Dave Ramsey Says One Financial Move Could Free Up $600 a Month

For millions of Americans, a monthly car payment has become a routine part of household budgeting. But personal finance author and radio host Dave Ramsey believes that one financial decision could instantly create more breathing room.

Responding to a question from a reader with an unpredictable income, Ramsey said paying off an outstanding car loan with available savings could free up $600 every month while reducing financial risk. His advice reflects the debt-free philosophy he has promoted for decades.

A Reader Asked Whether to Keep Savings or Clear Debt

The question came from Mike, a sales professional whose earnings fluctuate from month to month. Despite the variable income, Mike had built a strong financial foundation. He told Ramsey he had never used a credit card, maintained a six-month emergency fund, and had another $25,000 in savings. His only remaining debt was a car loan with a monthly repayment of $600 and an outstanding balance of $10,000.

Mike wanted to know whether he should leave the savings untouched in case his income fell or use part of the money to eliminate the loan. Ramsey praised his discipline in avoiding consumer debt but said the remaining car loan should be paid off immediately.

Why Ramsey Believes Car Loans Create Unnecessary Risk

Ramsey argued that debt becomes even more dangerous when income is unpredictable. According to Ramsey, a fixed monthly repayment adds pressure during periods when earnings may decline. Removing that obligation provides greater flexibility and reduces financial stress.

He also pointed out that while the car loan may be Mike's only debt, it still limits the amount of money available each month for saving or other financial priorities. Rather than continuing to make repayments, Ramsey suggested using existing savings to remove the debt altogether.

How Paying Off the Loan Could Free Up $600 a Month

Ramsey encouraged Mike to think beyond the loan balance and focus on the monthly cash flow. Without a $600 repayment leaving his bank account every month, that money could be redirected into rebuilding savings, investing for the future or covering unexpected expenses.

Ramsey said becoming debt-free often provides both financial and emotional benefits because households no longer have to worry about repayments if income suddenly falls. His recommendation was straightforward. Use $10,000 from savings to pay off the loan while leaving the six-month emergency fund untouched.

Three Possible Financial Outcomes

The original analysis compared three approaches using a hypothetical example of a $10,000 car loan at a 6% interest rate with 18 months remaining.

1. Paying Off the Loan Immediately

Clearing the debt straight away would save roughly $480 in future interest charges. Although savings would temporarily fall from $25,000 to $15,000, the borrower would immediately eliminate the $600 monthly repayment. Over the next two years, those monthly savings could be redirected back into the savings account while remaining debt-free.

2. Continuing Monthly Payments

Keeping the savings intact means continuing to make repayments for another 18 months. In this scenario, the borrower pays approximately $480 in interest while continuing to commit $600 every month to the lender. Although the savings balance remains higher initially, household cash flow stays under greater pressure until the loan ends.

3. Investing Instead of Paying Off the Loan

Another option is to leave the loan in place and invest the available $10,000. However, Ramsey argues this increases financial risk because investment returns are not guaranteed. Conservative investments often earn less than the interest charged on the loan, while stock market returns can vary significantly over shorter periods. As a result, borrowers could continue paying interest on the loan without earning enough from investments to offset those costs.

Ramsey's Advice Reflects His Longstanding Debt-Free Philosophy

Ramsey has consistently encouraged households to build emergency savings while eliminating consumer debt as quickly as practical. His recommendation in Mike's case follows that approach. Rather than keeping excess savings while making monthly repayments, Ramsey believes using part of those savings to remove debt creates greater financial stability and frees up future income.

Some financial advisers take a different approach and recommend comparing borrowing costs with potential investment returns before paying off low-interest debt. Ramsey, however, continues to prioritise the certainty of becoming debt-free over the possibility of higher investment gains.