Dave Ramsey and Robert Kiyosaki are both personal finance gurus with millions of fans. They have written bestselling books that educate readers on financial concepts. While they respect each other, their views on debt are radically different.
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Ramsey believes that all debt is bad. While this approach helps with credit card debt, it can scare people away from making good investments. However, Kiyosaki is the complete opposite, as he proudly declares that he has $1.2 billion in debt.
So, how should you approach debt? Two well-respected financial gurus each have a different opinion, but we sought out experts to shed some light on this matter.
Ryan Dossey is the co-founder of SoldFast, a company that presents fair cash offers to homeowners who want to sell quickly. Dossey explained that leverage can provide benefits, but it is extremely risky.
“The Dave Ramsey versus Robert Kiyosaki debate is a classic argument around leverage,” Dossey said. “While I think that there can be a place for leveraging debt to buy assets, it’s something that needs to be approached with extreme caution.”
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Having caution isn’t just about avoiding too much debt. Dossey also mentioned the importance of keeping your mental health in mind as you accumulate debt responsibly.
“Personally, I’m not a fan of having absolutely no debt, but I do believe in having margin on anything that has leverage on it,” he added. “You should be able to sell your home, investment property(s) or even your cars at any time and walk away with additional cash in hand. I believe in protecting my peace above all else and will gladly balance maintaining some equity versus being leveraged to high heaven.”
Dossey doesn’t favor Ramsey or Kiyosaki. Some people should pay off their debt, especially if it’s a credit card balance. However, neglecting the benefits of leverage also has its downsides, as Dossey explained.
“I’m not a devout follower but a blend of both,” he said. “I’ve watched leverage bankrupt people and I’ve also watched people waste away at a job they hated because they refused to leverage what they had.”
Melanie Musson is a finance expert with InsuranceProviders.com who leans on Ramsey’s side when it comes to paying off bad debt.
“The majority of Americans have the kind of debt that both Dave Ramsey and Robert Kiyosaki would agree is bad debt,” she said. “That debt keeps people from being able to reach their goals. It adds stress to their lives.”
Ramsey regularly encourages people to cut up their credit cards and focus on paying off debt. Credit cards can be useful for building credit, which can result in lower rates. However, Ramsey believes it’s better to make purchases with cash and debit cards.
Musson doesn’t agree with everything either guru says, but she mentioned why Ramsey’s advice is better for most people.
“For the average person, Dave Ramsey’s advice is best,” she explained. “You can accomplish the same end goal of wealth-building if you follow Ramsey, but you’ll avoid the risk.”
Some people can reach their financial goals sooner if they get into debt. Musson shared how getting into debt for an asset like real estate can be beneficial.
“If your debt helps you grow your wealth, it’s better to accumulate debt,” she said. “It’s especially beneficial when your debt can be paid for by others while your wealth grows. For example, if you take out a loan to buy real estate, then your tenants pay your loan while you build equity and your debt builds your wealth.”
Although this sounds good in practice, Musson warned that someone’s financial situation can change in a hurry if leveraged assets move against them.
“Kiyosaki’s advice is risky. When you use debt to build wealth, things could change in a hurry. If your portfolio is well-diversified, you may be okay,” she added. “However, the average American could potentially use debt to fuel one source of wealth building. If that strategy fails, they’ll end up even further in debt with no wealth building realized.”
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This article originally appeared on GOBankingRates.com: Dave Ramsey or Robert Kiyosaki: When It Comes To Debt, Who Do Experts Say Is Right?
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