Dave Ramsey is right to avoid these 3 types of debt

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Ramsey is well aware of the dangers of these types of borrowings.

Key points

  • Dave Ramsey urges people not to go into debt.
  • Although he is wrong about certain types of borrowing, such as mortgages, there are other types of loans that he rightly advises avoiding.
  • These include store cards, installment plans and car leases.

Personal finance expert Dave Ramsey is well known for being against almost any type of borrowing. Ramsey not only advises against using credit cards, but he also thinks you shouldn’t take out a mortgage if you can avoid it.

Ramsey’s stance on credit cards and mortgages is short-sighted because cards can help you earn rewards and build credit, and can be a great tool if you use them responsibly. Mortgages are affordable loans, and it makes sense to take out one rather than tying up all your money in your home.

But there are certain other types of debt that he suggests you should avoid – and in advising against these types of borrowing, the finance guru is spot on. Here are the three types of debt that Ramsey rightly suggests avoiding.

1. Storage Cards

Ramsey has repeatedly advised against store credit cards, both on his show and on his blog. In-store credit cards may seem attractive because you’re usually offered a discount when the card is opened.

Unfortunately, the interest rate on these cards tends to be very high, even compared to standard credit cards. And the rewards you earn on store cards can be harder to redeem than standard credit card rewards and often require you to spend more money in order to cash out bonuses from cardholders.

Since store credit cards can be more expensive than other cards with worse rewards, Ramsey is right to avoid them. Instead, keep paying cash or look for a good general purpose rewards card that has a more competitive rate and a better rewards program.

2. Installment Plans

Installment plans, or buy-it-now, pay-later plans, are quite common. While physical stores have offered them for a long time, digital installment loans have also become even more popular in recent years.

These plans usually boast that you can pay 0% interest when using them. But as Ramsey’s blog warns, there are hurdles you need to jump through to avoid interest charges and fees. Missing a payment, paying late, or not repaying the loan exactly on time can result in retroactive charges and interest.

Installment plans also allow you to buy things you can’t really afford, and they force you to commit future income to payments that may strain your budget later. For all of these reasons, including the risk of high costs should something go wrong, Ramsey is right to advise against participating.

Instead of using an installment plan, try saving for items before you buy. Or if you can’t, consider a credit card that offers 0% APR to new customers for a certain period of time, such as 12 months. These cards usually don’t have as much fine print and can give you more time to pay off your loan without incurring interest charges.

3. Car rental

Ramsey is adamantly against renting a vehicle, as he has made clear on his show and website. Car leases are an extremely expensive way to access a vehicle, and as Ramsey said on Facebook, they’re a “scam” because you end up paying a high effective interest rate that isn’t disclosed in advance because leases are not. t considered a debt.

Ramsey is correct that leases can be problematic because you are often faced with high charges for exceeding the mileage limit or wear and tear on the vehicle. You will also end up making payments for years without showing anything at the end, unless you buy out the lease – which can be very expensive.

Paying cash for a car or even financing it with a low interest loan that has a short repayment period can be a much better approach in the long run.

While you might not want to listen to Ramsey about mortgages or credit cards, there are plenty of reasons to heed his advice on car leases, store cards and installment cards. If you don’t want to complicate your financial life, just say no to all three.

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