Vishesh Raisinghani
·4 min read
Nobody wants to hear that their personal financial choices are unwise. Even gentle, helpful advice about spending or debt can come across as judgmental.
Kristen from Houston was subjected to such well-meaning judgment on a recent episode of The Ramsey Show .
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She told the hosts that she and her husband have had a long battle with consumer debt, which has prevented them from buying property. She said they've made a lot of progress towards eliminating their debt — but she also said she and her husband recently bought a Ford F-250 for $58,000 and that they still owe $56,623 on the loan.
Naturally, hosts Jade Warshaw and Rachel Cruze were critical of the decision. But Kristen didn't want to hear it, insisting she's “not changing what we’re doing."
“We can’t help you if you don’t want help,” Warshaw eventually said.
Kristen and her husband are not alone in their debt difficulties. According to recent research from the Federal Reserve Bank of New York, outstanding auto loans in the U.S. now total more than $1.6 trillion, and delinquencies have risen sharply, exceeding pre-COVID levels.
If you don't want to become one of those statistics, The Ramsey Show hosts' advice is worth paying attention to.
Auto loan crisis
By the fourth quarter of 2023, Americans’ auto-debt load had drawn equal to the country’s total outstanding student loan debt, which is also at around $1.6 trillion, according to the Fed’s most recent data.
As of December, the average car loan had an interest rate of 9.6% while the average monthly payment was roughly $770, according to data from Cox Automotive. Put simply, Americans are sitting on a vast and expensive pile of auto debt.
Kristen was in a deeper hole than her peers. Her monthly payments were just over $946 — significantly higher than average. She also owed money on the RV that her new truck is meant to tow around. Not to mention rent on the space to park the truck and RV. Altogether, she said, her monthly payments are $2,100.
The truck and RV were worth more than half her household annual income of $121,000.
Despite the eye-watering monthly payments, Kristen was convinced living in an RV is better and cheaper than renting. The co-hosts at The Ramsey Show were not so sure.
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‘Rent is not debt’
Kristen insisted she and her husband were making the savviest move possible, but the reality is renting would have been a better choice for the family. As of December, the median rent in Houston is $1,550, according to Zumper.
Not only would renting be cheaper, it could also eliminate another drag on Kristen's finances: a depreciating asset. New cars lose their value at an accelerated pace, and most buyers should expect their vehicle to depreciate roughly 20% by the end of the first year, according to Kelley Blue Book.
“Renting doesn't feel good,” said Warshaw. “It feels like we're throwing money down a black hole … [but] it would have been better for you to rent because rent is not debt.”
The co-hosts recommended she sell her RV and truck and rent for a while before considering a move onto the property ladder.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
