Dave Ramsey Said Debt Is Always Dumb. Here’s Why He’s Wrong

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Dave Ramsey believes debt is always dumb, but debt can be effectively used as a tool if you’re smart about how you borrow. Learn when debt can make sense. 

Dave Ramsey is not a fan of debt. In fact, the finance guru believes that borrowing money is always dumb. But, while Ramsey may have a case that certain kinds of loans or credit cards can get you in trouble, viewing all debt as bad is simply not a sound approach to making financial decisions. Here’s why.

This is what Dave Ramsey had to say about debt

Ramsey has made it clear that he doesn’t think there’s ever a reason to borrow because of the financial danger that being in debt presents.

“Debt always equals risk, and it’s always dumb,” he said. He gave the example of someone who had a mortgage loan on a rental property during the height of the COVID-19 pandemic with a tenant who couldn’t pay their rent. Ramsey said that person would be in a much worse position than someone who had no debt and an emergency fund with $20,000.

He also explained that debt can lead to trouble even outside of these dire situations. “It doesn’t even take something as extreme as a global pandemic or an economic collapse (2008, anyone?) for debt to become a nightmare,” he warned. “That’s because debt always equals risk, and more debt always equals more risk.”

Here’s why Dave Ramsey is wrong

While Ramsey’s points about risk may seem logical, the reality is that you can absolutely take on some debt with minimal risk — and many people should do that.

Risk is not necessarily a bad thing when it comes to your money. Take investing, for example. You could put all of your money into a safe savings account that’s FDIC insured and have no risk of losing your money — but you would earn very limited interest that often wouldn’t be enough to keep pace with inflation. Or you could take on some risk by putting some of your money into an S&P 500 fund, which has produced average annual returns of 10%. In these scenarios, you’d be better off investing some of your money — as Ramsey himself acknowledges.

The key, when it comes to both investing and debt, is to only take calculated risks.

Take that landlord Ramsey was talking about above as an example of someone who would be in a bad financial position if their tenant couldn’t pay rent during the pandemic. There were government protections in place for that landlord to prevent foreclosure, and the landlord would ultimately have been entitled to get paid back the unpaid rent (or to evict the tenant).

The landlord could also have used savings to pay the mortgage while continuing to hold onto the house, which would produce income later, or could potentially have sold the house for a profit when home prices were skyrocketing. Having this debt didn’t leave the landlord without options — and, at the end of the pandemic crisis, they’d still have that real estate asset (or the money earned from selling the home). So, would they really be worse off?

If you borrow too much with no plan to pay it back or you’re borrowing for something that won’t increase your net worth in the long term, then you are likely making a bad decision, and Ramsey is right — debt isn’t smart in that situation.

But if you have a good reason for borrowing (like buying a house or starting a business), emergency money to make payments on the loan if times get tough, and a plan for how your borrowing will help you grow your wealth in the long run, then Ramsey is dead wrong and debt isn’t dumb at all.

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