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The Truth About Debt

Imagine this: It’s the end of the month, and your bills start to come in. As you open each one and look at what you owe—$700 on your new car, $400 on your student loan, $100 on your credit card balance—you feel a little more stressed.

That’s $1,200 worth of payments—and you haven’t even gotten to paying for rent, groceries, utilities, insurance or gas for your car! Plus, your whole family needs a haircut. Oh, and your 9-year-old needs new shoes. And by the way, you still owe the furniture store hundreds for that couch you bought with a buy now, pay later (BNPL) program.

Your stress turns to fear as you ask yourself, How in the world am I going to afford all of this? The truth is, you can afford all of it. But you’ll have zero money left over to put aside for emergencies or invest for retirement. You’ll also have nothing left to save for that beach vacation you’re dead set on taking next summer, which means that trip will wind up going on your credit card and sinking you even further into debt.

And that’s how you end your month: full of anxiety because you’re drowning in payments with no money saved and nothing in retirement, knowing full well next month will be no different.

That’s precisely what debt does to your life. It’s a wrecking ball, both to your money and your mental health. That’s the truth about debt.

Why Debt Is Not a Tool for Building Wealth

There are tons of so-called financial “experts” who want you to believe debt is a tool you can use to build wealth. Well, those folks are plain wrong.

Your biggest wealth-building tool is actually your income. And when you have to send huge chunks of your income out the door every month to make debt payments, you’ve completely lost control of that tool.

Want some proof? Let’s pretend you’re making payments every month on student loans, credit cards and the new car you bought just a few months ago. Here’s a look at what those payments add up to:

  • Average Student Loan Payment: $3931
  • Average Credit Card Payment (based on a 2% minimum payment): $116.102
  • Average New Car Payment: $7003
  • Total: $1,209.10

That’s a big number. To be specific, it’s $117 more than the average American working full time makes in a week.4 Basically, if you’re making the average debt payments in the U.S., you’re throwing an entire week of your income out the window.

It’s no wonder 48% of Americans have less than $10,000 saved for retirement, and 45% have less than $1,000 saved for emergencies, according to research done by Ramsey Solutions. All that money is going to credit card companies and the bank! Not exactly a recipe for wealth building.

The Most Common Myths About Debt

Let’s face it: We live in a culture that’s obsessed with debt. And we’ve been sold on a whole bunch of lies created by a financial system that’s designed to take our money from us.

So, let’s take a look at the most common myths out there about debt—you’ve probably heard these your entire life!

Myth: You should get a credit card to build your credit score and take advantage of cash-back bonuses and airline miles.

Truth: You don’t need a credit score to win with money or build wealth.

Here’s the thing about a credit score: It’s really just an “I love debt score.” Your credit score is entirely based on how much debt you’ve taken on—it’s got nothing to do with how wealthy you are, or how well you handle your money.

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Avoid the traps and manage your money the right way with Financial Peace University

And unlike what the toxic money culture wants you to believe, you don’t need a credit score to rent an apartment or buy a house. So if you don’t have a credit score because you’ve never taken on debt, keep it that way. If you do have a credit score, get rid of it—cut up your credit cards, pay off all your existing debt, and stay debt-free.

Worried about renting a car or booking a hotel room without a credit card? Don’t be! You can do both of those things with a debit card (which has the same fraud protection as a credit card, by the way).

Myth: Car payments are a way of life. You’ll always have a car payment.

Truth: You can stay away from car payments by paying cash for reliable used cars.

Here’s the deal with car payments: They’re a money pit, especially when you’re talking about a new car. A new car loses a whopping 60% of its value during the first five years of its life, including a steep 20% drop during year one.5 And since the average new car payment these days is $700, that means you’ll be sending a huge chunk of money out the door each month for an “asset” that’s going down in value quickly.

But what about car payments on used cars? Those are a bad idea too. They’re still super expensive—with a $525 average monthly payment—and you’ll be paying the car company a boatload in interest.6 In fact, car dealers make most of their money through financing and not by actually selling cars.

Oh and by the way, leasing a car is also a terrible option. Leasing is the most expensive way to operate a vehicle, and it’s not even yours at the end of the day. You might as well throw money out the window while you’re driving down the highway. Instead of this nonsense, buy a car the right way: Budget, save up and pay cash for your cars.

Myth: You can’t go to college without a student loan.

Truth: Most millionaires have never taken out a dime of student loan debt.

If you listen to the news for more than five minutes these days, you’ll probably hear someone talk about how student loans are a huge burden for lots of Americans—and they’re exactly right. The student loan program in the U.S. is a disaster, and it’s reached crisis territory.

But here’s the good news: Anyone can go to college without student loans. Yes, anyone. Seriously. No matter their economic background, students can graduate debt-free if they choose an affordable school, apply for lots of scholarships, and get a job to start saving money. That’s what most millionaires do—71% of them went to college without student loans, according to a study done by Ramsey Solutions. That’s a big part of how they became millionaires.

Myth: Buy now, pay later programs are a great way to purchase items you want without having to wait or spend time saving money.

Truth: They’re actually a great way to lock yourself into high-interest payments.

For most people, “buy now, pay later” turns into, “buy now, don’t pay later.” In fact, the 2022 State of Personal Finance study by Ramsey Solutions found that 60% of people who use a BNPL program have trouble managing their payments—which means they all wind up paying a ton in interest.

It gets worse, though. The State of Personal Finance study also showed that two-thirds of folks who used a BNPL program were still making payments even though they no longer owned the item! These programs are awful, and companies like Affirm and Klarna are not your friend—they only want to screw you over and take your money.

Avoid BNPL programs at all costs. If you can’t afford to pay cash for something, you can’t afford it at all.

Myth: Debt is okay if you’re using it as leverage for investments. It actually qualifies as “good debt.”

Truth: Debt always equals risk, and it’s always dumb.

Imagine if, when the COVID-19 pandemic hit in 2020, you’d been completely debt-free with no payments and a $20,000 emergency fund. Even with the world turned upside down, you wouldn’t have worried about money very much—or at all.

But what if you had a $130,000 mortgage on a rental property with a tenant who lost his restaurant job and, as a result, couldn’t pay his rent? Oh and you also owed $400 a month on your private student loan because, instead of paying it off years ago, you decided to use your extra cash to invest in the stock market.

Those two situations would’ve had totally different results, huh? In the second one, you would’ve drowned in all those payments—the exact kind of risk that financial “experts” who push the idea of leveraging your debt for investments (so-called “good debt”) don’t think about.

It doesn’t even take something as extreme as a global pandemic or an economic collapse (2008, anyone?) for debt to become a nightmare. That’s because debt always equals risk, and more debt always equals more risk.

So, while your calculator may say that leveraging debt can help you get rich faster, it doesn’t consider risk. But when you pay cash for everything, you don’t have to worry about that risk.

The Truth About Debt and Relationships

Debt can hurt more than just your finances—it can also strain or even destroy your relationships. There are two main ways that can happen: loaning money to a friend or relative, or cosigning a loan for someone.

Loaning Money to a Friend or Relative

The Bible says in Proverbs 22:7 (NIV), “The rich rule over the poor, and the borrower is slave to the lender.” When you loan money to a loved one, the entire dynamic of the relationship changes. You’re no longer a brother and a sister, a father and a daughter, or a pair of friends—you’re a slave and a master.

Don’t believe us? Think about it this way: How would you feel if you loaned money to a friend and, six months after they were supposed to pay you back, they still hadn’t? It’s a great recipe for resentment, isn’t it? And chances are, every time you reminded them about the money they owed you, they’d probably feel a little bit of resentment too.

Plus, how do you think Thanksgiving dinner’s going to feel if Joe hasn’t paid back the money Aunt Suzie loaned him a few months back? Or if Joe took that money and used it on a trip to Atlantic City instead of the “emergency” he claimed he needed it for? Talk about awkward and uncomfortable.

If you want to help a friend or relative who’s in a tough spot financially, it’s perfectly fine (and very generous) to give them money. But loaning them money is a no-go.

Cosigning Someone Else’s Loan

Look: Banks can project the likelihood of a loan going into default with unbelievable accuracy. And they’ll loan money to pretty much anyone—including dead people (seriously, look it up).

So, if the bank denies your buddy Steve from getting a loan because they think he isn’t likely to repay, don’t you think there’s a pretty good chance the bank is right? Spoiler: They are. And that means you need to tell Steve no. Because when Steve doesn’t make his payments (shocker), you’ll be on the hook for them, and your credit will be affected.

Just like loaning money to a friend or relative, cosigning a loan isn’t a good idea. It’s a request for big-time trouble.

Learn How to Live a Debt-Free Life

Did we mention debt flat-out stinks? Seriously though, the evidence is clear: Debt is not a tool for building wealth. It’s not a way to get things you want faster. And it’s not something you can’t live without.

Ready to say goodbye to debt forever and live a life free of payments and financial stress? Financial Peace University (FPU) can help you do just that. FPU is the nine-lesson course that’s helped millions of people just like you pay off debt and live without it.

And the nine lessons aren’t the kind of long, boring lectures that used to put you to sleep in high school and college—they’re powerful! The average household that completes FPU pays off $5,300 in debt and saves $2,700 in the first 90 days. So, if you’re ready to ditch debt for good, what are you waiting for?

Join an FPU class today!

Frequently Asked Questions

The Bible clearly teaches that debt is a bad idea. Proverbs 22:7 (NIV) says, “The rich rule over the poor, and the borrower is slave to the lender.” Scripture also warns against helping someone else go into debt by cosigning. Proverbs 17:18 (NIV) says, “One who has no sense shakes hands in pledge and puts up security for a neighbor.”

Absolutely! In fact, getting out of debt lets you take control of your largest wealth-building tool—your income. When you don’t have any payments, you have more money to invest.

Paying off debt and building wealth are both key parts of a good financial game plan, but you should focus on getting out of debt first. Then you can focus on building up your emergency fund. Once you’re totally debt-free (except for your mortgage), you can begin investing 15% of your income to build wealth for retirement.

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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