Dave Ramsey's Debt Snowball

I'm new here but I have no doubt you folks have discussed this at length in the past. I just read yet another article on the web patting itself on the back for figuring out that Dave's debt snowball doesn't make as much financial sense as paying off your highest interest debt first.


well duh ya brain surgeon!


I simply don't understand why people have so much trouble understanding this concept.

Now I am no Dave Ramsey acolyte, I don't agree with everything he says but I understand why he says it.

If you grasp the effect of credit card interest and comprehend the extra expense you are subject to with the higher rate cards, well then you don't really need Dave's help.

But there are people so lacking in discipline and oblivious to reality that it doesn't matter to them, that extra interest expense isn't "real" because it isn't today. Dave structures things on a behavioral basis rather than a financial one, go after the small balances first because it helps with a sense of motivation and accomplishment and increases your real time available cash. You get recognizable results relatively quickly which is what folks in this situation normally really need. The fact that they would have saved some on interest doing it the mathematically sound way doesn't really matter.

The other problem I see is a misunderstanding of his philosophy as a whole, detractors often cite the snowball as giving people poor practical skills in dealing with debt (mostly because of the disregard for interest rates) but again they miss the point, Dave isn't teaching people how to deal with their debt, he wants it gone, never to return again so recognizing a "good" credit card from a "bad" credit card is a moot point.

Anyway, just got bugged a bit and wanted to babble. Dave and I differ bigtime on many things (I'll never be without my one credit card and I'm still looking for that mythical guaranteed riskless 12% mutual fund he loves so much) but all in all I think he helps a lot of folks and makes a heck of a nice living doing it, you can't get much more win-win than that.

Now if we can just get him and Suze into a celebrity cage match...that would be cool! Someone has to be able to sell that to Fox.

[Ima saver]

You make a lot of sense, Rex!!

[jodi]

Agreed! The bottom line is people need to do what works for them. If his ideas help people get out of debt, then go for it. I have just started his book - more out of curiousity than anything - not too far into it yet and I think I have already internalized most of what he talks about, but it seems like a good book for someone who is just beginning to tackle their debt problems, even if just for the no-nonsense, no excuses approach to making people face reality.

[lrjohnson]

I'm with ya. Even if I did disagree (my advice to others, assuming my advice was asked, would vary with the individual), some people fail to grasp that he is going in from a psychological angle.

Money is not all about common sense. Spend less than you make: basic, right? But it's not, because money is more than paper, it means different things in different people's heads. Money is love, savefty, scary, evil, a saviour, peace.

So ueah, a good sound answer about money could actually not make the most cents. Teehee!

[jodi]

Maybe what makes sense about Dave is that he has actually been in the position he talks about, so he knows psychologically what motivates people (which may not always make the most sense financially). I wonder how many other "experts" have been as deep in debt and worked their way out of it.

[PrincessPerky]

Originally Posted by lrjohnson

a good sound answer about money could actually not make the most cents. Teehee!

Heh

[dealsaver]

Dave's Debt Snowball strategy deserves the criticism is gets. Why insult people's intelligence by pushing a strategy that makes the credit card companies money at the expense of the cardholder(oh yeah, I forgot. It's so they keep offering stupid 0% promotions that eventually lead others into paying high interest rate debt down the line while the few credit savy amongst us get to earn money with the credit card companies own money).

[jodi]

Hmmm...dealsaver, have you read the book? My curiousity got the better of me and I am in the process of reading it now. Dave Ramsey advocates no cc debt at all after the original debts are paid off. Sure, someone might pay more interest in the long run until they get to that point, but he certainly makes a stand for never going into debt again.
Just my $.02...I may chose to do some of what he says or not...my personal philosophy is to pick and chose what works for me, but other people like being told exactly how to achieve their goals...to each their own!

[jmjj215]

I wonder how many other "experts" have been as deep in debt and worked their way out of it

He actually declared bankruptcy and didn't work is way out of a lot of the debts. He was in way over his head.

I totally respect DR for the energy he puts into his work. He has change hundreds of thousands of people's lives. Let's not forget Dealsaver, that he has counseled one-on-one an absolute enormous amount of people, and talked to thousands more on the radio. No offense, but I think he has a very good idea of what works for people and what doesn't based on his experience helping people. Can you say the same? If the other strategy worked for them, I'm sure he'd push that one. And you know he has no hidden agenda to make the CC companies more money.

I don't agree with his points on abstaining from CCs, I think there are some advantages and they can be managed quite easily. I also don't believe in 12%, as the OP mentioned.

[cicy33]

I obviously need to read up on this guy but wanted to say one thing. I am a very intelligent person but that did not stop me from doing dumb things with credit. I am very aware of what I need to do to get out of debt but sometimes reading it and rereading it helps to reinforce the drive and motivation. Keeps me focused and reminds me that I must keep trying. I also don't agree with everything that is suggested here. as said above, each person does it in their own way. If snowballing works for Ann, and highest debt works for Joe, and starting a savings first works for Adam then good for them as long as we are keeping goal in focus, which of course is to get out of debt and stay that way!

[dealsaver]

Originally Posted by jmjj215

He actually declared bankruptcy and didn't work is way out of a lot of the debts. He was in way over his head.

I totally respect DR for the energy he puts into his work. He has change hundreds of thousands of people's lives. Let's not forget Dealsaver, that he has counseled one-on-one an absolute enormous amount of people, and talked to thousands more on the radio. No offense, but I think he has a very good idea of what works for people and what doesn't based on his experience helping people. Can you say the same? If the other strategy worked for them, I'm sure he'd push that one. And you know he has no hidden agenda to make the CC companies more money.

I don't agree with his points on abstaining from CCs, I think there are some advantages and they can be managed quite easily. I also don't believe in 12%, as the OP mentioned.

It would be very interesting to see a detailed analysis of how Dave has changed people's lives financially. Following his advice, many people would have foregone buying a house over the last number of years. For many people that's their greatest source of wealth. I think there's probably a good argument to be made that he's actually changed many people's lives for the worse. As far as knowing what works for people and what doesn't, I think he knows what works for him. He's good at playing the guru role and like most gurus, he gets paid for being believable. That doesn't mean that all his advice is worth following, particularly this Snowball nonsense(which if followed does make credit card companies more money than the more sensible alternative - paying off higher rate debt first). I'll never make as much money in my life as Dave because I'm just not as good as him at taking lies and making them seem like the truth. I'll settle for doing a heck of a lot better than those who are the target audience for his advice, though.

so if a person was focusing on their $7000 card with the 19% interest and ignored (but the minimum) a $100, $350, and a $1100 balance card because they had lower interest rates, got tired of "doing without" and not feeling like they were getting anywhere and quit, that would be ok? remember, practically nobody who would take the time to participate in an environment such as these forums would need the help of a generalizing "guru" such as he.

what has he done to discourage people from buying a house in the last few years that isn't mantra to him and wouldn't cause him to discourage the same person from buying a house anytime?

I'm just interested in the discussion, you seem to have just a tinge of vitriol in your post towards the man and I'm curious why that is. specifically.

it's not a challenge to your position, just a genuine curiosity.

[dealsaver]

His advice that your house payment should be 25% of your take home pay combined with his advice to take a 15 year fixed rate mortgage would have made it virtually impossible for a vast multitude of people to ever afford a house.

As far as my attitude towards Dave, a lot of his advice is worth as much as snake oil. I've never liked snake oil salesmen.

I wholeheartedly agree on the payment amount limitation. It's certainly unrealistic for me.

I think I misunderstood you, and I'm sorry for that. As far as I know, that is/has been "Dave's rule." I thought you meant he had changed to a position in recent years that you felt was (if followed) inhibiting people from buying a home whereas he might have held a different view previously.

I think I'm with ya now.

we'll just have to agree to disagree on the snowball thing, I've helped several non financially inclined folks clean up their mess and his method has produced more reliable results in each case (but the tough part always comes with the behavior afterwards, it's hard to watch some of them slowly slide back down again).

it really is amazing how alien a concept not buying things you can't afford is to so many people. heck, it was a foreign language to me not all that long ago which really adds to that "voice in the wilderness" feeling.

[jodi]

But perhaps if more people waited until they were a little more financially able to take on a house payment, we would not have the foreclosure rate we do now Not to mention, that once you get well enough into the plan, you have no other debt (thanks to Step 2), so a fifteen year mortgage with no other debt should be a piece of cake. That is, if you live within your means and do not insist on a house that does not match your income.

Not to say that Dave's way is right or wrong, but the answer probably lies somewhere in the middle. I still think some good can be taken from the book, even if one does not follow all the principles.

[Tree0164]

Jodi I agree! I remember when I was younger in my teens hearing you should really have 20% downpayment before you even consider buying a house. Now you can have a zero downpayment, ballon loans. I have friends who are buying $300-$500k house (average price for a house in Boston these days) with less than 10% down. Mortgage payments are through the roof. While saying 25% and doing a 15 yr mortgage isn't feasible for most folks having 1/2 of your take-home salary isn't smart. And now there is 40 yr and I saw a 50 yr mortgage being advertised somewhere.

Dave Ramsey is not the end all to personal finance, but he is the fatherest thing away from being snake oil salesman.

[Ima saver]

When I was young and first married, I saved every dime I could for the down payment on my first home. I had holes in my shoes, but I had a new house when I was 21. Best financial decision I ever made. Ok, the house was only $13,000 but I only made $1 an hour. Then I kept trading up and making extra principal payments til I got it paid off.

[homeCooking]

Maybe if people wasn't willing to buy a house with less that 20% down and pay more than 32% of their salary in mortage , Sellers would have to lower their prices to the point that people could afford them and we wouldn't be where we are today in this crazy market....

[Snoopy2645]

I dont really know dave ramsey I have heard alot about him but not really listened to him ever.

But as for buying home I thought I would chime in & say I also saved up for my house & bought it with more than 20% down & using about 25% of my income for my house payment & I also seen alot of friends buy homes with no money down & get way over thier heads & guess whos got foreclosed on not mine!!! Also remember with less than the 20% down thier is also PMI & remember thier is taxes & insurance something I really didnt realize when I bought my first house at 19 but I made it ok why I believe is because I wasnt in too deep to start.

[baselle]

Originally Posted by dealsaver

His advice that your house payment should be 25% of your take home pay combined with his advice to take a 15 year fixed rate mortgage would have made it virtually impossible for a vast multitude of people to ever afford a house.

As far as my attitude towards Dave, a lot of his advice is worth as much as snake oil. I've never liked snake oil salesmen.

No matter how you slice it, it is still virtually impossible for the vast multitude of people (at least on the overpriced coasts) to *responsibly* afford to buy a house. A fancy ARM, I/O or neg am loan simply means that you are renting from the bank with an option to buy. You aren't earning equity. At best, with appreciation, which IMO is a phantom (buyers set prices, not sellers), you're looking for a greater fool who will buy your house at a premium and assume your debt.

The bone I have to pick with Dave Ramsey's advice is having to sort through the overlay of fundamentalist Christianity to get to some basic financial advice. Spend less than you earn, leave Jesus out of it.