Dave Ramsey Says Personal Loans Are 'Not Worth the Stress.' Is He Right?

Sometimes, the simple act of being in debt can mess with your well-being.

There's a reason personal loans tend to be a popular borrowing option among consumers. For one thing, these loans are very flexible.

Unlike mortgages, which you can only use to finance a home purchase, or auto loans, which can only be used to finance the purchase of an automobile, you can use your personal loan proceeds for anything you want, whether it's renovating your home or taking a vacation. Plus, personal loans tend to charge competitive interest rates -- especially when you compare their interest rates to what you might pay on a lingering credit card balance.

But while personal loans clearly have their benefits, financial guru Dave Ramsey says you're better off not taking one out. Here's why.

Do you want to deal with the stress of owing money?

Before we get into why a personal loan could be a bad idea, it's important to discuss Dave Ramsey's general stance on debt. In a nutshell, he hates it. In fact, he's even gone as far as to say that consumers should try to avoid taking out a mortgage if possible. So it's important to take his advice to steer clear of personal loans in context.

That said, there's a reason Ramsey isn't a fan of personal loans -- he thinks they can lead to a more stressful financial situation than the one they're potentially trying to address. And he's not totally wrong there.

Ramsey says, "Personal loans are just not worth the stress and financial burden they bring to you and your family. Period." And his reasoning is that a personal loan could easily trap you in a cycle of debt. So it's better to avoid that -- especially if you're borrowing money for something fun, which personal loans allow you to do.

Even if you're borrowing money to do something like fix your car, if that expense can wait, Ramsey would probably tell you to hold off and save up for it. That way, you can avoid the stress of being in debt.

Other options to personal loans

In fact, Ramsey points to a bunch of alternatives to taking out a personal loan. These include getting on a budget, saving up for the purchases you want to make, and building up an emergency fund.

Of course, these are all viable alternatives to going out and borrowing money to finance something like new furniture or a trip to Europe. But when you're stuck in an emergency situation -- say, you need $5,000 to replace your home's air conditioning system and you don't have it in the bank -- then a personal loan could be a good solution.

Granted, debt of any sort isn't ideal. But when you're in a dire situation, a personal loan is a reasonable route to pursue.

Spare yourself the frustration

Some people really don't do well with owing money -- it can be enough to make them lose sleep. If that sounds like you, then you may want to hold off on getting a personal loan unless you absolutely need one.

You might enjoy the vacation a personal loan makes it possible to go on. But if that debt will result in months of stress afterward, then it's not worth a week of fun. This is really the point Ramsey is trying to drive home. And it's advice worth listening to.