Financial guru Dave Ramsey has over 1 million views on videos where he repeatedly advises listeners to use the debt snowball instead of the debt avalanche. But from a pure math perspective, is the debt avalanche actually that bad? After all, paying the highest interest rates first has to make some sense, right?

In this article, we’ll take a look at Ramsey's perspective on both methods so you can decide whether his negative thoughts about the avalanche are warranted. 

Getting to know the debt avalanche and debt snowball: two paths to debt freedom‍‍

The debt snowball method involves paying off debts in order from the smallest balance to the largest, regardless of interest rate. You make minimum payments on all debts except the smallest one, which you pay aggressively. After you pay off the smallest debt, you move to the next smallest, using the additional money saved from not having the minimum payment from the recently paid-off account. 

Say you have a credit card balance of $200 at 20% interest, a personal loan of $2,000 at 6% interest, and a student loan at $10,000 at 10% interest. Following the snowball method, you would pay off the credit card while making minimum payments on other debts. Next, you would focus on paying off the personal loan and then the student loan. This way you can build momentum for the larger student loan and get a quick win.

• Pros: Quick wins boost motivation. Simple and easy to understand.
• Cons: Doesn’t prioritize the most expensive debts.

The debt avalanche method involves paying off debts in order from the highest interest rate to the lowest, regardless of the balance. For example, if you have a credit card balance of $20,000 at 20% interest and a student loan of $10,000 at 5% interest, you would focus on paying off the credit card debt first. 

You could imagine that in this scenario, it would be better to pay the credit cards first with a whopping 20% interest rate instead of focusing on the student loans! If somebody used the snowball method, their $20,000 of credit card debt could amass a lot of interest while the lower balance debts are paid off. 

• Pros: Saves more money on interest over time. 
• Cons: Progress could be slow, leading to demotivation. Complexity in managing many debts and interest rates.

If the debt avalanche is going to save you thousands of dollars in interest, it could make more sense for you than the snowball despite its risks. 

Dave Ramsey’s perspective on debt repayment

Dave Ramsey's financial philosophy emphasizes behavioral change over mathematical precision. He argues that personal finance is 80% behavior and 20% head knowledge. 

According to Ramsey, the key to becoming debt-free lies in changing habits and staying motivated. He believes that the debt snowball method, with its focus on quick wins, provides the emotional boost necessary to keep people on track with their debt repayment plans. 

But what if you would save thousands in interest by using the avalanche instead of the snowball? With Budge's Debt Plan, you can easily identify if the snowball or avalanche makes the most sense to you. Instantly compare how much you will save and how much faster you will get out of debt with different debt pay-down strategies and different payment amounts. Try Budge here

Ramsey on the debt avalanche method

Ramsey has several criticisms of the debt avalanche method:

• Lack of Immediate Results: The debt avalanche method often takes longer to show significant progress since it targets the highest interest debts first. This can be demotivating.
• Complexity: Managing many debts and focusing on interest rates can be complex and overwhelming. This complexity can be a barrier to becoming debt-free.
• The steps can be unclear: Some advocates of the avalanche method recommend refinancing your credit card to another loan to reduce your interest rate while others don’t. He does not recommend you take out more debt to pay down debt. 

Ramsey’s take: the benefits of the debt snowball

The debt snowball method provides psychological benefits that help maintain motivation:

• Quick Wins: Paying off smaller debts provides immediate results, boosting motivation.
• Sense of Accomplishment: Clearing debts, even small ones, gives individuals a sense of control and progress. This positive reinforcement helps maintain momentum.
• Simplicity and Clarity: The debt snowball method simplifies the repayment process by focusing on one debt at a time, making it easier for individuals to stay organized. 

Conclusion

While consistency is the most important factor in any debt paydown strategy, we agree with Dave, that the debt snowball is better for most people because statistically, you are more likely to get out of debt. There is one main exception: if you have a massive balance at a high interest rate, it could make sense to target that account first. For everybody else, the quick wins from the snowball method hit the sweet spot in our brains, giving us that feel-good boost we need to stay motivated.

As Ramsey points out, if people were driven by math, they wouldn’t be in debt in the first place. What truly matters is psychology and empowering yourself to achieve debt freedom. Part of empowering yourself to achieve debt freedom is getting organized. Budge offers easy-to-use tools that pull your debts into one central dashboard, so you can make the best decisions about how to get out of debt possible. Try Budge here

‍