Dave Ramsey Says This Is the Only Good Kind of Debt

The answer may surprise you.

We all have those things that get under our skin. For some of us, it's noisy neighbors. For others, it's slow drivers.

If you ask personal-finance expert Dave Ramsey what one of his major pet peeves is, his answer will likely be consumer debt. Ramsey is very opposed to the idea of owing money to a lender in any shape or form. Not only does he think consumers should ditch credit cards and pay for purchases in cash, but he believes that it's ideal to purchase a car outright rather than have to take out an auto loan.

Ramsey is so opposed to consumer debt that he's even advocated for buying a home in cash rather than signing a mortgage. (Granted, Ramsey recognizes that many people can't purchase a home outright, but in his mind, it's better to not owe money on a home than to have a loan hanging over your head.)

Meanwhile, you'll often hear consumer debt broken down into "good" and "bad" categories. Credit card debt is generally considered the bad kind to have. Sometimes, it's unavoidable, such as when you run into an emergency expense you don't have the money to cover. But all told, credit cards are notorious for charging loads of interest, and carrying too high a balance could damage your credit score. And so it's easy to see why credit card debt may be considered a bad thing.

Mortgages, on the other hand, are generally considered a good kind of debt because they tend to come with reasonable interest rates, and because they make it possible to eventually own a valuable asset outright. Auto loans can also be considered a good kind of debt, because while cars don't tend to appreciate in value, they're an essential purchase that, in many cases, make it possible for the people who drive them to earn money (after all, many of us need a car to get to work).

But if you ask Dave Ramsey which type of consumer debt he thinks is the good kind to have, he may have a different answer than what you'd expect.

No debt is good debt

Ramsey recently tweeted that the only good debt is debt that is PAID OFF. (Yes, he put those words in all caps, and that's worth repeating.) Or, to put it another way, there's no single type of debt Ramsey would consider a good kind to carry.

On the one hand, there's something to be said for not owing anyone money and not racking up interest on a purchase you make, whether it's a phone, furniture, or a house. On the other hand, Ramsey's anti-debt stance may be too extreme for the average consumer. And so it's important to take his no-debt concept with a grain of salt.

Sure, ideally, it's best to avoid credit card debt. But should you beat yourself up over having to take out a mortgage or finance a car with an auto loan? Not at all. Most people can't simply slap down cash on the barrelhead for these major life purchases, so if you have to take on debt, it pays to do so for the ability to get places and have a roof over your head.

What if you already have credit card debt?

If you're carrying a balance on your credit cards, the sooner you pay it off, the better. But should you rush to pay off your car or mortgage? Not necessarily.

If those debts are affordable, then there's no need to slash your non-essential spending and push yourself to work three side hustles just to shed auto loan or mortgage debt. Even though Ramsey will tell you those aren't good kinds of debt to have (because no kind is good), the reality is that they're really not so bad. And as long as you keep up with your payments, there's no need to stress over the fact that you've borrowed money to purchase a major asset that's an essential part of being a functional adult.