@@billyjohnson9166 Yep I don't really agree completely with Dave on this. I think it's more of personal preference. If a person knows they are disciplined enough to do the avalanche method, why not? It's win-win for them, paying less interest over time and still getting out of debt in the end. Everyone is different so it should tailor to their own preference/personality.
This is so true. After I paid off two of my small debts, I got fired up to use most of my income to pay toward getting rid of all my debt. I even sold my couch, true story. Everything must go.
And it's more than that. When you get rid the small debts, they're gone for good. You can take that money that would have been used for those debts and apply them to the larger debt. If you lose your job or have something life altering happen to you, those smaller debts won't haunt you. That burden is over for good.
It does work if you are disciplined. Running the numbers proves it. Same as eating less works on a diet. It is just that most peoples discipline sucks.
A few days ago I finally paid off my once maxed out credit cards. I did just as Dave advises the lady here. Paid off the smaller credit first and then doubled my payments for the larger one. In total 8 1/2 thousand euros paid off. Once the smaller one was paid off I felt so good. Now I feel AWESOME!!!
One thing that mathematically helps too, is that all the smaller balances once paid off rolls over to add to your snowball. So those cards with hard payments become easier as you pay off the small ones super quick. That's what we saw with me and my wife's debt. This plan works, she needs to do it and trust someone who sees clearer than her.
I'm glad Dave clarifies this advice is about psychology and not about math because I was about to stop listening to him if he was going to argue it mathematically.
Paid off my credit cards and yesterday paid off my van early! Feeling good. Trying to pay off my $6k student loan before I graduate in 2 yrs. I have 3 kiddos, go to school full time and work.
The issue with debt avalanche (high interest first) is that the people who have large amounts of high interest loans need immediate gratification. They’re in that debt mess because of that need for instant gratification where they see something they want then they buy it using debt rather than saving for it. So you have to design payment plans that offer the fastest gratification which is debt snowball
@@ThePeterDislikeShow same thing, I imagine. A debt snowball allows you to get rid of more debts so you can focus on the few big ones. It seems to be better behaviourally, and as the original comment mentioned, people who have big high interest debts have behavioural issues. If you have reformed somewhat, then I don't think it changes things that much, a debt snowball is easier than the avalanche so is more feasible for people with large amounts of debt.
Amen. Paying high interest debts makes sense mathematically but getting in the debt in the first place was an emotional non math based decision. The baby steps are designed to work for the masses.
Dave’s right.. been paying the smallest debt first and I have paid off 3 cc’s already and have 1 left. Knocking off the other 3 one by one felt so great each time.
A side point: If you have debt with a ridiculously high interest rate, move that debt to a lower interest rate debt. For example, if you have 10,000 in credit card debt at 20%, look into a local bank or credit union for a personal loan. See if you can get something at 6 or 7% with a fixed repayment plan (not revolving credit). Pay off the credit card and close the account. *DO NOT OPEN A NEW CREDIT CARD WITH AN INTRODUCTORY RATE!*
I paid off my highest interest loans first. It was like ripping off a band aid right away. And to be honest it motivated me more after I got done with the most expensive loan. Got me thinking, “Wow, they will all be easier from here on out!” I would of been so depressed and not as motivated if I went with the snowball method. It worked for me. Paid off my student loans in four and a half years.
When we tackled my husband's debt, we also did it based on interest rate and it worked great. But I am not someone who has ever liked debt, so it worked well for us.
Mathematically it makes sense. Psychologically Dave’s method makes sense. If this person was able to do what made mathematical sense she wouldn’t even be making this call. The call speaks for itself
The every dollar app was a gain changer for me and we have been plowing through our debt. Just keeping the budget has given us a pay raise! Assign every dollar!
I think there is another good reason to pay off smaller debts first. Each debt paid off reduces your fixed expenses. The lower your fixed expenses the less risk you will default in the event of economic hardship
What you should do is calculate real interest (which includes also the fixed espenses) of each debt and then pay them with highest real interest. That is, if you are disciplined and want to get debt free as soon as possible.
I paid off the smaller amount first, once paid, applied the amount used to pay down on the next debt. For me, eliminating multiple smaller debts was the easiest way to eliminate all my debts. I set up in a spreadsheet to track.
I get what he means: for someone who isn't motivated by numbers but by the "victories" of eliminating one loan at a time, the baby steps he offers will be more effective. Some people just aren't motivated by the idea of knowing they will be paying less money in interest by taking on the highest interest debt first, since they won't see a difference until much later when they get to the smaller interest loans. But if someone has the discipline and understanding to take on the highest interest debt first, the avalanche method would be the ideal. I think Dave is always under the assumption that people don't think that way, hence why he developed the baby steps. If you have the discipline, by all means you can ignore Dave's advice. I'm sure he much rather everyone do the avalanche method if everyone had the discipline. But a lot of people (specifically the ones who get themselves into debt due to spending money on things they don't need) don't have that discipline.
Which is a crock of horse manure. Even people who "can do math" easily become Cleopatra. (Maybe that's an Americanism which you don't understand. She was the Queen of Denial.)
@@RonJohn63 Thank you captain obvious. Dave Ramsey wasn't talking about getting through high school math class, he's talking about the idiocy of carrying credit card debt - anyone who stops to do the math on that will know it's just somewhere to never go. But who does that?
@@RonJohn63 It's very truly a thing. But I'm not convinced we're at a place in society where people universally understand just how terrible credit cards are. There may be a vague idea that they're not ideal, but if someone genuinely understands that, and then gets deeply, deeply in debt anyway, they're probably going to need more than a budgeting plan to get their life back in order.
I wish i learnt most of these principles about seven years ago. A lot of people have been trapped strongly in the matrix-- Go to school, get a job, and then slave your whole life. Many miss out on life-changing information that could have great effect on their finances. I played with the stock market sometime in 2020, and I was surprised at how well it turned out. I want to put in $90k more into the market. I heard people are making really great returns despite the downturn. Any recommendations?
Stocks are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are a lot of wealth transfer in this downtime if you know where to look.
@@devereauxjnr My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. Haha.
@@MakeamericaGreatagain-h7j Have you heard of "NICOLE DESIREE SIMON? She gets featured regularly on CNBC. Everyone in my office works with her including myself. I personally use tax-deferred accounts to hold my investments. That way I avoid capital gains taxes. There are other options your advisor could brief you about.
@@Tsunaniis-j5l Thank you. I just checked her out now on the web and I've sent an email. I hope she gets back to me soon. I've been thinking of doing this for a long time now, and I've procrastinated enough already.
What Dave is saying makes sense. You have to be motivated! My husband and I are paying off our high interest debts first, but we don't have a motivation or discipline issue. We took a lot of time planning how we would pay for these loans before we even took them out and We have a detailed plan that we stick to every month. Our motivation comes from the desire to be free to change our career choices regardless of the pay cuts we'd have to take to get started. Going to jobs we don't love everyday is a constant motivation for us. Not to mention the devastating effects debt has had on our family members. We will be debt free next March! We're also cash flowing my clinical psychology degree! Very excited to have a debt free college degree!
Wow....Wonderful......now don't forget how this freedom feels! Keep it on your minds always.....you have been blessed and you want to stay that way! Always remember how debt suppressed you and caused you anguish and misery! You never want to go there again....but after a time...it's so easy to forget that pain! DEBT is a DESTROYER of people and family! Keep it out of your life! God Bless!
I understand the concept but personally, I’ve been paying my largest highest interest debt first because I feel like once that one is paid off the smaller one will feel like a breeze
The only issue is most people will not be able to. Also at times people pay the highest and then think others are a breeze and then get into more loans thinking i have paid bigger loans so this one will be easy and thats how they mess up
I know myself paying higher interest debts works better for me, I get way more discouraged paying off a lower balance and seeing I still have a huge balance to pay off. I don't get more motivated and I know this from personal experience. Do whatever what works best for you especially if you have personal experience with this.
I paid my highest interest on student loans first and got them paid off way ahead of schedule. Worked for me because not everyone is in debt because of bad spending habits
Dave promotes financial psychology that will work on the majority of people. Paying the smallest balances off first, regardless of interest rates, works for most people because it gives the fastest psychological rewards.
Its like Dave's advice to pay off your mortgage. It's more a mental thing than the thing that makes the most financial sense. Most people lack the discipline to do the thing that makes the most financial sense (which is why they are calling Dave).
yup, if they had the discipline to pay off high-interest stuff first successfully they wouldn't even be in this situation in the first place, most likely
Also, by paying off the smaller debts first, you are eliminating monthly payments. Mathematically, you can save money this way - the extra money you'll have after eliminating a payment will help you cover the minimums on your bigger debts, thereby avoiding penalties & late fees.
I occasionally have credit card debt, but pay 0% as it is set up to auto pay. You can't rent a car when traveling with cash. It won't happen. Same securing a hotel without a card. The cashback is a bonus. The auto-pay is to pay it off completely every month. This ensures the amount charged is very carefully examined as you know it will come out of your account. A credit card for online shopping is better than a debit card as fraud and charge-backs are much better than trying to get a debit card refunded.
@@jimroscovius That wasn't the case in 1980. Now most debit cards can be run as credit, but that has not always been the case. For online purchases, in general there is better buyer protection against fraud. You can dispute a bad charge instead of having overdraft fees while trying to get a refund on an empty account.
@@isettech Debit cards have all of the same protections as credit cards. And, you shouldn't spend what you don't have. Why would there be overdraft fees? Because you spent what you didn't have.
The beauty of attacking the smaller debts is freeing up cash flow. It can have a larger impact than paying on the higher interest debt by increasing the size of your "shovel". It helps loosen that grip the debt has on you by a little bit.
This doesn't apply to everyone. Many of us have taken on debt as a means of investing in our future (college, real estate, starting a business), not simply consuming. For myself, paying the entire debt off quickest is what motivates me. It would actually depress me to know that I'm choosing to delay the finish line and in turn accruing more debt via interest by paying off smallest first.
I'm completely debt fee (including mortgage), and followed the snowball. I'd do it exactly the same way today as I did then, smallest debt to largest debt.
I get it - "pay high interest first" is actually the rational (mathematically correct) answer but "pay smallest balance first" is the best answer (yields greater chance of overall success in debt elimination) for the psychology of the type of person who gets into this problem in the first place (kind way to say, the irrational spender).
When you pit emotion and logic against each other emotion will win just about every time. People get in to most consumer debt because of emotional, not logical decisions. If it was all simply logical math most people wouldn't be getting in to debt in the first place. Feeding the emotional side of success by paying off the smallest debt amount first gives shots of dopamine by the brain giving a sense of pleasure and accomplishment and helps fuel the process further.
Crown Financial Ministries say high interest. That was the way I went. Dave is right that it is a mindset. When I decided to pay off my debt, it worked out. Debt free now for 4 years.
I have my emergency money. Now I just paid off two CC cards this week. Wonderful feeling. They were lower interests CC cards. I now put the monthly payment of those two cards towards the next CC card I want to pay off. What I plan on doing is calling other CC creditors to get the interest payments down.Can't hurt to try; all they can do is say no. Great feeling to pay off those cards.
Smallest debt first then to largest. It’s a mental problem. Not a interest problem. By doing this it helps you get motivated and encourages you to keep going further in the end result. Some people use the highest interest rate first however without motivation and discipline you may fail or go backwards into a spiral effect. Determination is the key to success and I say do whatever makes your headset happy but I always go smallest to largest debt. Hoping to be debt free this year.
My wife and I paid off her 100k of student debt by paying off the highest interest rate first. Watching the balance drop is enough motivation to keep get going. I understand the logic but I would never do this trick knowing it was costing so much interest.
The reverse can hold true as well. You can pay off the cc with the highest interest first, and get fired up to pay the rest. That can have the snowball effect, too. Just my two cents about it… 🤷♀️
Andres Cruz “the only time that wont be the case is if you have several debts of the same type”: That’s where you’re wrong, typically credit cards that are looser with who they accept (like when you’re first starting out using credit cards) will be higher interest while simultaneously have lower limits due to what your credit was like when you joined etc....but once you’ve built your credit history and score, you’ll get access to more difficult acceptance (and more “perks”) cards that have a lower interest rate and higher limits, due to you being a lower risk user. That’s the case with me...only have credit card debt I’m paying off currently ...have 3 cards and the one with the highest interest yet lowest balance (because of the lowest limit) was the first one I got...but my “big shark” was the latest one I got and has a lot more of a balance but lower of an interest because I had built a decent credit score and history prior to applying for it.
I did not follow Dave's snowball method. I made my own order. I saw the math and JUST DID IT. No hesitation. I was done being broke. If you need to ask this question then, in my opinion, are not motivated enough to spend months or years to complete the avalanche method. I'm debt free because of my behaviors not math.
@Ezequiel Sequeira I totally agree with you I discovered Dave about four yrs ago his philosophy on finances and his system to do it has completely transformed my view on money for the better. I don't agree with a few things but I like how uniform his system is for anyone to get out of debt
paying smallest debt first is all mental stuff... to boost you up (encourage you) to keep going ...but mathematically it don't work ...highest interest first is a MUST , but there is something that can be done if you want to go the smallest debt first route ...transfer your highest rate CC debt to a 0% introductory rate CC that way you won't pay interest for a whole year or more , that gives you time to pay off the smallest debt. I have 4 CC's and I transfer the balance back and forth from one to the other as soon as the introductory rate is about to expire and that way I avoid the interest (even tho I still have to pay 3% transfer fee in most of the cases but it's still alot less than eating up the interest for a whole year) .
@@Farsadelcatolicismo It's a bit incorrect to say "mathematically it doesn't work" - basically exactly as he said, mathematically you pay off _quicker_ *at the same amount* towards debt paying smallest to largest, but nobody does that unless they have tremendous self control, which nobody who has high credit card debts does. Also it's emotionally draining. If you're psychologically unusual, and can stick to a paper plan like it's a law, then pay interest rates first. If not, there's a good chance you're fooling yourself into thinking you're saving money, when it just gets spent somewhere else.
I'd say smallest debt first is a good principle, but with one exception. Payday loans, because they can have absolutely ridiculous interest rates. If you have a payday loan at 400% and a car loan at 5% you'd better get that payday loan paid first no matter what the relative sizes are, because it's gonna double real fast if you don't get rid of it.
There is no way a credit card balance of 15,000 at 16% is a $2000 payment per month. More like $200 (16%/12) x $15,000 = $200. She must have a ton of late charges or something...
Or she could have a payment plan within the credit card. Certain credit cards offer options to pay big debts on a low to no interest if you pay them in 6 to 12 months.
I mean paying high interest debts first saves money. That fact isn't even debatable lol. As long as the person has the will power not paying off higher interest debts first makes zero sense
It does save money. That is the math. Again, if we were doing math, we would not be in credit card debt. If you are in debt with the IRS and a credit card company, you owe the IRS 10k at 15% and the credit card company 35k at 29% which one would you pay off first?
This is very true. If you really do deal with the core issue, make a budget that worked and changed to paying off highest interest first, you would still be ok. But the thrill of paying off smaller debts first, and using those dollars towards the debt, you feel better.
I have never agreed with Dave on this concept. My debt was student loans, not credit card. I did the math and it became clear the amount of money I would save by paying the high interest loans off first. To each his/her own...
Avalanche makes the most mathematical sense and is fine when describing two debts that are of "similar" size. For instance, if you have 2 debts. One is 10k at 5%, one is 11k at 10%, those are close enough together that it just makes sense to attack the 11k first, even though technically it is bigger. It's like 1 month's work bigger - not worth paying all that extra interest and larger payment if you could have attacked it first. Snowball makes the most sense when you have debts of varying sizes. For instance, instead of 10k and 11k in above, it's 1k and 11k. Just clearing that little 1k will help with the cashflow, and it's not like paying off the 1k will significantly increase the amount of time it takes to pay off 11k (again, maybe a month or so for many people's budgets).
So um, I make 10k a year and owe 25 trillion on lesbian poetry. Do you think I should finance a 20 year old car with 300k miles for 3x what it books for? (And Dave just popped the top of a bottle of tequila)
This is the exact same reason why I am able to save a lot of money after getting my tax return. I see the money in my bank account and then it inspires me to save MORE and MORE and MORE and MORE. It fires me up and I don’t go out to eat anymore and I also don’t spend as much and I stick to my budgets!! I feel like I already knew this was a mental thing , I just had to HEAR it from Dave lol
That's not rare ...I have 6 the highest is 18k , another one is 12k ....it's a nationwide problem , if you don't have any debt like that congrats and don't do it like ever but a lot of us do. Lucky for me my house is paid off and my wife is an executive that makes 100k a year otherwise I'd be choking a lot worse
@@Farsadelcatolicismo I have never taken out a credit card. My parents warned me years ago that they are traps. Way to easy to go into debt because you just swipe instead of signing papers each time. I do have other debts, but they are all stable, like a mortgage. To open another and another sounds like an addiction to me.
Dilly Dally credit cards can be great if you have the discipline to pay it off in full each month. I also use my statement as a way to track my monthly spending. It’s nuts to me how people have so many cards. I only have two: one visa and one MasterCard just in case if a place I purchase from doesn’t take mastercard.
But it’s not really an accurate analogy. You still see your overall balance come down as you’re paying off your high interest debt. And actually, you’re losing more weight because you’re saving money on interest.
I only have car and student loan debt! I’ve been tackling my highest balance/ interest rate car note first then I’ll tackle my student loan debt. Paying my car note off first is what’s working best for me. My interest rate is 13 percent on my car & my notes are $700, so I’d rather pay that off first than my $120 student loan payment with 4.6 percent interest rate.
The recurring wins help keep you going. When you aren't paying the highest interest rate just because you want to stick with a program (for any number of reasons) adds incentive. It should make you angry that you can't pay the high interest debt. That is an incentive to be more intense paying your smaller debts so you can get to that high interest one sooner. Completing the BS2 and being intense while doing it are both important. Avalanche method doesn't provide the same incentive.
I'm doing a combination of snowball and avalanche right now. Starting with low balance to highest on my private loans from Sallie Mae, then working my way from lowest to highest on those with almost no interest rate
There needs to be a psychological driver to paying off high-interest debts. We all instinctively know that the high-interest should be payed off first, but it needs to be made real. Figure out how much interest per month for the debt. Every time you pay something down, do the ratio and put that much cash in a jar. That's the monthly raise you just gave yourself. Rinse and repeat.
Something I never hear Dave mention...shop around for new credit cards that will give you zero interest for a certain amount of time. Transfer that balance and keep on the Baby Steps
Bingo ...that's what I do : paying smallest debt first is all mental stuff... to boost you up (encourage you) to keep going ...but mathematically it don't work ...highest interest first is a MUST , but there is something that can be done if you want to go the smallest debt first route ...transfer your highest rate CC debt to a 0% introductory rate CC that way you won't pay interest for a whole year or more , that gives you time to pay off the smallest debt. I have 4 CC's and I transfer the balance back and forth from one to the other as soon as the introductory rate is about to expire and that way I avoid the interest (even tho I still have to pay 3% transfer fee in most of the cases but it's still alot less than eating up the interest for a whole year) .
@@Farsadelcatolicismo "and I transfer the balance back and forth from one to the other as soon as the introductory rate is about to expire". Are you also paying down the total CC debt every month? (Snowball or Avalanche, the purpose is to *eliminate* CC debt, not just shuffle it around.)
@@RonJohn63 the shuffling around is to avoid interest while paying off our debt one account at a time, we have 8 accounts that I can think off from the top of my head...Paying off high interest first is the best mathematically but it don't seem like you are making any progress (one of our CC debts is 18k , another one is 13k ) what I decided to do was to shuffle high interest debt around while paying off small balance accounts first, the mental boost you get from eliminating an account for good is priceless .....if you can handle paying off high interest debt first while not seeing a lot of progress go for it it don't work for me , I like to see as many accounts I can gone forever ...Peace and God bless
Either way you gotta live on a written budget and only buy things you really really NEED. Most people don't understand the difference between a want and a need.
The debt I have is both. My smallest debt has a high interest rate, same with the others. So will be doing both the debt snow ball and the debt avalanche
I agree with the whole, "This is not a math problem, this is a behavioral problem..." But, If the poor behavior to go into debt has been recognized and adjusted, then the mathematics should now be considered, would it not? It is no longer behavioral but math after the mistakes have been realized and adjusted.
This is the biggest reason to not consolidate student loans. I used to have twelve student loans in varying interest rates ranging from $500 to $8000 and 3% to 7%. When I consolidated it turned into a $62k 4.9% loan. Mathematically it is an equivalent debt. It's easier to manage because it's with a single loan servicer instead of with 4 different ones. But, you don't get the satisfaction of going from 12 loans to 11, to 10, to 9, to 8, to 7... it's just a monster loan that you have to whittle away at for years.
Disagree! When I look at the highest interest rate it tells me how much money its costing me. That gives me a " I got an attitude & gonna attack this debt with an all out aggression " Just kill the interest and punch it in the face
I am snowballing lately, as my large student loans are composed of 10-ish smaller loans that I accumulated over the course of my 6.5 years of higher ed! I did realize it is kind of “fun” to attack them all individually but to focus on reducing the lowest one so it gets closer to zero. I just know I’m going to take a credit hit when I totally pay one off, so I suppose that’s my one hesitation against paying any of the loans off for now, rather than just lower it closer to zero. But anyway, it does become kind of an encouraging game to just reduce all the debt and see them as several tiny debt monsters rather than one huge monster!
I noticed the same principle as what is talked about here to be true in my own personal life when managing multiple cards some for Personal some for business You get motivated once you see one of the cards paid off completely and put away to not be used and it makes you work that much harder to get the next one down
get yourself an excel sheet and reward yourself by how much you save on interest. By all means do an approximation (if credit card debt is 15 % and another cost you 10 or 5 %). IF you need a motivation.
Mine was a student loan , never had a spending issue. So I got the interest based method done successfully. BUT... he’s right...of course, if for someone else it’s a behavior and spending problem...well he says it here clear and simple.
@@ShadeMiller I am no different now with $0 debt than I was when $56K in non-mortgage debt. The difference is that now -- and for the past seven years -- I have been motivated to *use* that fiscal discipline.
Most people are not willing to push immediate gratification which is why paying High Interest Debt first don’t work for most people because they don’t see the the immediate result of the debt going down. Even when mathematically it make sense because you are getting rid of the debt that accrue the most interest on an emotional level most people can’t handle it Dave is a genius he came up with an idea that gives that immediate gratification to people drawing in debt which is getting rid of all the smallest debts
I see people misinterpreting Dave in the comments, Of course it is better to pay off high interest loans off first, but suppose you have a bad habbit of credit spending, you have to deal with that before you can get out of all debt. Your priority in this situation is to stop that bad habbit, then you can concentrate on the rest.
Dave's explanation is pretty condescending to be honest. He's basically saying that paying off high interest first works better, but because you're too dumb to follow the optimal method, you should use the watered down version where you end up paying more money. I did the avalanche method to get out of $40k of student loans in 18 months. You know what motivated me to keep going? Knowing that at the end, I'll have paid $5,000 less in interest and be out of debt 3 months faster vs the snowball
Okay but did you have one sent and the student loan or did you have multiple cards, a car note, and a personal loan? In most cases, just throwing all your money on the student loan and keeping 5 other accounts open, going no where, and accruing interest is very overwhelming and most people don’t win like that. You have just a credit card? Of course you can do it your way.
We believe in attacking highest interest first BUT only with student loans. We don’t carry balances on CC each purchase we make on a CC we immediately log in and pay the exact amount off we don’t wait until the end of the month but we do use it for travel points. We are good with money so it’s not an issue of discipline. You get an immediate ROI when you tackle the highest interest first but only if you will avalanche vs snowball. But Dave’s logic is sound.
Me and my husband paid off $6000 for 3months! We were so happy and to reward ourselves we decide to eat out in a restaurant to celebrate. But we didn’t get over board. Never get so excited to eat out in a restaurant🥰 I feel like every bite is so joyful! Hahahaha I know it may sound silly. But those little steps and little joy is very fulfilling! At first, I was so scared to compute all our debt bills and expenses all together. I was in denial and just reassure myself everything will be fine. But in the back of my head “sweetie it’s not going to be fine! You got to do it!” My husband and I sat down together and talked about our finances! The numbers were overwhelming for us as we dont get paid a lot. But we got to face our monster to be able to take it down! So we are doing it! Little steps are still steps! We got $12,500 left with our debt! Our target month to clear all our previous bad financial decisions will be this December. This is such a big lesson for the both of us. The greatest gift we can give to ourselves and to our marriage and future family is having financial freedom.
It does work if your disciplined. Same thing with credit cards, you can benefit from them if you are disciplined. The problem is, most who call into this show are not.
I sorta chuckle when people say "No other debt, my house is paid for". My very modest (paid-for) house still costs me $300 a month in taxes and insurance. For some people it's higher or lower, but that's still a debt you gotta pay every month!
I think the avalanche method worked for me because the income/debt ratio made it easier to see the end of the tunnel from the very outset. Even as a career math nerd I can fully grasp how if this weren't the case then the snowball method would have serious advantages.
I agree the snowball method gives you fast results that can motivate you to keep going, but there's one thing that has always bugged me. My lowest balance only has a $25 min payment. My highest balance carries a $150 min payment. Would it not be better to pay that bigger one off first so I can save on the min payments each month? As that card gets paid down, those min payments also come down, allowing more $$ to put towards the principle. Or am I missing something??
Boy I sure hope this lady ignores DR's advice. She actually has the right attitude in mind. DR is so reluctant to waiver from his SET advice that he can't see when a person would actually do it better and the correct and faster way. Even hearing her want to get rid of the higher rate debts first, he is incapable of realizing that his generic snowball method is NOT for everyone. It's just a lazier way to insist one size fits all. I have yet to have one person I helped get out of debt use the snowball method and all it took was getting them to realize that the balances don't matter, you have a TOTAL amount of debt you are trying to rid. They SEE the progress as they watch that TOTAL drop every month, and more quickly than snowballing it. Just lazy not to teach people the proper way.
@Jose V - OK, I had a very lengthy, detailed reply written and then TH-cam reloaded to the main page and all was lost. So I will keep this shorter. Jose V., you haven't said a things DR didn't already state in his video. So not sure why you think it coming from you would now changes things? To your (and DR's constant name calling) point that "these people are STUPID." You're incorrect in most cases. People in America are often uneducated in these matters because our consumer driven "get a job and spend" American society that provides no real life finance education through the system. DR wants to defend snowballing because he has been pounding his cookie cutter program for years. I have helped numerous people out of debt, always used the so-called "avalanche" method and don't have people giving up because I teach them not to focus on individual accounts. Your individual accounts balances don't matter because you have a TOTAL amount of debt you're getting free of. When people realize the debt is hurting them and looking to get out of it they are never more open to learning the correct way to do so. And that way is highest rate first. They will see their progress as they watch that TOTAL debt amount shrink month after month, and it will get them excited. So I wholeheartedly disagree with his view that everyone sees finances the same way and that they will behave like he did in his past. There are plenty other things he says that are not correct or best, but I know, I know, he has all these "studies"! Have you seen these studies? Cause I got a thousand questions and points I will target looking at if I ever do see one. I don't think DR is a bad guy and much of finances is same advice most will give. But I do disagree with his cookie cutter approach and the assumptions he makes about others. Also, he will even contradict his advice with his own behavior and then defend his not following his own advice as OK because "he can afford it." That always makes me chuckle and likely why he often crosses his body in a defensive manner.
![[TH] 2024 PMGC League | Survival Stage วันที่ 1 | PUBG MOBILE Global Championship](http://i.ytimg.com/vi/FVFT-PFwU80/mqdefault.jpg)
I paid off my high interest student loan debts first. I hate seeing all the interest build up. Been debt free since October.
sage your correct on this dave is wrong on this
@@billyjohnson9166 Yep I don't really agree completely with Dave on this. I think it's more of personal preference. If a person knows they are disciplined enough to do the avalanche method, why not? It's win-win for them, paying less interest over time and still getting out of debt in the end. Everyone is different so it should tailor to their own preference/personality.
@@eatnplaytoday yeah but this lady clearly isn't disciplined. $15,000 on a CC??? Yeah she needs the snowball method
@@masterp443 Just saying not to assume of someone who acknowledges they have an issue and willing to make a change.
@@Erika2 Hurray for us! 😁
This is so true. After I paid off two of my small debts, I got fired up to use most of my income to pay toward getting rid of all my debt. I even sold my couch, true story. Everything must go.
Even the kids?
Dally Singhson nah
@@dallysinghson5569 dang
But wouldn't you have paid it off IF you started by the debt with highest interest rate?
@@deepfakesforreal9487 maybe but it's about psychology.
I finally understand the reasonings behind the snowball. It's a habit solution! Love this explanation
I agree.
It worked for me be following it verbatim. It’s 90% psychology and there ain’t any shame in recognizing that.
And it's more than that. When you get rid the small debts, they're gone for good. You can take that money that would have been used for those debts and apply them to the larger debt. If you lose your job or have something life altering happen to you, those smaller debts won't haunt you. That burden is over for good.
FPU is a behavior modification program. It focuses on behavior. Because getting out of debt is important, but staying out of debt is more important.
@@chrishood2793 That's a mathematically bad answer.
It does work if you are disciplined. Running the numbers proves it. Same as eating less works on a diet. It is just that most peoples discipline sucks.
Or you can grow your own food, sell it, and boom profit.
Seeing the amount in interest we’re paying monthly on bigger debts motivates me way more than a paying off a small debt.
That’s exactly what Dave said. But there’s no point in pretending you’re a more disciplined person than you are.
"It does work if something was true that isn't true" that means it doesnt work!
The point is that a person who is disciplined would not be in the situation to begin with.
A few days ago I finally paid off my once maxed out credit cards. I did just as Dave advises the lady here. Paid off the smaller credit first and then doubled my payments for the larger one. In total 8 1/2 thousand euros paid off. Once the smaller one was paid off I felt so good. Now I feel AWESOME!!!
nice!
Way to go, kiddo 👍👍
🙏
One thing that mathematically helps too, is that all the smaller balances once paid off rolls over to add to your snowball. So those cards with hard payments become easier as you pay off the small ones super quick. That's what we saw with me and my wife's debt. This plan works, she needs to do it and trust someone who sees clearer than her.
Technically true, but paying the high % first (especially if it's credit card debt) will get rid of the debt way faster.
I'm glad Dave clarifies this advice is about psychology and not about math because I was about to stop listening to him if he was going to argue it mathematically.
The question is, are you a financial mutant or a normie
Paid off my credit cards and yesterday paid off my van early! Feeling good. Trying to pay off my $6k student loan before I graduate in 2 yrs. I have 3 kiddos, go to school full time and work.
🙏👏👏👏🙏🤗
The issue with debt avalanche (high interest first) is that the people who have large amounts of high interest loans need immediate gratification. They’re in that debt mess because of that need for instant gratification where they see something they want then they buy it using debt rather than saving for it. So you have to design payment plans that offer the fastest gratification which is debt snowball
Good point!
The whole source of consumer debt is get it now, pay later. What you say makes sense.
What if the person has already reformed in some way and now just cleaning up the mess?
@@ThePeterDislikeShow same thing, I imagine.
A debt snowball allows you to get rid of more debts so you can focus on the few big ones.
It seems to be better behaviourally, and as the original comment mentioned, people who have big high interest debts have behavioural issues. If you have reformed somewhat, then I don't think it changes things that much, a debt snowball is easier than the avalanche so is more feasible for people with large amounts of debt.
Avalanche method is the right way to go.
I suppose the kind of person to wrack up a ton of debt doesn't have much discipline to begin with...
Amen. Paying high interest debts makes sense mathematically but getting in the debt in the first place was an emotional non math based decision.
The baby steps are designed to work for the masses.
Casey Burns Investing They certainly are, they’re working for me over in England!
@@Shybairnsgetnowt1 your in England? I did not realise people in England had jolly ol computers....
So true! Your emotions will destroy your finances in a heart beat. Its the only reason engagement rings are so expensive.
Drk RE makes sense👊
Designed to work for "sheep".
Dave’s right.. been paying the smallest debt first and I have paid off 3 cc’s already and have 1 left. Knocking off the other 3 one by one felt so great each time.
A side point: If you have debt with a ridiculously high interest rate, move that debt to a lower interest rate debt. For example, if you have 10,000 in credit card debt at 20%, look into a local bank or credit union for a personal loan. See if you can get something at 6 or 7% with a fixed repayment plan (not revolving credit). Pay off the credit card and close the account. *DO NOT OPEN A NEW CREDIT CARD WITH AN INTRODUCTORY RATE!*
Great idea, except personal loans are rarely less than 14%, typically 18% even with stellar credit.
I paid off my highest interest loans first. It was like ripping off a band aid right away. And to be honest it motivated me more after I got done with the most expensive loan. Got me thinking, “Wow, they will all be easier from here on out!” I would of been so depressed and not as motivated if I went with the snowball method. It worked for me. Paid off my student loans in four and a half years.
Way to go!
4.5 years u could have been debt free in shorter period. 🤔
@@beats4life971 re-read the original comment.
When we tackled my husband's debt, we also did it based on interest rate and it worked great. But I am not someone who has ever liked debt, so it worked well for us.
Even Dave makes exceptions when there's a payday loan or IRS debt involved.
When she said she makes over 6 figures I was done. Girl get off this man's phone line.
🤣🤣🤣
😂😂😂
Right!
NaturalChik I know plenty of people that make good money but are terrible with cash
@@codycast kinda like my dad, makes 250k, has 60k cc debt.
Mathematically it makes sense. Psychologically Dave’s method makes sense. If this person was able to do what made mathematical sense she wouldn’t even be making this call. The call speaks for itself
A lot of people make this mathematical mistake. Most of it comes from lack of personal financing. Nobody really teaches us and we learn as we go
@@Kng9929I know this is an old comment and I don't want to sound rude or anything but it's really hard to teach common sense.
Yeah
@@96ej and disciplin.
You just summarized the video...
The every dollar app was a gain changer for me and we have been plowing through our debt. Just keeping the budget has given us a pay raise! Assign every dollar!
I think there is another good reason to pay off smaller debts first. Each debt paid off reduces your fixed expenses. The lower your fixed expenses the less risk you will default in the event of economic hardship
What you should do is calculate real interest (which includes also the fixed espenses) of each debt and then pay them with highest real interest. That is, if you are disciplined and want to get debt free as soon as possible.
I paid off the smaller amount first, once paid, applied the amount used to pay down on the next debt. For me, eliminating multiple smaller debts was the easiest way to eliminate all my debts. I set up in a spreadsheet to track.
I get what he means: for someone who isn't motivated by numbers but by the "victories" of eliminating one loan at a time, the baby steps he offers will be more effective. Some people just aren't motivated by the idea of knowing they will be paying less money in interest by taking on the highest interest debt first, since they won't see a difference until much later when they get to the smaller interest loans.
But if someone has the discipline and understanding to take on the highest interest debt first, the avalanche method would be the ideal. I think Dave is always under the assumption that people don't think that way, hence why he developed the baby steps. If you have the discipline, by all means you can ignore Dave's advice. I'm sure he much rather everyone do the avalanche method if everyone had the discipline. But a lot of people (specifically the ones who get themselves into debt due to spending money on things they don't need) don't have that discipline.
1:52 "If you do the math you will never have the credit card debt" good point.
Which is a crock of horse manure. Even people who "can do math" easily become Cleopatra. (Maybe that's an Americanism which you don't understand. She was the Queen of Denial.)
@@RonJohn63 Thank you captain obvious. Dave Ramsey wasn't talking about getting through high school math class, he's talking about the idiocy of carrying credit card debt - anyone who stops to do the math on that will know it's just somewhere to never go. But who does that?
@@andrewh.4186 are you really so blind to human nature that you've never heard of people doing things they know they shouldn't?
@@RonJohn63 It's very truly a thing. But I'm not convinced we're at a place in society where people universally understand just how terrible credit cards are. There may be a vague idea that they're not ideal, but if someone genuinely understands that, and then gets deeply, deeply in debt anyway, they're probably going to need more than a budgeting plan to get their life back in order.
Also being in denial is hardly the same as also doing the math. I know people that make bad money decisions, but they sure aren't adding up the cost.
I wish i learnt most of these principles about seven years ago. A lot of people have been trapped strongly in the matrix-- Go to school, get a job, and then slave your whole life. Many miss out on life-changing information that could have great effect on their finances. I played with the stock market sometime in 2020, and I was surprised at how well it turned out. I want to put in $90k more into the market. I heard people are making really great returns despite the downturn. Any recommendations?
Stocks are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are a lot of wealth transfer in this downtime if you know where to look.
@@devereauxjnr My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. Haha.
@@Tsunaniis-j5l For real, I've wanted to switch to a wealth manager. Please, could you recommend yours?
@@MakeamericaGreatagain-h7j Have you heard of "NICOLE DESIREE SIMON? She gets featured regularly on CNBC. Everyone in my office works with her including myself. I personally use tax-deferred accounts to hold my investments. That way I avoid capital gains taxes. There are other options your advisor could brief you about.
@@Tsunaniis-j5l Thank you. I just checked her out now on the web and I've sent an email. I hope she gets back to me soon. I've been thinking of doing this for a long time now, and I've procrastinated enough already.
What Dave is saying makes sense. You have to be motivated! My husband and I are paying off our high interest debts first, but we don't have a motivation or discipline issue. We took a lot of time planning how we would pay for these loans before we even took them out and We have a detailed plan that we stick to every month. Our motivation comes from the desire to be free to change our career choices regardless of the pay cuts we'd have to take to get started. Going to jobs we don't love everyday is a constant motivation for us. Not to mention the devastating effects debt has had on our family members. We will be debt free next March! We're also cash flowing my clinical psychology degree! Very excited to have a debt free college degree!
Are you debt free now? And are you helping others?
It’s the most financially responsible move...
Yet it doesn’t work for most people! Unbelievable.
Some people are motivated enough to not waste money for fictitious progress.
Basically. Debt avalanche instead of snowball saved me more than 3K in interest.
@@ucyberwolf he said that math wise avalanche was better. But most people that are in debt dont have the discipline to stick with it...
This man has helped me beyond what I could have ever believed... some humans make me proud.
It works!! Im telling you! My husband and I have paid off ALL of our credit card debt as of this month. Bye Bye Consumer Debt
Wow....Wonderful......now don't forget how this freedom feels! Keep it on your minds always.....you have been blessed and you want to stay that way! Always remember how debt suppressed you and caused you anguish and misery! You never want to go there again....but after a time...it's so easy to forget that pain! DEBT is a DESTROYER of people and family! Keep it out of your life! God Bless!
I understand the concept but personally, I’ve been paying my largest highest interest debt first because I feel like once that one is paid off the smaller one will feel like a breeze
You are a unicorn.
Most people are not your personality type.
The only issue is most people will not be able to.
Also at times people pay the highest and then think others are a breeze and then get into more loans thinking i have paid bigger loans so this one will be easy and thats how they mess up
If it is working for your my friend keep doing it. Consider yourself the exception but keep up the good work.
Thomas Eidson thanks!!! Down from $40 000 to $6000 in a year, so I think I’m doing pretty well :)
You like doing things the hard way...
I've always wondered why the debt snowball was structured like this, and it kind of makes sense now
I know myself paying higher interest debts works better for me, I get way more discouraged paying off a lower balance and seeing I still have a huge balance to pay off. I don't get more motivated and I know this from personal experience. Do whatever what works best for you especially if you have personal experience with this.
Exactly, Avalanche vs Snowball is a personal choice that needs to align to the person. Neither is one size fits all
I paid my highest interest on student loans first and got them paid off way ahead of schedule. Worked for me because not everyone is in debt because of bad spending habits
Dave promotes financial psychology that will work on the majority of people. Paying the smallest balances off first, regardless of interest rates, works for most people because it gives the fastest psychological rewards.
Its like Dave's advice to pay off your mortgage. It's more a mental thing than the thing that makes the most financial sense. Most people lack the discipline to do the thing that makes the most financial sense (which is why they are calling Dave).
yup, if they had the discipline to pay off high-interest stuff first successfully they wouldn't even be in this situation in the first place, most likely
Also, by paying off the smaller debts first, you are eliminating monthly payments. Mathematically, you can save money this way - the extra money you'll have after eliminating a payment will help you cover the minimums on your bigger debts, thereby avoiding penalties & late fees.
Thank you for this. I have two cards left! I should be debt free in February!!
Congratulations!! Keep pushing!
In Mexico 90% of people don't have debt, because they are too poor for Banks to give them any credit. lol
So... Debt free now?
How about now
"If you were doing math, you wouldn't have credit card debt." Period.
While true, it ignores the fact that it's possible to *start doing* math, even though you've been avoiding it for years.
I occasionally have credit card debt, but pay 0% as it is set up to auto pay. You can't rent a car when traveling with cash. It won't happen. Same securing a hotel without a card. The cashback is a bonus. The auto-pay is to pay it off completely every month. This ensures the amount charged is very carefully examined as you know it will come out of your account. A credit card for online shopping is better than a debit card as fraud and charge-backs are much better than trying to get a debit card refunded.
@@isettech You can rent a car with a debit card. Dave does it all of the time.
@@jimroscovius That wasn't the case in 1980. Now most debit cards can be run as credit, but that has not always been the case. For online purchases, in general there is better buyer protection against fraud. You can dispute a bad charge instead of having overdraft fees while trying to get a refund on an empty account.
@@isettech Debit cards have all of the same protections as credit cards. And, you shouldn't spend what you don't have. Why would there be overdraft fees? Because you spent what you didn't have.
The beauty of attacking the smaller debts is freeing up cash flow. It can have a larger impact than paying on the higher interest debt by increasing the size of your "shovel". It helps loosen that grip the debt has on you by a little bit.
This doesn't apply to everyone. Many of us have taken on debt as a means of investing in our future (college, real estate, starting a business), not simply consuming. For myself, paying the entire debt off quickest is what motivates me. It would actually depress me to know that I'm choosing to delay the finish line and in turn accruing more debt via interest by paying off smallest first.
I paid off my debt highest to lowest and it worked best for me. Discipline is the key not which order you do it in.
I'm completely debt fee (including mortgage), and followed the snowball. I'd do it exactly the same way today as I did then, smallest debt to largest debt.
I get it - "pay high interest first" is actually the rational (mathematically correct) answer but "pay smallest balance first" is the best answer (yields greater chance of overall success in debt elimination) for the psychology of the type of person who gets into this problem in the first place (kind way to say, the irrational spender).
Stick with it caller, it’s amazing how fast it works and how excited you’ll get.
Personally using the avalanche method, 26k/60k left to payoff. 6months so far, done by Christmas
When you pit emotion and logic against each other emotion will win just about every time. People get in to most consumer debt because of emotional, not logical decisions. If it was all simply logical math most people wouldn't be getting in to debt in the first place. Feeding the emotional side of success by paying off the smallest debt amount first gives shots of dopamine by the brain giving a sense of pleasure and accomplishment and helps fuel the process further.
Crown Financial Ministries say high interest. That was the way I went. Dave is right that it is a mindset. When I decided to pay off my debt, it worked out. Debt free now for 4 years.
I have my emergency money. Now I just paid off two CC cards this week. Wonderful feeling. They were lower interests CC cards. I now put the monthly payment of those two cards towards the next CC card I want to pay off. What I plan on doing is calling other CC creditors to get the interest payments down.Can't hurt to try; all they can do is say no. Great feeling to pay off those cards.
Smallest debt first then to largest. It’s a mental problem. Not a interest problem. By doing this it helps you get motivated and encourages you to keep going further in the end result.
Some people use the highest interest rate first however without motivation and discipline you may fail or go backwards into a spiral effect.
Determination is the key to success and I say do whatever makes your headset happy but I always go smallest to largest debt. Hoping to be debt free this year.
My wife and I paid off her 100k of student debt by paying off the highest interest rate first. Watching the balance drop is enough motivation to keep get going. I understand the logic but I would never do this trick knowing it was costing so much interest.
The reverse can hold true as well.
You can pay off the cc with the highest interest first, and get fired up to pay the rest. That can have the snowball effect, too.
Just my two cents about it… 🤷♀️
Welp my lowest debt has the highest interest rate so figure
Thats the easiest decision
Thats easier than anything
U pay it first and u get rid of higher intrest is a bonus
Haha yeah, that's my case as well! So lucky right?? 😂
Casey some bad good luck 😂😂😂
Same here.
Andres Cruz “the only time that wont be the case is if you have several debts of the same type”:
That’s where you’re wrong, typically credit cards that are looser with who they accept (like when you’re first starting out using credit cards) will be higher interest while simultaneously have lower limits due to what your credit was like when you joined etc....but once you’ve built your credit history and score, you’ll get access to more difficult acceptance (and more “perks”) cards that have a lower interest rate and higher limits, due to you being a lower risk user.
That’s the case with me...only have credit card debt I’m paying off currently ...have 3 cards and the one with the highest interest yet lowest balance (because of the lowest limit) was the first one I got...but my “big shark” was the latest one I got and has a lot more of a balance but lower of an interest because I had built a decent credit score and history prior to applying for it.
I did not follow Dave's snowball method. I made my own order. I saw the math and JUST DID IT. No hesitation. I was done being broke. If you need to ask this question then, in my opinion, are not motivated enough to spend months or years to complete the avalanche method. I'm debt free because of my behaviors not math.
what is avalanche method?
Bingo. Figure out a plan, do the math, and stick to the process.
@@windowslogo3577 highest interest rate first
Your reasoning is literally the reason why Dave recommends using the snowball method...
Same!
Me: my interest is high
Dave: smallest debt first....
Me: I know but my interest...
Dave: smallest debt first...
@Ezequiel Sequeira I totally agree with you I discovered Dave about four yrs ago his philosophy on finances and his system to do it has completely transformed my view on money for the better. I don't agree with a few things but I like how uniform his system is for anyone to get out of debt
Sometimes dave says attack payday loans first.
@@chrisbaker2669 payday loans are predatory. He also says pays the IRS first. Interest rates are so high it doesn't work mathematically.
paying smallest debt first is all mental stuff... to boost you up (encourage you) to keep going ...but mathematically it don't work ...highest interest first is a MUST , but there is something that can be done if you want to go the smallest debt first route ...transfer your highest rate CC debt to a 0% introductory rate CC that way you won't pay interest for a whole year or more , that gives you time to pay off the smallest debt. I have 4 CC's and I transfer the balance back and forth from one to the other as soon as the introductory rate is about to expire and that way I avoid the interest (even tho I still have to pay 3% transfer fee in most of the cases but it's still alot less than eating up the interest for a whole year) .
@@Farsadelcatolicismo It's a bit incorrect to say "mathematically it doesn't work" - basically exactly as he said, mathematically you pay off _quicker_ *at the same amount* towards debt paying smallest to largest, but nobody does that unless they have tremendous self control, which nobody who has high credit card debts does. Also it's emotionally draining.
If you're psychologically unusual, and can stick to a paper plan like it's a law, then pay interest rates first. If not, there's a good chance you're fooling yourself into thinking you're saving money, when it just gets spent somewhere else.
I'd say smallest debt first is a good principle, but with one exception. Payday loans, because they can have absolutely ridiculous interest rates. If you have a payday loan at 400% and a car loan at 5% you'd better get that payday loan paid first no matter what the relative sizes are, because it's gonna double real fast if you don't get rid of it.
There is no way a credit card balance of 15,000 at 16% is a $2000 payment per month. More like $200
(16%/12) x $15,000 = $200. She must have a ton of late charges or something...
Well she did say she couldn't always make to payment with the mortgage... I'm guessing she has late penalties
Or she could have a payment plan within the credit card. Certain credit cards offer options to pay big debts on a low to no interest if you pay them in 6 to 12 months.
I mean paying high interest debts first saves money. That fact isn't even debatable lol. As long as the person has the will power not paying off higher interest debts first makes zero sense
David Krumme they are in debt with credit cards especially because they do not have the will power to spend less than they make.
@@insideoutsideupsidedown2218 bingo
Still doesn't debate the fact that paying off high interest first saves money.
David Krumme he never said it didn’t save money. In fact he said the opposite.
It does save money. That is the math. Again, if we were doing math, we would not be in credit card debt. If you are in debt with the IRS and a credit card company, you owe the IRS 10k at 15% and the credit card company 35k at 29% which one would you pay off first?
This is very true. If you really do deal with the core issue, make a budget that worked and changed to paying off highest interest first, you would still be ok. But the thrill of paying off smaller debts first, and using those dollars towards the debt, you feel better.
and here I am sitting and thought that having $300 balance on my credit is already a freagen headache.
That’s how it starts lol
I have never agreed with Dave on this concept. My debt was student loans, not credit card. I did the math and it became clear the amount of money I would save by paying the high interest loans off first. To each his/her own...
math vs. human nature is an argument that actually makes sense to me
Avalanche makes the most mathematical sense and is fine when describing two debts that are of "similar" size. For instance, if you have 2 debts. One is 10k at 5%, one is 11k at 10%, those are close enough together that it just makes sense to attack the 11k first, even though technically it is bigger. It's like 1 month's work bigger - not worth paying all that extra interest and larger payment if you could have attacked it first.
Snowball makes the most sense when you have debts of varying sizes. For instance, instead of 10k and 11k in above, it's 1k and 11k. Just clearing that little 1k will help with the cashflow, and it's not like paying off the 1k will significantly increase the amount of time it takes to pay off 11k (again, maybe a month or so for many people's budgets).
It boggles my mind that people that people ask this still. Its been answered a thousand times.
As a matter of fact, before she asked the question, she verified it! This caller blew my mind! LOL
But millions to go....
So um, I make 10k a year and owe 25 trillion on lesbian poetry. Do you think I should finance a 20 year old car with 300k miles for 3x what it books for? (And Dave just popped the top of a bottle of tequila)
Dilly Dally 💀
Unless the person asking it is new to Dave Ramsey
This is the exact same reason why I am able to save a lot of money after getting my tax return. I see the money in my bank account and then it inspires me to save MORE and MORE and MORE and MORE. It fires me up and I don’t go out to eat anymore and I also don’t spend as much and I stick to my budgets!! I feel like I already knew this was a mental thing , I just had to HEAR it from Dave lol
She said she had 4 credit cards and the biggest one has 15k on it. I just about got dizzy. Wth!?
Why are you dizzy? You might want to have that checked out...
That's not rare ...I have 6 the highest is 18k , another one is 12k ....it's a nationwide problem , if you don't have any debt like that congrats and don't do it like ever but a lot of us do. Lucky for me my house is paid off and my wife is an executive that makes 100k a year otherwise I'd be choking a lot worse
@@Farsadelcatolicismo I have never taken out a credit card. My parents warned me years ago that they are traps. Way to easy to go into debt because you just swipe instead of signing papers each time. I do have other debts, but they are all stable, like a mortgage. To open another and another sounds like an addiction to me.
Dilly Dally credit cards can be great if you have the discipline to pay it off in full each month. I also use my statement as a way to track my monthly spending. It’s nuts to me how people have so many cards. I only have two: one visa and one MasterCard just in case if a place I purchase from doesn’t take mastercard.
Love the diet analogy!
Samantha Burd me too. Makes a lot of sense when he explains it that way.
But it’s not really an accurate analogy. You still see your overall balance come down as you’re paying off your high interest debt. And actually, you’re losing more weight because you’re saving money on interest.
I only have car and student loan debt! I’ve been tackling my highest balance/ interest rate car note first then I’ll tackle my student loan debt. Paying my car note off first is what’s working best for me. My interest rate is 13 percent on my car & my notes are $700, so I’d rather pay that off first than my $120 student loan payment with 4.6 percent interest rate.
13% on a car loan?? Holy Canoli, Batman! (You're right, though, to hit it first...)
The recurring wins help keep you going.
When you aren't paying the highest interest rate just because you want to stick with a program (for any number of reasons) adds incentive. It should make you angry that you can't pay the high interest debt. That is an incentive to be more intense paying your smaller debts so you can get to that high interest one sooner.
Completing the BS2 and being intense while doing it are both important. Avalanche method doesn't provide the same incentive.
I'm doing a combination of snowball and avalanche right now. Starting with low balance to highest on my private loans from Sallie Mae, then working my way from lowest to highest on those with almost no interest rate
There needs to be a psychological driver to paying off high-interest debts. We all instinctively know that the high-interest should be payed off first, but it needs to be made real. Figure out how much interest per month for the debt. Every time you pay something down, do the ratio and put that much cash in a jar. That's the monthly raise you just gave yourself. Rinse and repeat.
Something I never hear Dave mention...shop around for new credit cards that will give you zero interest for a certain amount of time. Transfer that balance and keep on the Baby Steps
Because CCs are anathema to him. It's a great technique, though, if your CCs are hidden away in the sock drawer.
Bingo ...that's what I do :
paying smallest debt first is all mental stuff... to boost you up (encourage you) to keep going ...but mathematically it don't work ...highest interest first is a MUST , but there is something that can be done if you want to go the smallest debt first route ...transfer your highest rate CC debt to a 0% introductory rate CC that way you won't pay interest for a whole year or more , that gives you time to pay off the smallest debt. I have 4 CC's and I transfer the balance back and forth from one to the other as soon as the introductory rate is about to expire and that way I avoid the interest (even tho I still have to pay 3% transfer fee in most of the cases but it's still alot less than eating up the interest for a whole year) .
@@Farsadelcatolicismo "and I transfer the balance back and forth from one to the other as soon as the introductory rate is about to expire".
Are you also paying down the total CC debt every month? (Snowball or Avalanche, the purpose is to *eliminate* CC debt, not just shuffle it around.)
@@RonJohn63 the shuffling around is to avoid interest while paying off our debt one account at a time, we have 8 accounts that I can think off from the top of my head...Paying off high interest first is the best mathematically but it don't seem like you are making any progress (one of our CC debts is 18k , another one is 13k ) what I decided to do was to shuffle high interest debt around while paying off small balance accounts first, the mental boost you get from eliminating an account for good is priceless .....if you can handle paying off high interest debt first while not seeing a lot of progress go for it it don't work for me , I like to see as many accounts I can gone forever ...Peace and God bless
@@Farsadelcatolicismo as long as the total balance is decreasing every month... :)
Either way you gotta live on a written budget and only buy things you really really NEED. Most people don't understand the difference between a want and a need.
This method works because there is a psychological relief to knowing that you are getting somewhere and making strides.
The debt I have is both. My smallest debt has a high interest rate, same with the others. So will be doing both the debt snow ball and the debt avalanche
I agree with the whole, "This is not a math problem, this is a behavioral problem..." But, If the poor behavior to go into debt has been recognized and adjusted, then the mathematics should now be considered, would it not? It is no longer behavioral but math after the mistakes have been realized and adjusted.
This is the biggest reason to not consolidate student loans. I used to have twelve student loans in varying interest rates ranging from $500 to $8000 and 3% to 7%. When I consolidated it turned into a $62k 4.9% loan. Mathematically it is an equivalent debt. It's easier to manage because it's with a single loan servicer instead of with 4 different ones. But, you don't get the satisfaction of going from 12 loans to 11, to 10, to 9, to 8, to 7... it's just a monster loan that you have to whittle away at for years.
"I'm never going eat out again!" I love you Dave! 4:13
Disagree! When I look at the highest interest rate it tells me how much money its costing me. That gives me a " I got an attitude & gonna attack this debt with an all out aggression "
Just kill the interest and punch it in the face
I am snowballing lately, as my large student loans are composed of 10-ish smaller loans that I accumulated over the course of my 6.5 years of higher ed! I did realize it is kind of “fun” to attack them all individually but to focus on reducing the lowest one so it gets closer to zero. I just know I’m going to take a credit hit when I totally pay one off, so I suppose that’s my one hesitation against paying any of the loans off for now, rather than just lower it closer to zero. But anyway, it does become kind of an encouraging game to just reduce all the debt and see them as several tiny debt monsters rather than one huge monster!
Right on point Dave ! It’s called Reinforcement and is a proven behavior analysis principle.
"If you were doing math you wouldn't have credit card debt" LOL
I noticed the same principle as what is talked about here to be true in my own personal life when managing multiple cards some for Personal some for business
You get motivated once you see one of the cards paid off completely and put away to not be used and it makes you work that much harder to get the next one down
get yourself an excel sheet and reward yourself by how much you save on interest. By all means do an approximation (if credit card debt is 15 % and another cost you 10 or 5 %). IF you need a motivation.
Mine was a student loan , never had a spending issue.
So I got the interest based method done successfully. BUT...
he’s right...of course, if for someone else it’s a behavior and spending problem...well he says it here clear and simple.
Well it does work it's just a matter of discipline
Yes. That's exactly what he said. If you had the discipline to do it you wouldn't have the debt.
@@rialjohnson that's utterly and completely *wrong.*
@@RonJohn63 how? It's true.
@@ShadeMiller I am no different now with $0 debt than I was when $56K in non-mortgage debt. The difference is that now -- and for the past seven years -- I have been motivated to *use* that fiscal discipline.
Ramsey is a blessing
Quote of the day:
*“All humans tend to built their own jail and life in it.”*
*live
*livith *buildith
Well said!
👍
Most people are not willing to push immediate gratification which is why paying High Interest Debt first don’t work for most people because they don’t see the the immediate result of the debt going down. Even when mathematically it make sense because you are getting rid of the debt that accrue the most interest on an emotional level most people can’t handle it Dave is a genius he came up with an idea that gives that immediate gratification to people drawing in debt which is getting rid of all the smallest debts
I see people misinterpreting Dave in the comments,
Of course it is better to pay off high interest loans off first, but suppose you have a bad habbit of credit spending, you have to deal with that before you can get out of all debt.
Your priority in this situation is to stop that bad habbit, then you can concentrate on the rest.
Dave's explanation is pretty condescending to be honest. He's basically saying that paying off high interest first works better, but because you're too dumb to follow the optimal method, you should use the watered down version where you end up paying more money. I did the avalanche method to get out of $40k of student loans in 18 months. You know what motivated me to keep going? Knowing that at the end, I'll have paid $5,000 less in interest and be out of debt 3 months faster vs the snowball
weixou xi he didn’t say she was dumb he said she was undisciplined. You appear to have the discipline and focus to stay with your decisions.
Okay but did you have one sent and the student loan or did you have multiple cards, a car note, and a personal loan? In most cases, just throwing all your money on the student loan and keeping 5 other accounts open, going no where, and accruing interest is very overwhelming and most people don’t win like that. You have just a credit card? Of course you can do it your way.
We believe in attacking highest interest first BUT only with student loans. We don’t carry balances on CC each purchase we make on a CC we immediately log in and pay the exact amount off we don’t wait until the end of the month but we do use it for travel points. We are good with money so it’s not an issue of discipline. You get an immediate ROI when you tackle the highest interest first but only if you will avalanche vs snowball. But Dave’s logic is sound.
Me and my husband paid off $6000 for 3months! We were so happy and to reward ourselves we decide to eat out in a restaurant to celebrate. But we didn’t get over board. Never get so excited to eat out in a restaurant🥰 I feel like every bite is so joyful! Hahahaha I know it may sound silly. But those little steps and little joy is very fulfilling!
At first, I was so scared to compute all our debt bills and expenses all together. I was in denial and just reassure myself everything will be fine. But in the back of my head “sweetie it’s not going to be fine! You got to do it!”
My husband and I sat down together and talked about our finances! The numbers were overwhelming for us as we dont get paid a lot. But we got to face our monster to be able to take it down! So we are doing it! Little steps are still steps! We got $12,500 left with our debt! Our target month to clear all our previous bad financial decisions will be this December. This is such a big lesson for the both of us. The greatest gift we can give to ourselves and to our marriage and future family is having financial freedom.
PS thank you for the minced meat! We live off with that up to now 😅 green beans and carrots!
Thank you Dave! Alyssa 🇦🇺
It is so cool to see chunks in the debt go. We paid off 2 credit cards 1 more to go. This plan works!
Living below your means, yea what a concept.
It does work if your disciplined. Same thing with credit cards, you can benefit from them if you are disciplined. The problem is, most who call into this show are not.
what are you talking about you pay the minimums on your credit cards and on the highest interest you pay the most on them
I love love love this call. That was awesome Dave.
Getting one done, then another one, frees up your attention to address the other ones (as Dave said about the mosquitoes)
I did the debt avalanche and have been debt free for 5 years. It does take a lot more discipline though.
My higher rates are usually my lowest balance.
I sorta chuckle when people say "No other debt, my house is paid for". My very modest (paid-for) house still costs me $300 a month in taxes and insurance. For some people it's higher or lower, but that's still a debt you gotta pay every month!
I think the avalanche method worked for me because the income/debt ratio made it easier to see the end of the tunnel from the very outset. Even as a career math nerd I can fully grasp how if this weren't the case then the snowball method would have serious advantages.
I agree the snowball method gives you fast results that can motivate you to keep going, but there's one thing that has always bugged me. My lowest balance only has a $25 min payment. My highest balance carries a $150 min payment. Would it not be better to pay that bigger one off first so I can save on the min payments each month? As that card gets paid down, those min payments also come down, allowing more $$ to put towards the principle. Or am I missing something??
Boy I sure hope this lady ignores DR's advice. She actually has the right attitude in mind. DR is so reluctant to waiver from his SET advice that he can't see when a person would actually do it better and the correct and faster way. Even hearing her want to get rid of the higher rate debts first, he is incapable of realizing that his generic snowball method is NOT for everyone. It's just a lazier way to insist one size fits all. I have yet to have one person I helped get out of debt use the snowball method and all it took was getting them to realize that the balances don't matter, you have a TOTAL amount of debt you are trying to rid. They SEE the progress as they watch that TOTAL drop every month, and more quickly than snowballing it. Just lazy not to teach people the proper way.
@Jose V - OK, I had a very lengthy, detailed reply written and then TH-cam reloaded to the main page and all was lost. So I will keep this shorter. Jose V., you haven't said a things DR didn't already state in his video. So not sure why you think it coming from you would now changes things? To your (and DR's constant name calling) point that "these people are STUPID." You're incorrect in most cases. People in America are often uneducated in these matters because our consumer driven "get a job and spend" American society that provides no real life finance education through the system. DR wants to defend snowballing because he has been pounding his cookie cutter program for years. I have helped numerous people out of debt, always used the so-called "avalanche" method and don't have people giving up because I teach them not to focus on individual accounts. Your individual accounts balances don't matter because you have a TOTAL amount of debt you're getting free of. When people realize the debt is hurting them and looking to get out of it they are never more open to learning the correct way to do so. And that way is highest rate first. They will see their progress as they watch that TOTAL debt amount shrink month after month, and it will get them excited. So I wholeheartedly disagree with his view that everyone sees finances the same way and that they will behave like he did in his past. There are plenty other things he says that are not correct or best, but I know, I know, he has all these "studies"! Have you seen these studies? Cause I got a thousand questions and points I will target looking at if I ever do see one. I don't think DR is a bad guy and much of finances is same advice most will give. But I do disagree with his cookie cutter approach and the assumptions he makes about others. Also, he will even contradict his advice with his own behavior and then defend his not following his own advice as OK because "he can afford it." That always makes me chuckle and likely why he often crosses his body in a defensive manner.