Nick from California, who’s been married for 17 years, called The Ramsey Show (1) and told the hosts that he and his wife had “gone through FPU (Financial Peace University)”, Ramsey’s course on how to tackle debt and build wealth, right after they got married.
Their household income is $350,000 a year, and they’ve saved over $400,000, including Roth IRAs, savings accounts and more. Nick feels like he’s always saving, but wants to spend on things such as ATVs and jet skis so he can make memories with his children.
So far, so good — right?
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That’s when Nick threw a wrench into the conversation by revealing that he had financed a tractor.
Host Dave Ramsey was brutally honest, saying, “Oh, you flunked FPU…I thought you were a star pupil and became a millionaire. And then you went and financed a tractor.”
Nick defended his decision by saying that the $25,000 tractor was technically “free” — purchased at 0% interest, offset by a government grant and tax write-offs.
But Ramsey wasn’t convinced and had some firm advice for Nick about taking on debt.
“It wasn’t really free”
Ramsey said, “It wasn’t really free. He paid for the tractor, but he got a tax credit with it. And that he didn’t use to pay off the debt. So he still has the debt. But he talked himself into it.”
Under his 7 Baby Steps program, (2) paying down all non-mortgage debt is Baby Step 2. Building a fully funded emergency fund (three to six months’ expenses) is Baby Step 3.
In Ramsey’s world, you don’t pause debt payments to bulk up savings. Rather, you cut down on other spending, stay laser-focused and clear debt quickly. Once you’re debt-free (excluding your home), that’s when you start to build real savings.
Some financial experts believe you can take more of a blended approach.
This entails paying off minimums, building a cash buffer and paying off high-interest debt using the snowball or avalanche method. If you carry high-interest debt (credit cards, personal loans), most plans recommend paying those off first. This might mean a smaller emergency fund in the meantime.
So context matters, and in Nick’s case, if he has low-interest, tax-advantaged debt, it could justify a more balanced approach. It really depends on the approach Nick prefers, but Ramsey’s advice was to use the emergency fund to “Pay the tractor off today, honey. Today.”
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Are there any ‘good’ debts?
Ramsey’s position is that almost all debt (except a mortgage) is bondage. According to US Bank, (3) “good” debt is money you borrow that has the potential to increase in value or contribute to income. There are some arguments for “good”, or at least acceptable, debt:
Low or zero interest rates. If a loan truly costs you nothing (0%) and is short-term, it may be argued that it’s less harmful, especially if you can invest your cash elsewhere at a return.
Tax incentive. In Nick’s case, he claims he “got a government grant and wrote off the tractor,” offsetting or eliminating the real cost. But Ramsey pushed back: even if the tax credit exists, he warned, “you rationalized it out of your butt.”
Productive debt. Borrowing to buy a rental property or business asset that generates income can sometimes be defensible, as long as the returns exceed the cost and the risk is manageable.
Even though there is “good” debt, it can be easy to convince yourself that debt is okay just because it “makes sense on paper,” like in Nick’s situation, and that’s a trap that can lead to overreach.
Any debt is somewhat risky. Let’s say that economic conditions shift, for instance, interest rates climb, rental vacancies rise, cash flow shrinks — then your debt becomes a liability quickly.
It’s often best to keep things simple. For the average family, knowing that you don’t owe anything gives you a clear understanding of your finances, and you can work on savings instead.
Nick is far from broke. He’s disciplined, makes a good income and has a chunky nest egg. But by taking on debt, especially after preaching “no debt,” he’s weakened his position. After he’s paid off the tractor, he can rebuild his emergency fund and get back toward “intentional” spending.
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The Ramsey Show Highlights (1); Ramsey Solutions (2); US Bank (3)
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