to Dave about was I’ve started contributing $300 a month to a Roth IRA. I just fear being broke later in life.

  20. gmv Says:
    February 15th, 2007 at 7:08 pm


    What, everybody reading personal finance blogs is supposed to be golden? People also read pf blogs because they are trying to fix a crappy situation.

    Everybody puts their pants on one leg at a time. I’m sure you’ve never made any mistakes in your life.

  21. Steven Farrar Says:
    February 15th, 2007 at 7:22 pm

    We did it, and now that we’re on the other side, we are going to be able to make up, so much more than had we continued to ‘do the math’. Just to sum it up, pre Dave’s plan, Negative net worth of $123,000, sold cars, stopped 401k, got on a budget, 3 years later, Zero Debt (except mortgage), with a positive net worth of over $80,000. Over 200k change in position, just by going with our heart, versus my head! If we had nickeled and dimed our 401k, we’d be nowhere near where we are today. If you are really seriously about becoming debt free within the next 18 months, the amount of $ you’ll have without debt payments, will more than make up any lost time. We were investing $300 per month, Now, we can do over $3,000, each month. We may not be the norm, our incomes are above average, however, we actually had ‘higher’ incomes, when we generated the $130,000 in consumer debts.

  22. thatedeguy Says:
    February 15th, 2007 at 7:46 pm

    Having money in a 401 isn’t gonna help much when you’re filing for bankruptcy. And don’t argue that you could stop contributing and save yourself from bankruptcy either. Emergencies happen and for some people that can be enough to put them over the edge.

  23. jack Says:
    February 16th, 2007 at 7:34 am

    What’s absolutely amazing to me after reading these comments is that no one ‘doing the math’ is calculating the employee match at it’s present value! In laymen’s terms, the 100% ain’t 100% because it’s one time. In most real world scenarios, Dave’s position makes emotional AND mathematical sense. Go ahead, do some pv and fv calculations, given that credit card minimum payments are around 3%….

  24. JLP Says:
    February 16th, 2007 at 9:08 am


    Dave even admits that this thinking doesn’t make sense mathematically. Only in cases where the interest on the debt is extremely high or the debt itself is extremely high would it make sense to give up free money in order to pay off debt.

  25. tinyhands Says:
    February 16th, 2007 at 9:55 am

    (Sorry, I didn’t make it all the way through the other comments, so forgive me if this is a duplicate)

    “I’m surprised that Dave would suggest this over the phone without getting a firm grasp of this couple’s situation. I mean shouldn’t he (Dave) find out this couple’s cash flow situation before he tells them to stop contributing to their 401(k)?”

    I think this is exactly what is wrong with most radio/tv call-in programs (and quite a few websites). Generalized advice based on incomplete information. There’s a reason why doctors take a complete medical history before prescribing medications. To do so otherwise would be irresponsible.

    And what’s worse, listeners other than the caller have now heard this advice and think it applies to themselves as well.

  26. Jesse Says:
    February 16th, 2007 at 1:29 pm

    If personal finance is 80% behavior and 20% head knowledge, it’s also HALF personal. So, with that said, to each his own.

    I agree with tinyhands (25). People need to find the answer that works for them.

  27. jack Says:
    February 16th, 2007 at 2:23 pm


    “Only in cases where the interest on the debt is extremely high or the debt itself is extremely high would it make sense to give up free money in order to pay off debt.”

    Ok. If we agree there, then let’s consider the other cases.

    The interest on their CC debt is low. How many missed payments due to a mistake, family emergency, etc, would it take for that rate to go sky high as written into every CC agreement? Answer = one.

    OR the debt is low. How long would it take to pay off the debt if you halted your 401k contribution until it was paid? Answer = not long. THEN you could apply previous CC payments towards retirement, be closer to maxing out the contribution, while NOT having CC debt.

    And this is stupid advice?

  28. JLP Says:
    February 16th, 2007 at 2:42 pm


    You’re putting words in my mouth. I didn’t say it was “stupid advice.” I just said I don’t agree with it.

    If you aren’t strapped for cash and can handle the monthly payments, then it is best to contribute to your 401(k) up to the match AND pay down your debt.

    And, EVEN if what you propose happened (i.e. missing a payment and the rate goes sky high), why not take the DRASTIC step of stopping 401(k) contributions and paying off the debts then?

  29. jack Says:
    February 16th, 2007 at 3:36 pm

    My bad. The exact word you used is “crazy” which to me implies stupidity, but actually means insanity. And insane are exactly the following comments –

    + 100% return vs 20% return … doesn’t sound to dangerous to me
    + That’s 100% return.
    + guaranteed 50-100% return on your investment!

    which as the host of “all financial matters” I would hope you would correct this false thinking. The time value of money is a calculation, not an opinion. The actual ROI of carrying consumer debt to get a 401k match decreases dramatically beyond 12 months. The only opinion is whether the risk vs. opportunity cost is worth it. And in that argument, I would point to the empirical evidence of the billions of dollars of profit earned annually by the CC industry to emphatically state that NO, it isn’t WORTH IT!

  30. JLP Says:
    February 16th, 2007 at 4:36 pm


    “The actual ROI of carrying consumer debt to get a 401k match decreases dramatically beyond 12 months.”

    Keep in mind that you get a match each year. If you stop contributing to a 401(k) for two or three years in order to pay off debt, you are giving up two or three year’s worth of match. And, you are also paying more in taxes since 401(k) contributions come off the top of your income.

    And yes, I do think it is crazy to recommend the same strategy to everyone without first knowing their circumstances. That would be the same thing as me saying that EVERYONE needs to purchase muni-bonds so that they can save on taxes.

  31. Kevin M Says:
    February 16th, 2007 at 4:45 pm

    I’ve had issues with Dave Ramsey, and this is just one more reason why I don’t listen to him. I think it’s creepy they way he sells his seminars, books, accessories and the cult of Dave Ramsey.

    He philosophy of no debt is extreme. Yes, it’s nice not to have debt, but debt used to buy things that make money is perfectly fine, as long as you can pay it back comfortably.

    You ALWAYS take the free money match in the 401k, unless that leaves you too cash strapped to live. Just wanting to pay down debt faster is not a good reason. Because at the end of the day, $1,000 used to pay down credit card debt at 19% (or whatever) is like earning 19%. Money contributed to a 401k with a match is an instant 100% earnings. Do the math.

  32. lorax Says:
    February 16th, 2007 at 7:41 pm

    gmv: Fair point, I suppose many fall into the consumption culture before learning better ways.

    I’ve been pretty lucky. So far, I’ve only had “good” debt, school loans and a mortgage; except for a car loan I took once I’ve been very careful not to carry consumer debt. But then some people would call me boring. :)

  33. » Bloggarific Linkfest on Blueprint for Financial Prosperity Says:
    February 17th, 2007 at 8:43 am

    […] Changing gears from quick money to sloooooow money, FMF writes about the value of an advanced degree. And from the department of terrible ideas, Dave Ramsey recommends skipping the 401k match and that you should pay off debt, something JLP doesn’t particularly agree with. As an aside, I was going to write a Devil’s Advocate post about how the match isn’t worth it… but I couldn’t come up with any reasons not to do it! […]

  34. George Walker Says:
    February 17th, 2007 at 2:18 pm

    An idea I hav’nt heard yet is to borrow the money from your own 401K to pay off the debt. You end up paying your own 401K investment instead of a bank or credit card company. Of course you would need the required balance to be able to do this but for some people it might be a good option.

  35. Rodeo of Debt Reduction #7 → We’re In Debt Says:
    February 17th, 2007 at 4:31 pm

    […] JLP discusses Dave Ramsey’s advice to leave free money on the table to payoff debt. I have to agree with JLP. If you can make free money, you should. Neither of us have a 401k match, so we’re not leaving anything on the table by paying off our debt first and foremost. […]

  36. gmv Says:
    February 17th, 2007 at 9:00 pm

    Borrowing from your own 401K is NEVER a good option — why? The quick summary: You have to repay yourself with post-tax dollars, you’re repaying yourself at a fixed low rate for the duration of the loan, and if you stop working for your employer for any reason, you have to pay the 401k loan back immediately or get hit with a huge tax penalty. (been there, done that, it really sucked)

    You really would be better off not contributing to the 401K if you are going to be tempted to take out a loan.

  37. Greg Says:
    February 17th, 2007 at 9:10 pm

    For a person with high debt, it seems to me that it’s an obvious decision. Consider it…

    The debt is costing 20-30% in interest annually.

    The return on the 401k is perhaps 8% annually.

    Rather than setting aside money in the 401k, and receiving the additional money from the employer, pay off the debt first. The extra money is countered and exceeded by the interest accruing on the debt.

    Work out the math:

    You owe $40k, and are paying 25% interest per year.

    You save $10k in the 401k, and the employer matches with another $10k.

    Your debt is increasing by more than $10k per year due to interest.
    Your 401k is increasing by a bit more than $1600 per year in interest.

    Your net worth is increasing slightly, at best, and may be declining a tiny bit.

    If you pay off an extra $10k per year, your net worth declines each year as you pay it down, but eventually you are debt free, and each year the decline is less.

    In the long-run, you end up with more money in the bank if you forego the 401k and pay off your debt.

  38. boggs Says:
    February 17th, 2007 at 10:40 pm

    Everyone keeps talking about a specific scenario to react to, so what about this…

    Family of 3 (two parents one toddler)
    New Job opportunity – allows one person to stay home to raise family
    Wage earner makes 70k / yr and is 45 years old
    Wage earner’s 401k balance is ~65k
    Employer’s match is up to 8% which is current contribution
    Selling home in previous location took 9 months
    During this time had to pay expenses for two houses
    Sold home for loss (had to pay to get out of it)
    Cars needed essential repairs costing over 2k
    Debt accrued during this period ~10k
    What had been a manageable CC debt of 7-8k is now 18k
    All CC debt is on zero interest cards (limited time)
    Other debts include new home mortgage and one car
    Relocation company didn’t pay mortgage (for sold house) ontime leading to some risk that credit scores may be affected
    Taking a loan against 401k for downpayment on new home

    Should this wage earner a) boost loan against 401k to pay off some of CC debt to avoid risk of not being able to keep zero to

  39. » Weekly Roundup - 02/16/07 @ Says:
    February 18th, 2007 at 10:32 am

    […] JLP questions the wisdom of Dave Ramsey, who advised a listener to stop contributing to their 401(k), and thus miss out on the free matching funds, in order to pay off their debts. Yikes! JLP isn’t the only one to have questioned the wisdom of Dave Ramsey. Then again, it seems that Ramsey is pretty darn good at psychology. Hmm… What to do? […]

  40. CLB Says:
    February 18th, 2007 at 12:37 pm

    That caller wasn’t just leaving a company match $6K to $10K per year on the table, but the money it could have grown to over the years as well. At say, 7% interest over just 10 years, that’s about $100,000 lost forever. I don’t listen to Dave Ramsey regulary, but before now I’d always thought he was knowledgeable and responsible in his advice. Now I’m wondering….

  41. » Weekly Blog Roundup: New York City, Raise and Bonus Edition on Consumerism Commentary: A Personal Finance Blog Says:
    February 18th, 2007 at 8:08 pm

    […] Mighty Bargain Hunters has some tips for making money off the U.S. Mint’s new releases, but it ain’t easy. All Financial Matters is critical of Dave Ramsey’s illogical advice. […]

  42. A Silver Lining - The Debt Repayment Debate Says:
    February 20th, 2007 at 10:08 pm

    […] This post is one of the latest to look at high-profile debt repayment methods, and Ramsey’s in particular; maybe the most notorious is FiveCentNickel’s post Dave Ramsey is Bad at Math. This post attracted so many comments from Ramsey devotees who pointed out the psychological benefits of knocking out individual debts quickly that Nickel posted a follow-up, Dave Ramsey is Good at Psychology. And JLP himself has another recent post in which he criticizes Ramsey for advising people to put off 401(k) contributions–even if there’s an employer match–for the sake of paying down credit card debt. […]

  43. ib Says:
    February 21st, 2007 at 1:18 pm

    i actually dislike ramsey, his style & much of his advice, although, no one has brought up the fact that not everyone is entitled to their supposed 401k match right away. oftentimes it’s not vested until you have been at that workplace for an x amount of time (some are %’s over successive years of service). as much as i cringe to say it, this might be good advice, certainly if the debt is so bad you can’t even breathe. if the person lost their job before the match vested = no match!

  44. susan Says:
    February 21st, 2007 at 7:21 pm

    Dave has never suggested to not be in a 401k for YEARS. His advice is to discontinue for the short term (12-18 months at maximum) and get debt paided off. He says if it takes longer than that to start selling items that you owe money on. BTW, I did his plan with the exception of contributing enough to gain the company match. I now just pay a very comfortable mortage. I have also managed to keep my very nice job due to the fact that I can work when I am billable (20 hours some weeks, 60 hours others). The other people in my group have had to travel across country for years at a time. No pay check to pay check for this girl!

  45. John Says:
    February 27th, 2007 at 3:45 pm

    What I saw my dad do was keep funding his 401k and still using credit cards, without paying off the debt. As his minimum payments went up and up he wasn’t willing to stop the contributions to quit using the cards, and he wasn’t willing to cut his lifestyle either. He ended up with about $65,000 dollars in credit card debt and he had to file for bankruptcy because all his payments were MORE than his paycheck. At this point he was STILL making the employer match. He just retired, and he only has $250,000 to live on. If he had just cut his lifestyle, cut his 401(k) funding for a few months, paid off those cards, he could have started putting in EVEN MORE, and STILL enjoying his luxurious lifestyle without those credit card payments. If you are DEEP in 20-30% interest debt you understand how much damage it does, it’s UNIMAGINABLE.

  46. Adam Says:
    March 2nd, 2007 at 7:00 am

    It’s pretty simple here, folks, and Dave is right. PAY OFF DEBT FIRST! Why? Well when you pay off debt you’re automatically 100% “making” whatever the interest rate your debt’s at. With a 401k that does not get matched by the employer, your investment MAY go up or it MAY go down (like down 400pts a couple of days ago). Not a sure thing. And have you every investigated the sales loads on these 401K purchases? And to those that say the stock market goes up in the long run, yeah sure, that’s only IF your company does not file for bankruptcy before that long term get’s here. :-) In that case, the market will go up in the long term, but the company that you invested in is no longer around. Does not do you much good for the market to go up in the long term for you now, does it? :-) With the debt paydown that you could of chosen, although, your liabilities would have been decreased by now but instead you’re in the hole.

  47. Personal Finance and Investing Blog » Blog Archive » Weekly Blog Roundup: New York City, Raise and Bonus Edition Says:
    March 11th, 2007 at 4:59 pm

    […] Mighty Bargain Hunter has some tips for making money off the U.S. Mint’s new releases, but it ain’t easy. All Financial Matters is critical of Dave Ramsey’s illogical advice. […]

  48. Third Joker Says:
    April 12th, 2007 at 7:38 pm


    No, it isn’t that simple. One can try to “dumb it down” all one wants, but Dave’s advice isn’t ALWAYS right for EVERYBODY. Sometimes it makes sense, sometimes it doesn’t.

    You are right that the interest that you don’t pay is equitable to a ROR that you receive, and as you point out, 401(k)’s that don’t get matched by the employer should be looked at differently that those with a match.

    You are also right that the market is far from a sure thing. But in the long term, the market does move up. Every 401(k) has it’s own commission structure and everybody should know what sales charges are in their INDIVIDUAL cases.

    Your comment about “if your company does not file for bankruptcy” is misguided. Contributions to 401(k) plans do not belong to the employer and are typically held in trust. Should the employer go bankrupt, the 401(k) money is completely separate and completely safe.

  49. SD guy Says:
    May 3rd, 2007 at 6:04 pm

    If I am still contributing 3% (as an example) and getting a 100% match of that 3%, but I am 2 house payments behind and things are tight – wouldn’t changing the contribution to 0% and giving up the match until my bills are caught up make more sense. If you keep contributing and end up in a real bind, you will probably raid your 401(k), costing you more than the match from the employer was. It only takes a year or two to get to the 15% into retirement step and the amout of match money you give up for the two years will be easily made up by not having the debt and being able to pump a lot more into retirement.

  50. JT Says:
    June 14th, 2007 at 1:21 am

    Thank God Ramsey keeps giving those swayed by charisma the advice to focus. We multitaskers will continue to profit more from the inability of many lazy Americans to really do their own homework. Interest calculations are excessively simple, and it doesn’t take a genius to figure out that a guaranteed investment, with compounded interest, at a higher rate than a mortgage rate payout means invest rather than pay off early. Why are people so freaking lazy that they have to listen to the advice of so called experts?

  51. Mike Says:
    August 27th, 2007 at 2:44 pm

    For all the people who think that stopping a 3% matching 401k contribution will somehow magically get them out of a “bind” for a few months consider this: If one follows Ramsey’s plan to a T except keeps contributing 3% that is matched they will be just fine. Keep in mind I said to a T. For example someone making 100k a year would contribute 250 a month. Now if after tightening the belt they can’t live without that 250 then they aren’t doing Ramsey’s plan right. That 250 will make a minimal difference to debt reduction IF they are throwing everything else at it.
    Now to address the other hole in Ramsey’s plan and find a solution.
    Ramsey highly recommends, nay, implores people to tithe (give 10% of gross income to church or other charitable organization).
    Now think about it. For the Ramsey’s zealots, take 3% of your tithe and “give it away” to your 401k. Or better yet take the metaphysical 10% and tithe it all to your 401k. Even Dave himself says you won’t go to hell for not tithing (boy I feel better) so go ahead and tithe to yourself for once.
    Hey and if you feel bad about it, just double your tithing to your church for the same amount of time it took you to do this after you’re in a better financial situation.
    Or just follow this piece of homespun advice “Don’t lose money”.

  52. Russell Earl Kelly Says:
    August 27th, 2007 at 7:11 pm

    Ramsey is selective in his advice. If you tell him you are a Christian he says you MUST give the first 10% of your income to the church regardless of your financial situation. So the 3% match which becomes 6% is lost to the 10% loss to the church first. Figure that one out. He also calls tithes “firstfruits” while the Bible does not.

  53. Extra, Extra: No Credit Needed Disagrees With Dave Ramsey Says:
    February 8th, 2008 at 9:13 pm

    […] Check out these posts over at My Two Dollars and The Simple Dollar and All Financial Matters and Five Cent Nickel. They’ve written articles about various aspects of investing, saving, and debt reduction. If you are new here, please consider subscribing to receive content via RSS or Email. […]

  54. kentuckyliz Says:
    February 24th, 2008 at 11:18 am

    There’s disagreement on this issue even with Dave Ramsey fans; I’m on the My Total Money Makeover discussion boards. A lot of us “koolaid drinkers” disagree with stopping retirement contributions to the match while getting out of debt, although perhaps stopping voluntary additional contributions makes senses until the debts are cleared.

    Dave talks about your “NO MATTER WHAT”s–drawing a line in the sand that you will not cross. One of my NO MATTER WHATs is that I will make my retirement contributions to the employer match (which is 200%–a double match–rare)–NO MATTER WHAT.

    I am in touch with my Inner Bag Lady.

    I started my retirement savings when I was 22 and have consistently done it, never missing a month whenever I have had a professional job (14 months missed when I didn’t have a professional job).

    Another NO MATTER WHAT is that I will not withdraw or borrow against retirement money evah!!! Never have, never will. That 14 months I was seriously unemployed and underemployed and conducting a national job search, and travel expenses were usually not reimbursed. I barely had two Abes to rub together by the time I got my next professional paycheck. But I didn’t crack into my retirement savings.

    My retirement investing is going well and even if I didn’t save another dime I’d be set for retirement. (Of course I am going to continue saving and investing.)

    That being said, I can see the wisdom in pausing contributions temporarily if you can’t stay current with your payments. That would be a last-ditch strategy after selling stuff and working extra jobs. If short-term survival means pausing the long-term prosperity building for a little bit, I’m OK with that. Here’s hoping that all of us never go through a bad patch that is that bad!!!

    A lot of DR fans are Christians who don’t believe in tithing either. Read the wikipedia entry for tithing, and there’s a link to an interesting critical article called Tithing: Low-Realm, Obsolete, and Defunct–it’s from a Bible Christian perspective.

    Some DR fans believe you have to pay your tithes to get God’s blessing, and that is the sin of simony. God blesses his sons and daughters without price.

    Abusing Malachi has been very profitable for some preachers and churches. I am scandalized by it. Flag on the play–Scripture abuse!!!

    Oh, I wish more people paid attention to another bit of Malachi–For I hate divorce, says the Lord! Hmm, lots of mumbling and equivocation goes on with that one.

    To be fair, DR says in the FPU class to contribute at least $25 monthly to charity. He’s not rigid or legalistic about tithing. It irks me when he says, if you’re a Christian, you tithe. Well, Jews and Muslims do too, and not all Christians believe in the 10% of gross mantra, or that it has to go to your church. Tithing can also be done with time and talent. The Holy Spirit moves people to contribute time, talent, and treasure as He wills. The Old Covenant people didn’t have the indwelling Holy Spirit and needed external compulsions to tithing. We don’t need it.

    I’m a daughter of the King and daddy’s love don’t cost a thing!

  55. fielding j. hurst Says:
    April 13th, 2008 at 8:46 pm

    great discussion. some miss the fact that dave is mainly talking about changing behaviors and not finance. missing the match obviously causes pain which fuels intensity to get out of debt. as he says, if you were doing math in the first place, you would not be in debt.


  56. Lee Says:
    April 24th, 2008 at 3:44 pm

    Back to th 401k issue. I heard DR say something like if takes you more than 24 months (or maybe it was 36 months) to get out of debt, to continue contributing to the 401k. The point to stopping the 401k is to bombard debt with all the ammunition and guns you can grab your hands on! Also, stopping the 401k will get people more dedicated to paying off the debt faster so that they don’t have “loose” free money anymore.

  57. Steve Says:
    May 16th, 2008 at 2:21 am

    What many people miss on this is that even without a company match, you are still making money on the 401(k) because it is pre-tax savings.

    For example, on 90K per year, if I put in 6% to my 401(k), I got $231 per pay period put into the fund. However, it only affected my net income by $140. Therefore, it only cost me $140 to save $231…which makes a $91 “profit” on my savings. I earned over 60% *before* the company match. Plus, that $231 is deducted from my gross income, so I pay less tax come April. With the company match, I had an additional $115 added to the account, giving me a total of $346 added to the fund for a net cost of $140. Again, this doesn’t include the tax savings.

    While paying down consumer debt should be a priority, show me any credit card debt that delivers that kind of return. Unless you simply need the additional cash flow to survive or pay down some debt, I just don’t see the advantage of not contributing to the 401(k). This would have to be a dire circumstance.

    This is one of many cases where going with the heart over the head simply doesn’t work.

  58. Andrea Says:
    September 17th, 2008 at 11:30 am

    Wow, this was freeing for me (especially thanks kentuckyliz).

    I currently run a nonprofit for the homeless. I started it over four years ago and worked for FREE for 4 years to ensure that we were able to provide food, clothing, etc.

    Recently I had to start drawing a salary due to the dirty D word…divorce.

    Though I am grateful to have a salary, unfortunately, it doesn’t cover all of my expenses. If I DON’T tithe, I come close…about $300 shy a month – which I think I can make up through other means. (FYI, I have NO consumer debt besides a car that has a balance of 4K…just mortgage and real cost of living stuff…no frills).

    I have been so torn over the tithing issue…how can I tithe when it literally leaves me unable to live?????

    I definitely give of my time and talents (and money if I can) without a second thought.

    It is comforting to know that this is viewed as “tithing” also.

  59. Liars! Says:
    February 1st, 2009 at 3:21 pm

    In a world filled with killing over money, broken families due to disagreements over money (divorces, arguments over wills), media glorifying wealth, and people orienting their lives around the pursuit of excess money, you are either lying or stupid if you state that handling money is only about “doing the math”. No one manages money purely based upon head knowledge. In fact, some of the people with the most head knowledge concerning money have ended up broke as a joke / suicidal over lack of money.

    Also, it’s true that giving up the match for some people does not make sense mathematically. Although, every case is unique, so contributing to a 401k does not always make sense when you actually “do the math” (especially if you are contributing to it without a match or above the match.)

  60. Kevin Says:
    February 6th, 2009 at 3:41 pm

    Although is sounds a little off the wall to not put away for retirement, the more I think about it, the better sense is seems to make to not contribute to the 401k retirement until one’s debt is paid off. What good is a retirement account if you are so deep in debt that your retirement fund gets eaten up when you retire. When you have no debt, you get to keep 100% of what you net to use how you want.

  61. Scott Evans Says:
    August 16th, 2009 at 11:35 am

    What Dave says is fore go the small contribution most people make while in debt, get out of debt as fast as possible, usually around 2 years or less, then put 15% away in retirement, first in matching 401k’s up to the match, then in roth ira’s, then any remaining in 401k’s or traditional roth ira’s. So following his plan the math will still win and behavior will be changed.

  62. Wakenia Leonard Says:
    August 25th, 2009 at 10:31 am

    I really appreciate the advise that Dave Ramsey gives. I do agree with him in reference to the 401k situation. I see it as this. The overall goal is to be totally debt free and so what if you lose out on the company match for a time. Once you have paid off debts you have freed up so much extra that you can then invest as you like.

  63. Hibryd Says:
    September 14th, 2009 at 12:23 am

    That’s nothing. I just heard Dave tell a woman NOT to take money out of her 401k for a down payment on a home, because she would pay penalties and taxes.
    Which is totally, factually, WRONG. Why the hell is this guy a guru?

  64. Ive Says:
    September 17th, 2009 at 10:06 am

    -If you have say $10k in credit car debt at 17%, (sometimes people have up to 22%) amortized over three years your payment is over 50% interest anyhow +fees. That means that its actually better financially to pay off the credit card debt than take the match.

    -Dave says that primarily because most people have been taking out credit card debt and contributing to the 401k all along, and he wants them to break that cycle. Its about psychology, not math.

    -Any decent financial adviser will tell you not to have a portfolio of 100% small cap stocks even though they are over the long term by far the best performing sector. Reason? Hardly anybody can handle seeing there portfolio make 50% swings year to year with calling their broker and making panic sells.

  65. Dillon Says:
    October 3rd, 2011 at 11:06 am

    OK, I am a big “Head over heart” guy who always does the Math. Ramsey’s “stop the 401(k)” advice never made sense to me. Due to some bad choices coupled with some life events (Murphy’s Law), I find myself teetering near a zero cash flow. So I can’t handle any other major impacts to my cash flow and I no longer have a significant, fully liquid, non-tax-penalized cushion. So I finally did the numbers and have decided to stop the 401(k) matching for a couple of years based on:
    ~$40k car loans (<5% APY)
    ~$55k student loans (4.625%)
    ~$8k consumer debt (0% temporarily)
    6% contribution with 70% employer match (4.2%)
    I'm also contributing ~2% makeup contribution (being match at 7%) that I will continue (or I lose the ability to continue it. I'm bearish on the market anyway, so I don't expect to do well with the contributions made over the next 2 years and would rather contribute more then when I expect a recovery to me in progress or at least closer. Even if the recovery comes, I expect it to be $10k savings (30k interest savings vs 20k matching funds), while losing the opportunity costs of my contributions, but retiring known debts.

    If the market takes another nose-dive, I’m in even better shape.

    We will reavaluate once both car are paid off (~15 months), potentially shifting back to get all the matching and using the old car payments to retire student loans.