Personal finance guru Dave Ramsey is known for his no-nonsense, tough love insights. Not everyone agrees with him, but his very strict rules exist for good reason. helping people avoid losing or wasting money that could serve them well in retirement. Do you heed his wisdom? Here are 10 money traps to avoid, according to Dave Ramsey.
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Payday loans are advances on your next paycheck that people can take out when they’re short on cash and can’t or don’t want to wait until said paycheck arrives. It is best to avoid these loans even though they are convenient.
“Payday loans are a slippery slope into a cycle of debt creation that is not easy to avoid,” said a post on the Ramsey Solutions website.
Whole life insurance
Whole life insurance is the most common type of permanent life insurance, according to the Insurance Information Institute. It remains in effect as long as the insured individual continues to pay their premiums, offering a certain death benefit and dividends on the policy savings. And according to Dave Ramsey, it’s scary.
“We don’t want you to get ripped off, we want to see your family well protected, and we certainly want your financial future to include wealth and the ability to be self-insured,” Ramsey Solutions said in a blog post. “The only policy that allows you to achieve all of these goals is term life. But all life misses the mark in every department.”
Debt Consolidation Loans
When saddled with high-interest debt, consumers can opt for a debt consolidation loan. With this maneuver, a person combines several high-interest debts into one loan with a fixed monthly payment. Although they have proven useful to many, Ramsey is adamantly against them.
In response to a New Castle News reader in 2022, Ramsey shared:
“That’s the big reason why debt consolidation is not a good idea. It makes you feel like you’ve really done something to change your entire financial outlook when you haven’t. When you move things or suddenly get a lower payment each month, you end up thinking you’re making real progress. The thing is, you haven’t done anything to solve the problem itself, which is you.”
Adjustable mortgage rate
An adjustable-rate mortgage, or ARM, is a home loan with an interest rate that adjusts over time based on market fluctuations. Loans typically start at a lower interest rate than a fixed mortgage, making them attractive to homebuyers. They are clearly unattractive to Ramsey.
“After a few years, that low-interest dream turns into a high-interest nightmare,” Ramsey wrote at Ramsey Solutions. “It’s like when someone catches your eye and then you realize they’re stupid.”
If you don’t want to invest in a new car, you can always rent one. But Dave Ramsey certainly wouldn’t approve.
“I understand that the idea of driving around in the latest, shiniest set of wheels without actually buying one can be quite tempting,” Ramsey Solutions said in a post. “But listen, the hit your budget takes as a result is not, and I repeat, not worth it. You can’t build real wealth if you go into debt just to look rich.”
It’s no secret by now that timeshares aren’t always what they’re cracked up to be, and that’s Dave Ramsey in the first place. He called timeshares timeshares because they have no investment value, are nearly impossible to resell and are saddled with escalating annual and maintenance fees.
“Timeshares are a scam,” Ramsey Solutions said in a post. “For many reasons. Stay far, far away from signing that dotted line.”
Credit card debt is at an all-time high, and Americans will add more than $1 trillion to the nation’s total debt load by 2022, as previously reported by GOBankingRates. Ramsey is against them because credit cards are debt traps. He has often expressed his belief that people should buy things with cash rather than credit cards.
Again, Ramsey isn’t a fan of debt, and that includes student loan debt.
“There is an awkward situation in this country that we have to look at. . . student loan crisis,” said an August 2022 post at Ramsey Solutions. “This debt disaster has become too big and too serious to ignore, and it’s affecting the lives of millions and millions of people. Currently, the total amount of federal student loan debt in the United States is over $1.76 trillion. It’s amazing, guys.”
The post read: “Here’s the thing. Higher education is great, but taking out loans isn’t the only way to get that education. Not only does student loan debt burden your future (and stress you out), it also has a serious impact on the future of our country.”
“Same as cash” financing
Equity financing is a deferred-rate lending solution where the borrower has no interest or monthly payments for a set promotional period, which typically ranges from 90 days to a year, according to FTL Finance. They’re bright deals and can be attractive, but Ramsey says they’re bad news.
“Like cash contracts are a financial bear trap,” Ramsey once posted on Facebook. “They are meant to be converted into payments.”
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Dave Ramsey is passionate about making sure Americans have enough money for retirement, so it makes sense that he would be terrified of 401(k) loans.
“While borrowing from your 401(k) may seem appealing, if you’re in a pinch, you’ll find that a 401(k) loan isn’t a lifeline, it’s a trap that can sink your financial future,” the post said. it is noted. Ramsey Solutions reads: In addition to putting your retirement savings at risk, you’ll be paying double taxes on the amount you owe.
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