Graham Stephan and Dave Ramsey debated whether there's such a thing as “good debt” when building wealth. The conversation heated on "The Iced Coffee Hour," a podcast by Stephan, a real estate investor and Jack Selby. The topic wasn't new, but Stephan was curious about Ramsey's strict stance against all forms of debt, especially in real estate.
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Ramsey, a well-known financial guru, didn't hold back. His stance has always been clear: steer clear of debt at all costs. He says even what some people call "good debt" carries more risk than it's worth. In one memorable exchange, Ramsey explained that while debt might allow someone to grow faster, the risks pile up just as quickly. “More debt is more risk, period,” Ramsey said on the show.
The two see eye to eye regarding "bad debt," though. For them, this means debt used to buy things that don't make money – things like credit cards, which Ramsey famously refers to as a tool for buying "crap you don't have money to buy." Stephan echoed this sentiment in one of his Substack articles, advising readers to avoid debt unless it helps make more money in the long run.
But when it comes to "good debt," Stephan and Ramsey are on opposite sides of the fence. Stephan sees a place for it, especially when borrowing to invest in appreciating assets like real estate. He has shared about taking on millions in debt, primarily in mortgages for rental properties and his own home.
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To Stephan, these loans fall under the category of good debt – assets that grow over time and can create wealth.
“If buying something doesn't make you money, pay cash,” Stephan wrote in a Substack article. “But if it does, sometimes it makes sense to finance.” His point is simple: leveraging debt to make smart investments could be a way to build wealth more quickly than saving up to buy everything outright.
Ramsey, on the other hand, is more cautious. He's repeatedly said that taking on debt might seem like a fast track to success, but it also ramps up the risks involved. During the podcast, he recounted a personal experience of getting burned by the fine print on commercial property loans. "I wasn't behind on the loans," Ramsey explained, "but they called them. They could do that because it was commercial paper, not a traditional mortgage."
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Commercial loans, unlike residential ones, often come with tougher conditions. These loans can be called in under certain circumstances, meaning the lender can demand repayment ahead of schedule. These pitfalls keep Ramsey firmly in the no-debt camp, even when the debt is tied to investments.
Interestingly, Ramsey's real estate strategy has evolved. Following a tough financial period that led to bankruptcy, he's now a cash-only investor in property. On his show, he shared that while paying off a mortgage is one of the final steps in his "baby steps" approach to building wealth, he encourages people to avoid it if they can.
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