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The Truth About Debt

from daveramsey.com on 29 Oct 2004

Myth: Debt is a tool and should be used to help create prosperity.
Truth: Debt isn't used by wealthy people nearly as much as we are led to believe.

Debt is dumb. Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt, then you're a slave because you do not have the freedom to use your money to help change your family tree.

According to a USA Today article about debt, 78% of Baby Boomers have mortgage debt, 59% have credit card debt, and 56% have car payments. It takes a lot of will, discipline, courage and help to slay the debt monster. But it can be done. Imagine how much you could put toward retirement if you just didn't have a stinking car payment? This is how the wealthy really build their wealth. Debt is dumb. Welcome to the real world!

Dave Ramsey's Background

When training for my first career in real estate, I was told that debt was a tool. "Debt is like a fulcrum and lever," allowing us to lift what we otherwise could not lift. We can buy a home, a car, start a business, or go out to eat and not be bothered with having to wait. I remember a finance professor telling us that debt was a two-edged sword, which would cut for you like a tool but could also cut into you and bring harm.

The myth has been sold that we should use OPM (other people's money) to prosper. The academic garbage is spread really thick on this issue. We are told with sufficient snobbery and noses in the air that sophisticated and disciplined financiers use debt to their advantage. Careful there, you'll get a sunburn on your upper lip.

Consider the Risk

My contention is that debt brings on enough risk to offset any advantage that could be gained through leverage of debt. Given time—a lifetime—risk will destroy the perceived returns purported by the myth-sayers. I once was a myth-sayer myself and could repeat the myths very convincingly. I was especially good with the "debt is a tool" myth. I even sold rental property that was losing money to investors by showing them, with very sophisticated internal rates of return, how they would actually make money!

Boy, what a reach. I could spout the myth with enthusiasm, but life and God had some lessons to teach me. Only after losing everything I owned and finding myself bankrupt did I think that risk should be factored in, even mathematically. It took my waking up in "intensive care" to realize how dumb and dangerous this myth is. Life hit me hard enough to get my attention and teach me.

According to Proverbs 22:7, "The rich rule over the poor, and the borrower is slaveof the lender" (NRSV). I was confronted with this scripture and had to make a conscious decision of who was right – my broke finance professor, who taught that debt is a tool, or God, who showed the obvious disdain for debt. Beverly Sills had it right when she said, "There is no shortcut to any place worth going.

Learn the tools to beat debt with Dave's Dumping Debt DVD lesson.

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Post a Comment

by Erin Lamb at November 15 2009 6:08 PM

I am really inspired by your article, probably having something to do with you admitting you would spew the same lies to people in your past. It makes it seem your opinion is much more credible. I too think debt is an evil burden most people put upon themselves for something not worth it. You reference buying a car, I believe it is much more cost efficent to buy a used car over a new car. I believe it is especially true if you take the time to find the deal, a quality car at a low cost to avoid expensive repairs. The debt is a tool thing does sound a pitch, I would not fall for. DEbt could only be a tool in returns or investments were guaranteed, which their not. The risk does more often than not outweigh the reward. I wish more americans could use financial wisdom to improve the quality of their lives. I appreciate your posting to us thank you.

by D. Buchanan at November 23 2009 10:59 AM

It is so true that the "borrower is the slave of the lender." Of course that is also scary thinking that we as a nation have borrowed so much money from the Chinese government. How will we be expected to pay this back? I feel that even though many of us live by Biblical principles and what we learn from Dave Ramsey, we are in for tough times ahead because of our government spending money like it is either going out of style or it grows on trees. Life is going to be harder for those who are in debt and then they are going to have to pay more in taxes and health insurance.

by Kyle Fenton at December 03 2009 12:37 AM

Like you Dave I am learning the hard way and trying to figure out what God plan is for me. I have recently become disabled and unable to work. This is certainly something you don't plan on but my have a disability plan that you think is your saftey net. This isn't always the case and I am fighting my insurance company as we speak but have lost everything in the meantime except my debt. 15yrs ago I was going to go bankrupt but God convinced me to our up to my debt and pay it off. We were doing ok until this hit and you see what a slaveto debt can be. Even if God was telling us to pack our bags and serve Him full time my Mortgage, car payment and credit cards would stop us, to the tone of 475k it is crazy the things we do. An then the unthinkable happens you can't make an income and have a mountain of debt. Not very pleasing to God or your family. I look forward to learning from you Dave Blessings to you, Kyle from Wolfeboro NH

by don ballew at December 03 2009 3:27 PM

Debt/money problems is/are a main cause of marital breakups. Children often self distruct, self punish, when parents divorce. Drugs, alcohol, crime, and in jail. You stress staying out of debt. The point: Maybe school loans shouldn't be promoted so much, or make them rare.