Dave Ramsey Thinks Personal Loans are 'Absolutely Not' Worth Taking Out. Here's Why He's Wrong

Listening to Dave Ramsey's advice on this topic could end up costing you.

If you are thinking of taking out a personal loan, finance expert Dave Ramsey wants to convince you that doing so is a bad idea. On the Ramsey Solutions blog, the answer to the question of whether a personal loan is worth it: "No. Nope. Absolutely not."

Ramsey has some seemingly solid justifications for trying to deter you from taking out a personal loan. "Personal loans are totally not worth the stress and financial burden," the blog reads. "Loans only leave you several steps behind where you started."

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 move. Here's why.

Personal loans can help make debt payoff easier

One of the biggest reasons why Ramsey is wrong about personal loans is because these types of loans can make it simpler, cheaper, and faster to climb out of debt. This can happen if you use a personal loan to consolidate and refinance debt.

See, personal loans usually have more affordable interest rates than credit cards, payday loans, and even certain other kinds of debt such as some medical loans. If you can take out a personal loan at 8% or 9%, versus carrying credit credit card debt at 16% or 17%, then you've just made your debt payoff much less expensive. And if you can use an affordable loan to repay several types of debt, this eliminates the problem of having to choose which other loans to pay back first.

Ramsey acknowledges that many people use personal loans for debt consolidation, and he says that he gets "why you might want to take out a loan to cover your unpaid credit card balance." But he isn't in favor of this approach because he says, "All you’re doing is using debt to pay off debt and extending your loan term -- which means you’ll actually pay more over time."

The problem is, this is not always the case. If you choose a personal loan with a low interest rate and a short payoff time, you can make your repayment a lot cheaper -- and faster, too. So, rather than following this advice and just assuming personal loans are bad, you should check out the details.

Compare what it would cost to pay off your personal loan balance on schedule versus what it would cost -- and the time it would take -- to repay your existing debt so you can decide if debt consolidation actually makes sense for you.

Personal loans can also be an affordable way to borrow

There's another reason Ramsey is wrong about personal loans: There are circumstances when you may have to borrow money. And if that's the case, personal loans can provide a predictable repayment schedule and be a cheap way to do it if you can qualify for a loan at a reasonable rate.

While Ramsey says that "if you can't afford it, you shouldn't buy it," this advice does not always work in reality. For example, if you need an expensive repair to your home or car immediately or if your child has a pressing need you simply cannot pay for out-of-pocket, then you should consider whether a personal loan may be the best way to borrow for these essential expenses.

Of course, in an ideal world, you'd have emergency savings and funds for big purchases. But if you're still working on that, don't be afraid to look into a personal loan when you must borrow for a true necessity.