Dave Ramsey says this 'really, extremely' stupid purchase is the No. 1 thing new college graduates get wrong

Dave Ramsey says this 'really, extremely' stupid purchase is the No. 1 thing new college graduates get wrong Aditi Ganguly Tue, August 4, 2026 at 4:30 PM GMT+2 11 min read The Ramsey Show Highlights/YouTube Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below. Dave Ramsey doesn't pull punches, but one advice seeker who recently wrote in to The Ramsey Show seemed primed for the host to make a blunt assessment when they asked if their decision to buy a new car was "stupid.

" Ava, 23, from Massachusetts, just graduated from college and is in a seemingly great financial place for someone just out of school: no debt, $25,000 in stocks, $3,000 in cash and a new job lined up for the fall that will pay $130,000, with the potential of $30,000 in bonuses (1). Must Read Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one JPMorgan still sees gold hitting $5,000/oz by Q4 — and savvy investors are protecting their wealth with a tax-advantaged Gold IRA. Learn more with a free guide from Priority Gold The tax breaks in Trump's 'big beautiful bill' expire after 2028 — and experts say most people won't act in time.

What to do before the window closes What could be the problem? Well, Ava is considering financing a Tesla Model Y. "Dave's favorite car," co-host Rachel Cruze joked as she read Ava's letter.

Ava was quoted an out-the-door price of $53,000, with an APR of 2% on her car loan. "If I put down $23,000 [the] monthly payment will be $442 for 72 months," Ava wrote. "Obviously, the smarter decision is to buy a used Tesla with cash, then to buy the Model Y in a few years.

But I've been obsessing about this for several months now, and I want to get in if I can. How stupid is this decision? " Ramsey's reply?

"Really. Extremely. " High prices, high interest rates It's no secret that buying a new car these days isn't cheap.

The average transaction price (ATP) for a new car surpassed $50,000 for the first time ever (2) in 2025, — though in June it sat at $49,758 and has held below $50,000 throughout 2026, according to Kelley Blue Book (3). And interest rates don't help the matter. Data from the Federal Reserve Bank of St.

Louis shows the average 60-month auto loan rate at commercial banks is sitting at 7. 14% as of May (4). Americans are also taking out longer-term loans to grapple with higher prices.

An analysis by the Century Foundation found that by the end of 2025, 14. 7% of new auto loans had terms of seven years or more (5). "Compared to early 2018, the prevalence of seven-year loans has approximately doubled," the report found.

With this in mind, it's no surprise Ramsey was firmly in the "no" camp when it came to Ava's question about buying a new car. Story Continues "No. 1 mistake people make when they graduate from college: buy a new car," Ramsey said.

"'I've been driving my high school/college car and it's a hooptie, and now I make big money and so I'm going to prove I'm a graduated adult,' and you go buy a stupid brand new car," Ramsey continued. "A new car loses 75% of its value in the first four years. Teslas are worse than that.

Go look at a four- or five-year-old Tesla and […] look at how much they've gone down in value. " Cruze agreed, saying "Buy that. Buy the four [or] five year old.

" This, perhaps predictably, descended into an argument between the hosts over electric vehicles, with Cruze, a Tesla driver, arguing in favor of the technology. "Dave just hates electric cars," Cruze said. "I do hate electric cars," Ramsey said, "but I hate the value drop too.

" One thing the hosts agreed on was that Ava should buy a used car. Ramsey then laid out his rules of thumb on auto purchases. "If you have to finance it, you can't buy it.

And it shouldn't be more than half your annual income. And if you can't pay cash, don't buy it. " Ramsey also added that he believes you should "buy a used car unless you have at least a million-dollar net worth.

" "And quit obsessing over new cars," he added. "That's going to make you broke the rest of your life. " Cruze added, "You say the phrase all the time: car payments is what keeps you …" Ramsey finished the thought: "middle class.

" Cruze broke the idea down further, saying "it's the borrowing, paying interest on something that's going down in value. All, really, for a status type of life is really what you're trying to buy. " "If you invested that car payment over the course of your life, I mean, it's millions of dollars that you're giving to the bank or the car dealer versus you.

And so the financing of the cars, not smart. " Ramsey did the math on a scenario where Ava instead invested those car payments, finding that "$442 from age 23 to age 65 in a decent growth stock mutual fund is $4. 7 million.

" "That's what I meant … earlier when I said 'extremely stupid. '" Already made the purchase? Consider refinancing If you've already driven your new car off the lot, that doesn't necessarily mean you're stuck with the financing you signed.

Some buyers accept the dealership's loan to get the keys quickly, then later discover they could qualify for a better interest rate elsewhere — especially if their credit has improved or market rates have shifted. Replacing your existing loan with one that carries a lower interest rate, or one with terms that better fit your finances, could reduce your monthly payment and lower the total amount you pay over time. And the potential savings can be significant.

According to a LendingTree study, Americans who refinance their auto loan save an average of $1,346 over the loan's lifetime. Borrowers who refinance into a shorter loan term can save even more — an average of $6,291 over the loan period (6). So, before committing to your current lender for the next several years, it could be worthwhile seeing what else is available.

LendingTree lets you shop around and compare rates offered on auto loans by reputable lenders near you. You can find rates as low as 5% APR in just three simple steps. Once you fill out their form with some basic information about yourself and the vehicle you'd like to refinance, LendingTree will match you with up to five lenders that best fit your financial profile.

From there, you can choose which offer you'd like to proceed with. The best part? This process is completely free , and it only takes a few minutes.

Read More: Millionaires under 43 hold only 25% of their wealth in stocks. Here's where their money is actually going Look beyond car payments A lower car payment can certainly create breathing room in your budget, but it's far from the only expense that comes with owning a vehicle. Another major cost that's been climbing steadily is auto insurance.

Insurance premiums have surged over the past year, with drivers now paying an average of $1,084 every six months for coverage — an 18% increase from a year earlier (7). Yet paying more doesn't necessarily mean you're getting better protection. In fact, many loyal customers end up paying higher premiums simply because they've stayed with the same insurer for years.

Companies regularly adjust rates over time, even for drivers with spotless records and no recent claims. That's why shopping around before your policy renews can pay off. Comparing rates through services like Insurify can help you uncover cheaper options.

Here's how it works: Just answer a few basic questions, and Insurify will show you the most affordable deals in as little as three minutes . Those who shop around and compare car insurance rates from different providers on Insurify and choose the best available deal save $1,100 on annual premiums on average . Not only is the process 100% free, but you could also save up to 15% by bundling your car and home insurance .

The bottom line The Century Foundation's analysis found that the average monthly payment for auto loans in the U. S. hit $680 in 2025, which was a whopping 38% increase from 2018 (5).

The think tank also said there's an apparent correlation between auto debt and credit card debt: "Between early 2018 and late 2025, credit card balances for middle-income borrowers with auto debt surged by 31%, while those without auto loans saw a notably lower growth of 17%. " The report says this suggests that "auto debt cascades into broader financial pressure. " If you're on the fence about whether you can afford the new car you've been dreaming of, consider Ramsey's pearls of wisdom for Ava.

"Don't do it. Pay cash for whatever you buy and don't buy a new car unless you have a million-dollar net worth. "And all the things you own with wheels, and/or motors, and/or batteries added up in value together should not equal more than half your annual income.

And please go look at the five-year-old version of whatever it is you're thinking about, and watch how much they went down in value. Particularly items that are a new model of any kind, including Tesla. " Take a closer look at your budget If you've got your heart set on upgrading your ride, make sure you can comfortably afford it.

Reviewing your monthly spending is a good place to start. A realistic budget can help you determine whether the payments fit alongside your other financial priorities. You may discover opportunities to redirect money you're already spending.

Small adjustments to dining out, streaming subscriptions or other discretionary expenses can gradually build enough room in your budget to cover a car payment without adding financial stress. Provided you can exercise one of Ramsey's greatest financial virtues: patience. Apps like Monarch Money can help you build a personalized budget, track your spending and see exactly where your money is going.

Monarch Money puts all your finances under one roof, from your banking statements to your investments. Once you link your accounts — including investments and real estate — you will be able to view every transaction through one clean, searchable list . The platform can also help you forecast your spending beyond just one month .

Monarch Money also offers a seven-day free trial , so you can take a look around and see if it's right for you. Even better, you can get 50% off your subscription for the first year when you sign up using the code WISE50. Build better financial habits As exciting as buying your first new car can be, don't let it crowd out another important financial goal — investing for your future.

Building long-term wealth often comes down to developing consistent financial habits alongside your everyday spending decisions. Ramsey himself has long recommended investing roughly 15% of your income for retirement (8), typically through diversified mutual funds. While that target can feel out of reach for recent graduates or anyone just starting their career, the key is simply getting started.

Even small, regular contributions can grow into meaningful savings over time. For example, investing just $20 per week for 30 years could grow to more than $179,000, assuming a 10% annual return (9). Platforms like Acorns allow users to invest spare change from everyday purchases automatically.

It works like this: All you have to do is link your cards, and Acorns will round up each purchase to the nearest dollar, investing the difference — your spare change — into a diversified portfolio of ETFs managed by experts at leading investment firms like Vanguard and BlackRock. For instance, if you buy a coffee for $3. 25, Acorns will round up the purchase to $4 and invest the change in a smart investment portfolio.

So a $3. 25 purchase automatically becomes a 75-cent investment in your future. With Acorns, you can invest in an index ETF with as little as $5 — and, if you sign up today and set up a recurring investment, Acorns will add a $20 bonus to help you begin your investment journey.

— With files from Rebecca Payne You May Also Like Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake.   Here's what it is and 3 simple steps to fix it ASAP When he dies, Warren Buffett said 90% of his wife's inheritance will go into a single investment. Here's why (and how you can do it too) A single line on your car insurance policy could be inflating your premium by up to 30% — here's what to change I'm 49 years old and have nothing saved for retirement.

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The Ramsey Show Highlighths/ YouTube (1) ; Kelley Blue Book (2) , (3) ; Federal Reserve Bank of St. Louis (4) ; The Century Foundation (5) ; LendingTree ( 6 ); CNBC ( 7 ); Ramsey Solutions ( 8 ); Acorns ( 9 ) This article provides information only and should not be construed as advice. It is provided without warranty of any kind.