Anti-Debt Dave Ramsey Said a Personal Loan Is the Solution to This Problem

Ramsey acknowledges a loan really could be the right solution in one particular situation.

Finance expert Dave Ramsey is not a fan of debt. He doesn't believe you should use a credit card, even though many cards come with generous rewards. And he doesn't think you should use debt consolidation loans, even when doing so could reduce your interest rate and make debt payoff easier. Ramsey is so anti-debt that he doesn't even think you need a credit score.

But there is one situation where he acknowledges a personal loan could help you solve a financial problem. Here's what it is.

The one time when Dave Ramsey actually suggests taking out a loan

Ramsey believes that a personal loan could be the solution to your problem if you are underwater on a car loan. Being underwater means you owe more on the car than it is worth. So, for example, if you have $15,000 outstanding on your auto loan but your car is now only worth $10,000, you would be underwater.

In a situation like this, Ramsey believes that "If you want to get out of an upside-down loan, you’ve got to sell the car." But, the problem with doing so is that you have to pay off the remaining balance due on the loan when you do that. Now, ideally, Ramsey suggests saving up to do that. But he acknowledges that this takes time, isn't always easy, and may not be the best solution if you want to get out of the upside-down loan quickly.

"If you’re drowning in car payments or you’re just plain sick of looking at the stupid thing sitting in the driveway, getting a personal loan so you can move on quickly is probably the best route for you," he said. An unsecured personal loan is one you don't need collateral for. You simply apply to borrow and get a loan with a set payoff schedule.

It may come as a surprise that Ramsey would suggest this. Indeed, he does believe saving is best because, in his words, "personal loans are almost always a horrible idea." However, in this one situation, he believes there's a worthwhile exception to his anti-debt stance. "In this case, getting one would let you sell the car and, potentially, get a smaller interest rate."

Should you listen to Ramsey?

Many people have car loans that are simply too large to make sense, given their budget and personal finances. And many people are underwater because of low down payments, long car loan payoff periods, and the fact that vehicles lose their value quickly.

If your car loan is interfering with your ability to do other things and you're underwater on it, then Ramsey's advice may make sense. But keep in mind, you might have to buy another car depending on your situation (as many people need transportation).

Ramsey suggests finding a "super cheap replacement you can pay cash for," in this situation -- but if you don't have the money to do that or you're worried about potential repairs, this may be hard to do. If you would be forced into borrowing for another car if you sold the one you were underwater on, pay attention to whether the cost of the personal loan plus any new car loan you have to take out would really be cheaper than just sticking it out with your current vehicle.