Investing & Passive Income

Why Dave Ramsey Is Wrong About Debt

Dave Ramsey is a leading financial educator.

To date, he has sold over 10 million book copies, and over 4 million people have graduated from his training: “Financial Peace University”.

Dave preaches that debt is bad.

All debt.

All the time.

I have a lot of respect for Dave Ramsey. He has provided a great service to a lot of people.

That doesn’t mean I always agree with him.

The story of his early experiences as a real estate investor sheds some light on his perspective:

Dave began investing in real estate while in his twenties. I don’t think he knew how to use debt correctly.

He partnered with people that believed real estate always goes up… and up and up. He over-leveraged to acquire too much property. He took on personal liability.

When the market tanked, he lost it all.

He had to file bankruptcy.

(He’s not afraid to talk about it. It’s an important part of his public message).

This life experience is now part of his DNA.

When you put your finger on the burner and get burned, you promise yourself to never do it again.

That’s a part of Dave’s legacy.

But that’s not all.

Dave’s message is for a very broad audience. He preaches to the masses.

He’s teaches people who don’t know how to use debt.

Folks who don’t know how to balance a checkbook, who don’t understand the use of debt for asset appreciation. Those who use debt for consumption.

For those folks, Dave does a great service.

Let me be clear:

If you’re using a credit card to buy expensive shoes and a new TV, you need to learn some fundamentals. Go read Dave Ramsey.

Consumer debt is a dangerous liability.

  • You work hard and deserve to enjoy life a little.
  • Get what you want today, pay for it tomorrow.
  • Put it on your credit card.

Bad idea. That would be a Dave Ramsey no, no. (And he’d be right.)

But what about the other side of the coin?

What about turning debt into an asset?

I believe (through my own experiences and those of others) that the proper use of debt is the best way to acquire capital assets.

What’s a capital asset?

A business that you own, run, manage that produces income. Another capital asset that I love is real estate.

Properly using debt to acquire those capital assets is a powerful accelerator.

If I had to save up the money to pay cash for my professional practice (or any kind of business), how long would it take?

(In most professional practices today, the minimum is a few hundred thousand dollars, some are half a million dollars or more.)

How long would it take to acquire that kind of capital doing menial work as an employee?

10, 15, 20 years.

That timeline doesn’t work for me. I don’t think it does for you either.

What about acquiring real estate as an investment (as I did when I was back in school)?

If I had to wait (as Dave Ramsey suggests) and acquire enough discretionary cash to buy real estate… how long would it take to save up enough to buy a $100,000 single family rental investment?

Years. Decades.

In contrast, by the time I was 34, I had 20 cash flowing real estate properties.

No way I could save up enough to acquire those properties in cash. I had to use debt as an asset.

Of course, prudence is essential.

Debt must come with a reasonable expectancy for return through the proper acquisition and management of capital assets (whether business or real estate).

  • What are the terms?
  • What’s the interest rate?
  • How many years?
  • What are the monthly payments?
  • Can you service that debt?
  • Do you have personal liability?

These are all critical questions.

But understand that you can’t move forward in life without properly considering the use of debt.

If you intend to achieve freedom, if you want to have a real business, if you want to build wealth in the best capital asset that I know of (real estate)… you’ve got to learn how to use debt.

Debt is just part of living life the right way.

Debt does come with risk. Understand the risk, mitigate the risk and take action.

Your freedom depends on it.

If you want to find out if you’re ready to invest in real estate, use our free self-assessment tool: https://www.freedomfounders.com/real-estate-assessment/

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