photo credit: SqueakyMarmot
I‘ve heard a lot of discussion about Dave Ramsey’s Debt Snowball recently, and why his method is mathematically inferior to other methods of reducing debt. Ramsey says he realizes that sometimes his way isn’t the best mathematical way to get out of debt, but that it still IS, in his opinion, the best way to get out of debt.
Below is a quick audio explanation from his radio show about why the Debt Snowball works.
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Here’s a quote from Ramsey also explaining it:
Personal finance is 80 percent behavior and 20 percent head knowledge. The Debt Snowball is designed the way it is because we are more concerned about modifying behavior than correct mathematics…Being a certified nerd, I always used to start with making the math work. I have learned the math does need to work, but sometimes motivation is more important than math. This is one of those times.
I know this doesn’t do anything to end the debate, but it does help to explain Ramsey’s thinking behind the debt snowball. And you have to admit, his methods HAVE worked for a lot of people.
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Last Edited: 15th August 2012
{ 6 comments… read them below or add one }
Thanks for the clip Pete!
From everything I have seen I would choose the Dave Ramsey follower if you pitted two people with the exact same debt and income to get out of debt quicker than any other method. Obviously my opinion, but the snowball’s simplicity and focus on behavior change is great.
I know some people can’t connect with it and that’s fine, but that is why they call it personal finance not a one size fits all financial planning.
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Like Dave says, that’s why they call it finance. I’ve tried to get out of debt a variety of ways, but the snowball works best for our family because the motivation gained from slicing up a few paid off credit cards early in the process fuels us to keep going.
Ramsey’s plan is what is better psychologically. It gets you a victory over a debt quicker. Remember that his target audience included many, many people that are in financial trouble – they aren’t going to get better rates from the credit card companies, they aren’t smart with money (or they wouldn’t be in trouble) and they need to get the lift that a payoff provides. And Dave admits this on his show.
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I found that with snowballing I have a plan – and it’s easy to stick to. Each month I have been adding extra money that I come into (ebay sales, or freelance design work – income I cannot count on) into the payments also, so I’m a bit ahead of my plan.
It it weren’t for this plan, I’d still feel like a surfer continually being caught in the undertow. I’m happier and the debt is decreasing!
We are BIG Dave Ramsey fans! We no longer pull out the credit cards when purchasing. I use cash for everything or a debit card when necessary. We so keep one credit card on hand if needed – but we have not used it in months! Instead we use those cash envelopes suggested by Dave Ramsey. The “crunchycute” website has a lot to choose from. Get started – it will make a difference!
I made a spreadsheet outlining my plan to pay off all my debt using the snowball method. Based on the amount of debt I have ($253,455), which includes 2 cars and a mortgage, I will be completely debt free by November 2020. This will cut about 14 years off the mortgage.(Yea!!)….After reading comments refering to paying the highest interest first instead of the lowest balance, I made another spreadsheet using the “highest interest rate” method.
The results were as follows; I became debt free in October of 2020 (1 month early and saved about $1700 dollars in interest. The only down side is instead of paying off three accounts by 5/2011, I don’t pay anything off until 6/2012. I can see why Dave likes the snowball method. A year and a half is a long time to wait for results.