Thanks for joining me for my third post bashing Dave Ramsey’s principals. OK, so these posts are a bit rude. The truth is, Ramsey has a butt load of followers that follow everything he says religiously. Although without reading between the lines, his plan does seem fundamentally sound.
However, when you consider the fact that no one plan can work for everyone, it’s easy to see how Ramsey’s repetitive lessons could be leading you down the wrong financial path. Today, we’re going to talk about Dave’s stance on debt and why I believe that the stance is wrong!
Dave Ramsey’s Views on Debt
Ramsey absolutely hates debt. He’s got a strong stance that all debt is bad. He believes that if you have debt, it’s better to put aside savings and investing and tackle that debt full force. He wants his followers to get out of debt at all because for him, it is the only way to achieve financial peace.
There’s Only One Major Problem with This Idea
Not all debt is necessarily bad debt. The idea that every debt you ever accumulate is a bad thing is absolutely absurd. As a matter of fact, you can use debt to help your money make more money for you. I know that sounds strange, and it doesn’t come packaged in a neat memorable phrase, but it’s true. So, today, I’m going to give you a few examples of what types of debt are good debts and why.
Recommended Debt Posts:
Mortgage – A mortgage is a good debt to have for 2 reasons. First off, you could either be paying rent on a property that you don’t own, or paying a mortgage on a property that you will own in the future. Aside from the fact that when you have a mortgage, you’re not just dumping rent money down the drain, it’s also a debt that can help you make your money work for you.
These days, mortgage rates are incredibly low. So, if you’ve got an outdated mortgage, you can most likely refinance at a much lower rate. As a matter of fact, the average mortgage rate is lower than the average rate of return on my investments. I bet it could be the same for you.
By paying the minimum payment on your low interest mortgage, you’ll have more money to use for Motley Fool investing. As the value of those investments grow faster than the interest on your mortgage, you’ll see why mortgage debt really isn’t all that bad!
Business Debt – I’m a business owner. Running a business is not cheap. Startup often times takes tens of thousands of dollars. When I first got into business, I tried to do it without getting into debt. Unfortunately, that just wasn’t possible. However, that debt gave me the ability to turn my business into what it is today. Because I got a business loan (I created a debt), I am now more financially free than I have ever been in my life. I’ve paid the debt off, but I’m still grateful that the option was there!
If you’re overwhelmed by debt and absolutely lost financially, Dave Ramsey’s ideas may be a good start to your financial recovery. However, if you’re like more than 80% of people out there, chances are following in Ramsey’s footsteps will lead to you missing out on profitable ventures…brought to you by debt!