Here's Why Dave Ramsey Thinks You Should Pay Off a 0% Auto Loan ASAP

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  • Some auto lenders offer 0% financing if you pay off your car in a shorter period of time.
  • Financial expert Dave Ramsey says you shouldn't carry that debt -- even if you're not paying interest on it.

It's all about freeing up your hard-earned money.

For many people, cars are an essential purchase. A lot of people need a car to get to work, shop for their needs, and just plain function.

That said, the average consumer does not have enough money in savings to purchase a car outright -- especially not a new one. That's what auto loans are for. And while signing an auto loan generally means paying interest in the course of purchasing a vehicle, that's something many consumers simply resign themselves to.

But what if you have an auto loan at 0% interest? Does it pay to carry that debt, or aim to get rid of it quickly?

If you ask financial guru Dave Ramsey, he'll tell you to try to shed that debt as soon as possible. Here's why.

Don't let that debt linger

Ramsey insists that paying off debt is "a mindset shift as much as it is a math equation." By paying off an auto loan, you're breaking the cycle of carrying debt, Ramsey says. And there's a lot of value in that.

Now let's backtrack for a minute and make one thing clear. Ramsey goes out of his way to discourage consumers from taking on debt of any kind. He's even, in the past, encouraged home buyers to purchase a home without a mortgage when possible.

That said, a big reason Ramsey is so opposed to consumer debt is that he doesn't like the idea of people wasting money on interest. But that then raises the question -- if you have a loan at 0% interest, why rush to pay it off if it isn't costing you anything extra?

The answer boils down to cash flow, Ramsey says. "Your most powerful wealth-building tool is your income," Ramsey insists. And so he thinks you shouldn't give your income to somebody else -- like your auto lender. That holds true even if you're able to borrow at 0%.

Should you take Ramsey's advice?

If you don't like the idea of owing money, and you have enough cash in your savings account to pay off a 0% auto loan, then sure, go for it. But if you need your money for other purposes, you shouldn't necessarily rush to pay off a loan that isn't costing you anything in interest.

Sure, Ramsey might feel that even a loan at 0% is a bad thing, because it falls into the debt category and that's something he's against. But paying off a 0% auto loan could cause a scenario where a need for money arises and you don't have it because you've raided your savings to pay off your car. That's not a good thing.

No matter what type of loan you sign, you should always make sure it comfortably fits into your budget. If that's the case with your auto loan, then you may not want to take Ramsey's advice if you're not accruing interest on the sum you've borrowed.

Remember, too, that much of the time, auto lenders only offer 0% interest for cars that are paid off in a shorter time frame. So while Ramsey may not like the idea of you having to fork over some of your income on a monthly basis, you may also only end up doing so for a limited period. And if you get used to making those car payments and then shed them once your vehicle is paid off, it should become even easier to then keep up with your remaining expenses.

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