Should You Use Investments to Pay Off Debt? Here's What Dave Ramsey Thinks

Dave Ramsey is a big proponent of repaying debt -- but does he believe cashing in investments to do so is a good idea? 

Dave Ramsey is a personal finance guru who is best known for his anti-debt stance. Ramsey urges people not to borrow, and suggests paying off debt as fast as possible.

If you have outstanding loan or credit card balances that you're trying to pay down ASAP, cashing in investments in order to make a big payment may seem like a good approach to becoming debt free quickly. But, does Ramsey support that move?

Here's what Ramsey says about using investment dollars to repay debt

When it comes to the question of whether to sell investments to pay off debt or not, Ramsey's position is that it depends on the type of investments you have. 

Ramsey is generally in favor of selling investments to repay debt, with the Ramsey Solutions blog stating, "One way to make a big dent in your debt is to use your investments!" However, there is an exception to this. 

Specifically, he does not believe you should sell investments in your retirement accounts -- although he is in favor of pausing contributions to those accounts and sending your extra money to creditors instead to repay debt faster. 

Ramsey's blog explains that "if you’ve got debt, none of these investments are doing you any favors right now," referring to CDs, bonds, precious metals, cryptocurrencies, stocks, and real estate held outside of retirement accounts. That's because he believes you will get a better return on investment by paying off what you owe.

However, he doesn't think you should sell retirement investments because of the fees associated with early withdrawals, as well as the fact that taking a large amount of money out of these accounts could bump you into a higher tax bracket. 

Should you listen to Ramsey?

Ramsey is absolutely right that you should not raid your retirement accounts by making early withdrawals or taking out a 401(k) loan in order to pay back your debt. But, he's not necessarily right about the fact that you should sell other investments including taxable brokerage accounts to pay off debt.

In some cases, this would make sense. If you have high-interest credit card debt and you have investments you've made a reasonable profit on that you don't expect to continue performing well, then selling might be your best approach so you can redirect that money toward becoming debt free.

But, it's important to remember that the return on your investment when you repay debt is just the interest saved. If you have low-interest debt and investments you think will provide a higher return going forward, then there's little reason to sell them just to send extra to your creditors. In fact, by doing so, you could end up with a lower net worth in the long run.

Ultimately, there's no one-size-fits-all approach and you should consider your likely ROI on debt repayment and your investments to decide on the best course of action for your situation.