A recent episode of “The Ramsey Show” featured a question from a caller in Chicago that many Americans have probably thought about. Adam asked what would happen to the economy if a large number of people stopped using credit cards, ditched loans and followed Dave Ramsey's Baby Steps to become completely debt-free.
Ramsey Says Debt-Free People Still Spend, Just Smarter
Ramsey called the scenario hypothetical but said the economy would not collapse if it happened gradually. In fact, he argued that the economy might actually benefit.
"[Spending] doesn't stop. As a matter of fact, it probably increases," Ramsey said. "It's just responsible spending because now they actually have money."
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He pointed to a real-life example: a couple who followed Baby Steps for six years, paid off their house, and became millionaires by age 37. They now have $500,000 in retirement accounts and no debt.
"They're 100% debt-free and they're millionaires," Ramsey said. And now, they can go out to eat, travel, and buy a car with cash. They spend more now than they did when they were broke.
Jade Warshaw, who co-hosted the episode, added that the idea people would just stop spending if they avoided debt is flawed. Ramsey agreed, pointing out that while spending may temporarily dip during the debt payoff phase, it eventually rebounds—without the burden of payments or interest.
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Banks Would Suffer, Not The Economy
Ramsey was clear about who would lose out: lenders. "The only people that would be out of business would be debt people," he said. "The car finance companies will be screwed."
But that's not necessarily bad news for regular folks. "The balance of power changes. Now the people have their power back because they have their own income," according to Warshaw.
Ramsey dismissed the idea that the economy needs people to keep borrowing in order to function. "This banking-financed to create spending that drives the economy, dog chasing its tail thing, has convinced people that it's the only way for the economy to prosper. It's not true," he said.
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What About Generosity And Giving?
Ramsey also highlighted how financial peace boosts generosity. "I give more in a year now than I made most years when I was broke," he said. "If we could cut what we spend on pets in America by 10 to 20% and what we spend on Halloween by 10 to 20%, and allocate all of that to hungry kids, there’d be no hungry kids."
He said it isn't about eliminating spending but changing where the money goes. Once people are out of debt, they often give more and still enjoy life.
Would The Economy Take A Hit?
Ramsey admitted that if everyone stopped spending all at once, it would hurt businesses temporarily, just like during the pandemic. "If we could get everyone to stop going to restaurants at one time, you'd have COVID," he said. But that's not how the Baby Steps work. The process is gradual and sustainable.
The takeaway? Ramsey believes the economy doesn't need debt to thrive. It needs people who control their income instead of handing it over to lenders.
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