Dave Ramsey: Renting Is Not a Waste of Money — Mortgages, Student Loans and 5 Other Things To Actually Avoid
If you currently rent, you might worry that you’re wasting money since you’re not building equity as a homeowner. However, financial expert Dave Ramsey disagrees and suggests continuing to rent until you’re financially ready to buy a home. This means you’ve paid off your debts, saved up a large down payment and have a sufficient emergency fund, all of which help provide stability so you can enjoy your new home in financial peace. Ramsey Solutions writer Rachel Cruze may have stated this most succinctly in a May 8 article: “You may have heard the myth that renting is a waste of money. That’s not true. Housing is an essential expense.”
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On the other hand, there are many other areas where you could waste money, especially on debts like mortgages and student loans. Here are seven things that Ramsey advises you to avoid.
1. Certain Mortgages
When you buy a home, Ramsey’s philosophy is to use cash if possible. Otherwise, he recommends just taking out a small 15-year mortgage. This will help you avoid unaffordable mortgage payments and high interest charges that waste your money.
In addition, he advises avoiding adjustable-rate mortgages that might tempt you with a low rate that can later rise significantly. Federal Housing Administration loans can also be risky since they have lifetime mortgage insurance premiums.
2. Student Loans
In a November 2020 clip from The Ramsey Show, Ramsey mentioned the dangers of student loans and the importance of not counting on student loan forgiveness. The interest can accrue quickly, especially if you have a large student loan balance. And along with wasting your money on interest, large student loan payments can eat up your budget and delay other financial plans.
To avoid student loans, consider options such as saving for college, applying for grants and scholarships — and looking for low-cost schools. Work-study programs and employer tuition reimbursement are additional options.
3. Timeshares
While jointly owning a vacation property may sound appealing, Ramsey considers timeshares an avoidable waste of money. In the end, the upfront and ongoing costs usually override the benefits you get from having the timeshare.
Additionally, selling your timeshare can prove challenging, so it can be hard to escape the money trap. If you get stuck, Ramsey advises looking into any right-to-cancel laws that may apply and considering a timeshare exit company if you can’t sell the timeshare yourself.
4. Credit Cards
With credit card debt reaching a $1 trillion high, there’s a good chance you could be wasting money on both high interest charges and fees. Additionally, the temptation to spend money to receive credit card rewards and perks can escalate the issue.
Because of this, Ramsey suggests avoiding credit cards completely and opting for a debit card or cash. While you’ll miss out on card perks, the interest, taxes and fees you pay likely make them not as valuable as you think.
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5. Payday Loans
With their extremely high interest rates, payday loans are designed to hold you over until your next payday. Ramsey considers these quick loans both predatory and a large waste of money.
He instead advises you to budget your money so you can avoid money shortages in the first place. Taking on a second job or selling items can also help you avoid wasting money on payday loans.
6. Car Leases
When comparing car loan versus lease payments, the latter may look cheaper. However, Ramsey cautions that leasing is actually a more expensive option, especially if you plan to buy the vehicle in the end.
He suggests saving up cash so that you can buy a reliable used car instead. That way, you get the car you need, and you avoid finance charges completely.
7. Lottery Tickets
If you’re buying lottery tickets and hoping to win big, you could be wasting money that could go toward your financial goals. On August 15, Ramsey posted the following on the X platform, formerly known as Twitter: “Forget luck and the lottery; it’s your income that will build your wealth over the course of your working life.”
Ramsey recommends avoiding the lottery because of its slim odds and the financial dangers that winning could actually bring. Instead, you can invest the money for a more likely return, or you might pay off your debt and escape costly interest and fees.
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