• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Good debt vs. bad debt

Ramsey and Stephan have similar views on what they consider to be “bad debt” — or debt used for consumption.

Ramsey once said on his own show, “The Ramsey Show,” “people get credit cards for mainly one reason: so they can buy crap they don’t have money to buy.” Similarly, Stephan wrote a Substack article stating, “If holding on to debt does not make you more money, then avoid it.”

However, it’s “good debt” where these two finance experts disagree. Stephan believes money borrowed to invest in appreciating assets could be justified under some circumstances.

“If buying something does not make you more money, buy it outright. But if it does make you money, then finance it sometimes,” he wrote.

In 2022, Stephan claimed to have $4 million in debt, much of which was in the form of mortgages on his rental properties or his personal residence. But he wasn’t bothered by it at all. Mortgages are considered good debt because not only does a home provide shelter but its value tends to appreciate over time. Same with student loan debt, as it can be considered an investment in one’s future income prospects.

Ramsey, however, tries to avoid debt altogether. On “The Iced Coffee Hour,” he said using good debt is “a more effective way to grow fast if that’s your goal, but what people leave out of the discussion is that you’ve increased your risk exponentially. More debt is more risk, period.”

Ramsey is well-aware of this risk because of his bankruptcy in the late 1980s. At 26 years old, he says he was already an experienced real estate investor with several projects under his belt, but much of his empire was fueled by debt.

“I had never lost money on a flip,” he told Stephan. “I was not behind on the loans, they just called them. They had the ability to do that because it was commercial paper, it wasn’t traditional mortgages.”

Commercial property loans often have loan-to-value requirements, credit requirements and terms that are less favorable than traditional residential mortgages. Sometimes, these lending arrangements can have call options that allow the lender to revoke the mortgage.

Since recovering from the bankruptcy, Ramsey has continued to invest in real estate. However, he’s said multiple times on his show he now buys property outright and encourages listeners to do the same to avoid debt if they’re able.

But he also understands that many don’t have that much cash on hand, and when it comes to his famed “baby steps” to help get rid of debt and build wealth, paying off mortgage debt if left until the end.

Need cash fast? Turn to Credible for hassle-free personal loans!

With competitive rates and transparent terms, Credible makes borrowing simple and stress-free. Whether it's for a new car, home improvement, or debt consolidation, find the perfect loan for your needs.

Find the best rate for you

Calculated risks

Although borrowing money isn’t Ramsey’s style, he agrees that leverage could be a powerful tool for someone with the right risk appetite.

“I’ve got a degree in finance,” Ramsey said. “I know how to run an Internal Rate of Return (IRR) [calculation] and I know what the IRR looks like with debt and without debt. It’s not nearly as good unless you’re leveraged.”

Ordinary investors who have the right risk appetite, discipline and calculations could use some good debt to fuel their investments. But for risk-averse investors like Ramsey, a slower debt-free approach might be warranted.


This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024

Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.

There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.

Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.