Listening to Dave Ramsey’s advice on this subject could end up costing you dearly.
- Personal loans are a common way to borrow money.
- Financial expert Dave Ramsey says personal loans aren’t worth getting.
- Avoiding personal loans could end up costing you money.
If you’re considering taking out a personal loan, financial expert Dave Ramsey wants to convince you that it’s a bad idea. On the Ramsey Solutions blog, the answer to the question of whether a personal loan is worth it: “No. No. Absolutely not.”
Ramsey has seemingly strong justifications for trying to talk you out of taking out a personal loan. “Personal loans are absolutely not worth the stress and financial burden,” the blog post read. “Loans only leave you a few steps behind your starting point.”
But while it’s true that personal loans charge interest, as Ramsey points out, the reality is that sometimes using this type of financing is actually a good decision. Here’s why.
Personal loans can make debt repayment easier
One of the main reasons Ramsey is wrong about personal loans is that these types of loans can make getting out of debt easier, cheaper, and faster. This can happen if you use a personal loan to consolidate and refinance debt.
You see, personal loans generally have more affordable interest rates than credit cards, payday loans, and even some other types of debt, like some medical loans. If you can take out a personal loan at 8% or 9%, compared to credit card debt at 16% or 17%, then you have just made paying off your debt much cheaper. And if you can use one affordable loan to pay off multiple types of debt, it eliminates the hassle of having to choose which other loans to pay off first.
Ramsey acknowledges that many people use personal loans for debt consolidation, and he says he understands “why you might want to take out a loan to cover your outstanding credit card balance.” But he is not in favor of this approach as he says: “All you are doing is using debt to pay down debt and extend the term of your loan, which means you will pay more over time. “
The problem is that this is not always the case. If you choose a personal loan with a low interest rate and a short repayment term, you box make your refund much cheaper – and faster too. So rather than take this advice and assume that personal loans are bad, you should check the details.
Compare what it would cost to pay off your personal loan balance on time versus what it would cost – and how long it would take – to pay off your existing debt so you can decide if consolidating your debts really suits you.
Personal loans can also be an affordable way to borrow
There is another reason why Ramsey is wrong about personal loans: there are circumstances where you can have To borrow money. And if so, personal loans can provide a predictable repayment schedule and be an inexpensive way to do this if you can qualify for a loan at a reasonable rate.
While Ramsey says “if you can’t afford it, you shouldn’t buy it”, that advice doesn’t always work in reality. For example, if you need an expensive repair to your home or car immediately, or if your child has an urgent need that you simply cannot afford out of pocket, then you should consider whether a personal loan can be the best way to borrow for these essential expenses.
Of course, in an ideal world, you would have emergency savings and funds for big purchases. But if you’re still working on it, don’t be afraid to look into a personal loan when you need to borrow for real necessity.
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