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Nearly two years ago I wrote an article that refuses to die. It was called “Dave Ramsey is Bad at Math,” and it took a critical look at various debt repayment strategies. Truth be told, I actually intended that article to be a critique of an undeniably dumb debt repayment scheme that was outlined in “The Automatic Millionaire” by David Bach, but I just couldn’t resist the provocative title. To date, that post has garnered hundreds of comments.
While I still stand by my mathematical results, which show that Ramsey’s Debt Snowball approach to debt reduction is not the most efficient way to pay off your debts, there are undeniable pshychological benefits to to Ramsey’s approach. In fact, I explicitly recognized these psychological benefits in my original article, but I admittedly still came down on the side of the math. But as many people were quick to point out:
“It’s not about the math! If people were good at math, they wouldn’t be in debt in the first place.”
It’s also worth noting that the Debt Snowball is just a small part of an overall debt reduction strategy, which Ramsey has formalized in his ‘Baby Steps.’ So even if you don’t agree with the Debt Snowball per se, there’s still a lot of wisdom in the system.
Anyway, back to the matter at hand… Perhaps the biggest thing that I’ve learned in the time since I first published the ‘Bad at Math’ article is that people are really passionate when it comes to Dave Ramsey. A lot left some really insightful comments, and I really can’t say it better than them. Thus, I’ve trolled through the comments section and plucked out of snippets in support of the psychological benefits Ramsey’s strategy.
Here we go:
“Yes, you save money by paying off the highest interest rate debt first, but youâ€™re missing the psychological reward of not having to cut a check for those trivial debts month after month.”
“…it doesnâ€™t matter witch method you use ‘highest interest rate,’ ‘lowest amount,’ or ‘hang your bills on the wall and throw a dart at them.’ It is that you do something and get control of your money. Personally Daveâ€™s ‘debt snowball’ will be a huge motivator, but is all about changing behavior.
I find Dave Ramsey to be a good motivational speaker. I have been listening to him everyday just to keep me on track. Listening to people who have paid of their debt, and are in some cases worse off than I am, is very motivational. Iâ€™m in it for the emotional aspect of it.
“You are using your head way too much. Personal finance is 80% behavior and 20% head knowledge. Yes, it would save a little bit of money to pay off the high interest rates first, but itâ€™s about a whole lot more than that. If you go on a diet and the first week you lose a few pounds, you think, great I can do this, this works. Itâ€™s the same thing, you eliminate a payment and you start to see that you can do this stuff.”
“It is emotion that got you into the mess, and it is emotion, not math, that will get you out. I am not saying to totally ignore math, but you have to get quick wins to stay motivated… I can tell you from experience though, Ramseyâ€™s method works and my life has never been better financially because of his common sense approach to personal finance.”
“Ramseyâ€™s approach certainly doesnâ€™t make the best financial sense. But as a CFP who has worked with individual clients for over 10 years, I know that lack of self-dicipline is the greatest factor in financial failure.”
People are not computers. People need positive reinforcement and the emotional boost given by getting bills paid off and starting with the smallest ones does just that. I can tell you from experience that I have tried and failed with other methods of getting out of debt but I am sticking to the debt snowball.
The reason Dave does not do the math, and instead says attack the smallest first is simple. He states that he wants you to have â€œsuccessâ€ as soon as possible. That way you will continue and not quit. He mentions you could do the math, but by knocking off the smaller ones first you will have the perceived effect of results, sooner. Like the old saw: What we percieveâ€¦ we can achieve.
I think what Dave is doing with the ‘snowball’ is giving people motivation and hope. Beacuse paying the lowest balance debt first give you the feeling that you are making difference…
So there you have it. And if you’re still not convinced, then consider the words of NCN from NoCreditNeeded, who dug himself (and his family) out of more than $11k in debt by following Ramsey’s principles:
“The reason that Dave’s plan works is that it provides visible evidence of progress. There is a huge psychlogical lift that occurs when you see an entire debt paid. As someone who paid off over 11K in less than a year, I can promise you that Dave’s plan really does work.”
(NCN communicated this directly to me, so it’s not in the earlier comments.)
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