Jeremy from Tulsa, Oklahoma, received some eye-opening advice from personal finance expert Dave Ramsey during an episode of the popular Ramsey Show. Here's what went down during the exchange.
Ramsey is known for his blunt and honest advice, which caller Jeremy experienced firsthand when he asked the finance guru whether he should buy rental properties as an investment while still in debt. Jeremy explained his situation to Ramsey, saying that he and his wife are currently in massive debt from student loans. He explains, "My wife and I are both recent graduates. We have an astronomical debt of $290,000 in student loans."
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Ramsey's first response to that eye-watering debt was to ask who the doctor was. Jeremy tells Ramsey that both he and his wife are well-educated. His wife has a doctorate in physical therapy, and he has a master’s in environmental safety. This situation reflects what many people in the U.S. encounter when pursuing higher education. On average, the total costs per year for a doctoral program are around $40,900, so studying for a Ph.D., which can take 4-8 years, can set you back by $163,600-$327,200. By the end of 2023, 43.2 million Americans had federal student loans, with a national balance of $1.6 trillion.
With his current financial situation revealed, Jeremy then asked Ramsey if buying rental properties as an investment is a good idea. If you've ever listened to Ramsey before, you know his stance on debt and spending. So, before Jeremy could finish his question, Ramsey exclaimed in disbelief that it was a bad idea for someone with close to $300,000 in debt to purchase rental properties as an investment. Ramsey tells Jeremy that this is a bad idea and that no, he should not buy rental properties. Instead, Ramsey’s advice is to work harder than he's ever worked before to clear his debt.
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Jeremy and his family acknowledge their financial troubles, and thanks to Ramsey's advice, they have sold their home because they could not afford it. So far, they have paid off $10,000 in debt with $35,000 from selling the house, and their current rental house costs $800 per month. With this in mind, Jeremy thinks they can buy a $60,000 house with a $400,000 mortgage to help pay off debt, which Ramsey feels is risky.
While Ramsey may believe investing in debt is not advisable, others disagree, such as Dr. DeForest B. Soaries, an expert in financial education and author of the bestselling book, "Say Yes to No Debt." Additionally, SmartAsset reported that debt can be a powerful tool for building wealth if used correctly, which Jeremy plans to do by utilizing his debt to invest in property, potentially generating income to clear his debt. Investing in real estate is a time-tested method for building long-term wealth because it involves acquiring valuable assets, and using a mortgage is a common way to gain equity.
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What was Ramsey's final piece of advice for Jeremy?
He told Jeremy seriously, "You have $300,000 in student loan debt, dude. Don't talk to me about buying a rental house." Instead, he urged Jeremy to get out of debt first and keep his life simple. His final advice for the indebted couple was, "Quit trying to borrow your way through all of your dreams. You're turning them into nightmares."
While Ramsey feels this way, Katie Ross, executive vice president for the nonprofit national financial education organization American Consumer Credit Counseling (ACCC), believes that investing while in debt is not necessarily a bad thing; it's more of a balancing act. Ross admits that you'll have less money for investment while paying off debt, but it is possible to both invest and pay down debt. To do this, Ross suggests creating a debt management plan to invest and pay off debt.
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This article Dave Ramsey Tells Man $300,000 In Debt That He Needs To Stop Trying To 'Borrow His Way Through All Of His Dreams' originally appeared on Benzinga.com
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