Which Debts Are Worse Than Others?

Summary

The Ramsey Show Highlights: "Which Debts Are Worse Than Others?"

Release Date: July 26, 2025

In this insightful episode of The Ramsey Show Highlights, hosted by the Ramsey Network, Dave Ramsey and George Kamel delve into the critical topic of debt, exploring which types are more detrimental than others. The episode, running just under ten minutes, offers listeners expert advice on navigating the complex landscape of personal finance and debt management.

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Understanding the Nature of Debt

George Kamel opens the discussion with a question from Sam in Arkansas: "When it comes to types of debt, are some worse than other types? For instance, are credit cards worse than a HELOC?" [00:11]. This sets the stage for a comprehensive examination of various debt forms.

Debt as Enslavement

George emphasizes a fundamental principle: "Debt is debt. Anytime you owe somebody money, you're a slave to the lender." [00:23]. This perspective frames debt as a common burden, regardless of its form, highlighting the importance of striving to eliminate it rather than merely shifting it around.

Consolidation Pitfalls

The conversation shifts to debt consolidation strategies, such as transferring credit card debt to a Home Equity Line of Credit (HELOC). Both Dave and George caution against this approach:

• George: "The solution is you got to pay it off. Because if you just move it to a HELOC, you've just moved it. It's not gone." [00:52].

• Dave: "While putting your home at risk... moving to likely a variable interest rate on these. He lost. It's a terrible solution for a lot of reasons." [01:11-01:15].

They stress that consolidation may offer temporary relief but doesn't address the underlying financial behaviors that lead to debt accumulation.

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Ranking Debt Types: From Worst to Least Detrimental

Dave Ramsey invites George to rank the most harmful types of debt, referencing Jade Warshaw’s personal opinions as a benchmark.

1. Payday Loans

George: "Number one, if we have a specific spectrum here, I think the worst is payday loans. Would you agree?" [02:41].

• Dave's Agreement: "The effective interest rate can be like 3 or 400%. Keeps people in this, in a terrible cycle of debt." [02:57-03:03].

Payday loans top the list due to their exorbitant interest rates and predatory terms, which trap borrowers in a relentless debt cycle.

2. Buy Now, Pay Later

• George: "Buy now, pay later is so terrible... probably habit forming is, is the worst thing." [03:15-03:42].

This debt type is critiqued for encouraging impulsive spending and making expensive purchases without immediate financial capability, fostering unhealthy financial habits.

3. Credit Card Debt

• George: "Credit cards... very easy of access. These companies will give anybody a giant line of credit..." [03:49-04:13].

Credit cards are flagged for their high interest rates and the ease with which consumers can accumulate substantial debt, often leading to financial strain.

4. Car Payments

• George: "The car payment is what keeps you average. It's what keeps you broke. It's what keeps you for the middle class." [04:12-04:42].

Car loans are criticized for financing devaluing assets, resulting in ongoing payments that hinder wealth accumulation and financial growth.

5. Student Loans and 401(k) Loans

• George on Student Loans: "Student loan next. Specifically parent plus loans." [04:44-05:10].

• On 401(k) Loans: "It's just probably one of the most painful types of debt that you could take out." [05:30-05:49].

Both types of loans are seen as particularly burdensome. Student loans, especially parent PLUS loans, carry relational strains and high interest rates, while 401(k) loans disrupt retirement savings and come with stringent repayment terms.

6. Medical Debt

• George: "Medical debt is usually harmless... it's about life just happens." [05:50-06:20].

While medical debt is often unexpected and not a result of financial mismanagement, it can still pose significant challenges, though it's generally easier to negotiate settlements compared to other debt types.

7. HELOCs and Home Equity Loans

• George: "Borrowing your own money because now you have to pay interest on it." [06:36-07:15].

• Dave: "They’re way over leveraged and they think, well, I got my home as a piggy bank." [06:27-06:35].

HELOCs are relegated to the lower end of the hierarchy due to their risk to personal assets and the deceptive illusion of easy access to funds, which can lead to severe financial repercussions if mismanaged.

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The Dangers of Modern Debt Products

Dave raises concerns about innovative yet predatory debt products emerging in the market:

• Online Loan Offers: "A loan for a hundred thousand dollars... you'll be giving away 30, 40% of your home sale to this company." [07:38-07:53].

• Home Equity Tied Credit Cards: "They're just making it easier and easier... if it looks like debt and it smells like debt, it's debt." [07:44-08:08].

These modern financial products are criticized for their obscure terms and aggressive marketing tactics, which can trap unsuspecting consumers in untenable debt situations.

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Conclusion: The Unvarnished Reality of Debt

Both hosts agree that regardless of the type, debt remains a significant burden:

• George: "No matter how you slice it, if it's stealing your income... it's not good." [08:09-08:17].

• Dave: "If you look like debt and it smelt like debt, it's debt. Just run away." [08:58-08:07].

The episode concludes with a light-hearted exchange about ranking gas station bathrooms, underscoring the serious nature of debt discussions while maintaining the show's engaging tone.

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Key Takeaways

• Debt is a Universal Burden: All forms of debt limit financial freedom and require diligent management.

• Avoid Predatory Loans: High-interest loans like payday loans and buy now, pay later schemes are particularly harmful.

• Responsible Debt Management: Focus on paying off debts rather than merely consolidating them, and be wary of new debt products that may seem tempting but carry hidden risks.

• Prioritize Financial Behavior: Personal finance is heavily influenced by behavior; addressing spending habits is crucial for long-term financial health.

Listeners are encouraged to approach debt with caution, prioritize eliminating high-interest and predatory loans, and foster responsible financial behaviors to achieve lasting financial stability.

Transcript

[Dave Ramsey]

Brought to you by why refi refinance your defaulted private student loans [e-mail] Ramsey.

[George Kamel]

Okay, today's question comes from Sam in Arkansas. He says, when it comes to types of debt, are some worse than other types? For instance, are credit cards worse than a heloc? I have a high credit card debt, so I thought about taking out a HELOC to pay them off, but I wasn't sure if this would make me worse off than I already am. So let's talk about. There's, there's a couple of different levels to this question. First off, debt is debt. Right. Anytime you owe somebody money, you're slave to the lender. So for the purposes of this, just think of it that way. Like, I want to avoid debt. And if you're looking for a solution from your debt, in this case, you're looking for a solution from your credit card debt. Yeah, moving it over, that's not a solution. You could possibly save a little bit on interest, but don't think of that as the solution. The solution is you got to pay it off. Because if you just move it to a heloc, you've just moved it. It's not gone. You've just rolled it into an asset and you still have to pay it.

[Dave Ramsey]

So while putting your home at risk.

[George Kamel]

Right.

[Dave Ramsey]

And moving to likely a variable interest rate on these. He lost.

[George Kamel]

Exactly. Oh, yeah, that's very true, George.

[Dave Ramsey]

It's a terrible solution for a lot of reasons. Yeah, but. And it doesn't attack the behavior that got us there. And we know personal finance is 80% behavior, 20% head knowledge, so you could mathematically go, well, this is a better debt to get into, and you're going to be a rat in the maze.

[George Kamel]

Yeah. And we do find that a lot of times when folks consolidate debt, whether it's into a HELOC or another type of personal loan, it's kind of like, oh, great, they feel like they've solved it, and then they keep piling up debt because they went from paying, I don't know, seven different bills to one bill, and somehow that made them feel like they had less debt. And so now that frees me up to just go into more debt. Right. So it's not, you know, there's, there's moments in time here on the show where you might hear us say something like, you know, a guy's upside down in a car payment. And we'd say, yeah, you know, get a loan for the difference. Or we'd, we'd convince them to do something that would get them out of a higher amount of debt to get into a lower amount of debt. Right. But in that case, that's only really the only time you'd hear us say to move something. And it's really just in the car payment situation to get you from a $50,000 car payment to a, you know.

[Dave Ramsey]

Yeah. And sometimes refinancing, you know, like a mortgage or student loans. But even then we're not saying go take out other debt that's right off this debt.

[George Kamel]

That's right.

[Dave Ramsey]

Simply to get better terms, not extend the timeline. But just for fun.

[George Kamel]

Yes.

[Dave Ramsey]

He asks, are there some types of debt that are worse than others?

[George Kamel]

Let's talk about that.

[Dave Ramsey]

Would you do a ranking for us, Jade, of what you think? This is just Jade's personal opinion.

[George Kamel]

Jade's personal opinion. Okay, number one, if we have a specific spectrum here, I think the worst is payday loans. Would you agree?

[Dave Ramsey]

Yes. Because in my head you can go, well, highest interest rate, hardest to get rid of. And in my mind I go most predatory.

[George Kamel]

But it's all of the above.

[Dave Ramsey]

I feel payday loans, the effective interest rate can be like 3 or 400%.

[George Kamel]

All of the above, yeah.

[Dave Ramsey]

Keeps people in this, in a terrible cycle of debt. Even if it's just a few hundred bucks, it's not the amount with payday loans that makes them the worst. It's the predatory nature in the insane fine print terms that people don't understand.

[George Kamel]

Which is also very similar to like a buy now, pay later. I find that to be predatory. It just prays on low income, middle income. I can't have what I want. Find me a way to get what I want. Buy now, pay later is so terrible. It's, it's like on the habit side of what you were saying. Probably habit forming is, is the worst thing. I mean, it really does speak to the fact that you can buy now, pay later. A steak is ridiculous. You know, you can buy now, pay.

[Dave Ramsey]

Later, anything, it's bad.

[George Kamel]

So I'd say that probably after that, again, predatory high interest rates. I'm going to go with cred credit cards. That'd be third on my list.

[Dave Ramsey]

And very easy of access. I mean these companies will give anybody a giant line of credit to go, yeah, go max it out at 10 grand at 29 interest. See what we care. And a lot of these, Jade, are they're secured debts and there's unsecured debts. And that's an important distinction. Unsecured debts, like credit cards are not attached to an asset that's right. A car loan is a secured debt because your car is attached to it.

[George Kamel]

That's right.

[Dave Ramsey]

So something went down. They could repo the car.

[George Kamel]

There's something on the other end of it.

[Dave Ramsey]

But unsecured debt is going to have way higher interest rates. And so those to me, are some of the worst ones out there.

[George Kamel]

Well, that leads me to my fourth on my list. I'm going to go with the car payment. I think a, it's an, it's an asset, but it's going down in value. So it stops being an asset the moment you buy it, basically, because the value starts to deplete. And then, I mean, George, I've said it. You've said it. Dave said it. The car payment is what keeps you average. It's what keeps you broke. It's what keeps you for the middle class.

[Dave Ramsey]

The car payment, I think is one of the worst types of debt because it's been so normalized.

[George Kamel]

Yeah. And most people have one their entire working career, their entire life. So you just swap one for another for another. And you know, at today's cost, you're, you're just, it's 500 to $700 a month that you're never going to invest. And so it's just keeping you from building wealth after that. I'd probably go to, It's a toss up between maybe the 401k loan or the student loan, but I think I'm going to go student loan next. Specifically parent plus loans.

[Dave Ramsey]

Yeah. Those are brutal. Because there's a, there's a relational element there that we take those calls. And it's, it's not about the money as much. It is a broken relationship and a lack of communication and the parents on the hook at a crazy high interest rate. Now they can't retire.

[George Kamel]

Yes.

[Dave Ramsey]

They want junior to pay the bill, but Junior never agreed to pay the bill. It's just a nightmare.

[George Kamel]

Yeah, it's, it's tough. We get those calls all the time. And then, then there's the 401k loan, which you go, I've worked so hard to put this money aside and now it's my money. But I don't get to just have it. I have to borrow it. Yes.

[Dave Ramsey]

Interest rate, unplug the growth, pay back to myself.

[George Kamel]

Yes.

[Dave Ramsey]

And penalties.

[George Kamel]

And penalties. It's just probably one of the most painful types of debt that you could take out. So I'd say that up higher on the list, I'd probably go with medical debt. Usually that's the harmless. I'm just trying to live. I was trying to take care of my child.

[Dave Ramsey]

People are choosing to go into medical debt right now. They didn't, sometimes didn't prepare. They didn't have the right insurance for that, but. And it's easier to settle than other types of debt.

[George Kamel]

Yes. It's not ill intentioned. Right. It's like I wasn't trying to live this lifestyle or do this thing like life just happens.

[Dave Ramsey]

And we haven't even mentioned HELOCs, home equity loans, all of that. Goodness gracious, Jade, that goes on and on.

[George Kamel]

Where would you throw those?

[Dave Ramsey]

That's definitely a middle class trap. As far as worst, I wouldn't trade places with people with a heloc.

[George Kamel]

I.

[Dave Ramsey]

Not a fun life. They, they've, they're way over leveraged and they think, well, I got my home as a piggy bank. Why not take a bunch of cash out?

[George Kamel]

Well, they're stealing from themselves on a.

[Dave Ramsey]

Renovation or a pool or to pay off other debt, like our friend here is asking Sam. And it also puts your home at risk. You miss that HELOC payment, guess what? They can take your house.

[George Kamel]

Well, it's just when you really think about it, I'm like, okay, I buy a house, I gain equity in it over time. That's my money. And if I were to sell my house, I'd get my money. But if I borrow it now, I have to bar again. I'm borrowing my own money because now I have to get my money, but I have to pay interest on it. It just makes me be like, well, why don't I just wait until I'm ready to sell this house and then I can just have my money.

[Dave Ramsey]

There's even a newer one, Jade, that's very frightening. I've seen this pitched online. People have sent this to me. What happens is these companies will say, hey, here's a loan for a hundred thousand dollars. You don't need to pay us back until your home sells. And how much do you owe us? Well, it'll be a percentage of the home sale. And so you could be giving away 30, 40% of your home sale to this company for the pleasure of this loan.

[George Kamel]

That feels like it should be illegal.

[Dave Ramsey]

And even there's another company that will give you a credit card tied to your home equity.

[George Kamel]

I've seen that. I've seen that.

[Dave Ramsey]

Ugh. They're just making it easier and easier. And their market, they, their marketing is so good. They spend millions and millions of dollars a year to market these products to people on social media and they know their target demo and people fall for it thinking it was going to be easy money. They don't read the fine print. And so if it looks like debt and it smells like debt, it's debt. Just run away.

[George Kamel]

Just run away.

[Dave Ramsey]

Gosh.

[George Kamel]

Yeah. The. Yeah. No matter how you slice it, if it's stealing your income, if it's causing you to make a payment every month, it's not good.

[Dave Ramsey]

I feel like ranking dead is like ranking gas station bathrooms. It's like, this is not a fun thing to do. Although I'll give a shout out to Buc ee's their bathroom is. I mean, you could eat off the floors at Bucky's, I think.

[George Kamel]

No, don't try it.

[Dave Ramsey]

I wouldn't. But I'm just saying I feel like they're taking care of business over there.

[George Kamel]

You know what I. Where I think always surprisingly has bad bathrooms, like the bookstore, like Barnes and Noble. Or like, you go in there and you're like, what's happened here?

[Dave Ramsey]

There's a theory here. This is not for the Ramsey show, but let me tell you. There's a theory that when you enter Barnes and Nobles, it causes you to have a bowel movement. There's science behind it. I don't know.

[George Kamel]

Is it because you went in with coffee you like, I'm going to get a coffee. I'm going to have a book.

[Dave Ramsey]

Is the smell of books? I don't know.

[George Kamel]

Just don't bring your book in there with you because somebody's gonna have to buy that later.

[Dave Ramsey]

We need answers. And we also need to rank gas station bathrooms. I'll work on that for my next YouTube video. Dave will love that one. Why refi Refinances delinquent private student loans for struggling borrowers. Learn more at Y r e f y.com Ramsey.