Should you use investments to pay off your debts? Here’s what Dave Ramsey thinks

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Dave Ramsey is a big proponent of paying down debt – but does he think cashing in on investments to do so is a good idea?


Key points

  • If you owe money, you may be eager to pay off your debt.
  • Your investment account may seem like a good source of funds to pay off what you owe.
  • Dave Ramsey provided advice on whether it’s a good idea to cash in investments to repay loans.

Dave Ramsey is a personal finance guru who is best known for his anti-debt stance. Ramsey urges people not to borrow and suggests paying off the debt as soon as possible.

If you have outstanding balances on loans or credit cards that you’re trying to pay off as soon as possible, cashing in investments in order to make a big payment might seem like a good approach to getting out of debt quickly. But, does Ramsey support this decision?

Here’s what Ramsey says about using investment dollars to pay down debt

On the question of whether or not to sell investments to pay off debt, Ramsey’s position is that it depends on the type investments you have.

Ramsey is generally in favor of selling investments to pay off debt, with the Ramsey Solutions blog post stating, “One way to dramatically reduce your debt is to use your investments!” However, there is an exception to this.

Specifically, he doesn’t think you should be selling investments in your retirement accounts – although he is in favor of suspending contributions to those accounts and sending your extra cash to creditors instead of paying off debt. faster.

Ramsey’s blog explains that “if you’re in debt, none of these investments are doing you any favors right now,” referring to CDs, bonds, precious metals, cryptocurrencies, stocks, and real estate held outside of Ramsey’s accounts. retirement. It’s because he thinks you’ll get a better return on your investment by paying off what you owe.

However, he doesn’t think you should sell retirement investments because of the fees associated with early withdrawals, as well as the fact that withdrawing a large sum of money from these accounts could put you in a higher tax bracket. .

Should we listen to Ramsey?

Ramsey is absolutely right not to plunder your retirement accounts by making early withdrawals or taking out a 401(k) loan in order to pay off your debt. But, he’s not necessarily right that you should sell other investments, including taxable brokerage accounts, to pay off your debts.

In some cases, that would make sense. If you have high-interest credit card debt and have investments that you’ve made a reasonable profit on and don’t expect to continue to perform well, selling might be your best approach to that you can redirect that money to debt free.

But, it is important to remember that the return on your investment when paying off debt is only the interest saved. If you have low-interest debt and investments that you think will give you a higher return in the future, there’s no reason to sell them just to send extra money to your creditors. In fact, by doing so, you could end up with a lower net worth in the long run.

Ultimately, there is no one-size-fits-all approach, and you must consider your likely return on investment on debt repayment and your investments to decide the best course of action for your situation.

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