Using debt to generate income = good. Using debt to buy stuff you can't afford = bad.
The first pays itself back while the latter does not.
When somebody like Dave Ramsey is talking about debt, he's talking about paying off credit card bills, car loans, student loans, mortgages - payments that you're making that leave you personally saddled. Increasing your cash flow by decreasing your expenses.
When somebody like the Robert Kiyosaki (Rich Dad, Poor Dad) talks about debt he's talking about it in the context that you are: using debt to create an income generating asset, leveraging the tax advantage to increase cash flow and holding the asset as more valuable because held cash would simply result in devaluation through inflation. Increasing your cash flow by generating more cash flow.
Headlines should really start trying to clarify Bad debt vs Good debt.
Productive debt helps you make money. For someone starting out, that might be a modest car loan to get to work.
Unproductive debt just helps you consume. Once your car is past the basic point-A to point-B automobile, a loan to but it is unproductive debt.
>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.
With the exception of buying your house. But then only if you 20% down and 15-yr mortgage.
And, let's face it, for the demographic he is targeting that's great advice. Most got into their situation due to poor handling of debt.
However, the vast majority of other financial advisers in the world, and economists, agree that with good management debt can be very beneficial. Dave Ramsey is not the Financial God. He has a very simplified, easy-to-follow program designed for a specific set of individuals. And, honestly, the majority of people would do well to follow it to the letter. But that doesn't mean EVERYONE should for EVERY situation.
Having tons of money is pointless if you don't eventually spend it on improving your life or the world around you. Obviously blowing all of your cash on frivolity is also bad, but you need to strike a balance or you will end up being Ebenezer Scrooge, a miserable old rich guy with nothing to show for his life but big numbers on a piece of paper somewhere.
One debt increases your annual revenue for as long as you own it, the other increases your annual car expense as long as you own it (decreaing your revenue).
In the monetary policy environment we live in, having debt is the most sensible way to build wealth.
Dollars are a terrible store of value. Dollars invested in a savings account are almost as bad. Securities, real estate, and inventory are much better. Dollars invested in education and advertising to multiply the value of securities, real estate and inventory are still way better than a savings account.
In an environment where a savings account pays <1% and collateralized debt costs 1-8% and non-collaterlized debt costs 10-20%, the sensible thing is to borrow as much as you can and invest it wisely.
In such an environment, I'd be proudest paying cap gains tax at 15% than income tax updwards of 25%.