The Enemy of the Good


For whatever reason I have devoted more digital ink than is probably warranted to the subject of debts great and small, avoiding them and paying them off, etc., etc. I must confess to have given few figs to all things financial for most of my life, no doubt accompanied at times by the sweet bliss of ignorance. I have been fortunate to not have made too many major financial blunders, now more recently helped to avoid the blunder of not caring or paying attention.

As I’ve mentioned in previous posts, I’ve lately become something of a Dave Ramsey fan, and while I definitely don’t agree with him about some things, I find his financial principles sound and- more importantly- effective.

Quick searches of the inter webs will uncover multitudes who vehemently disagree with his methods and principles, which is of course what the internet is for. And there are, to be sure, arguments to be made against any particular method (although one might reasonably argue that the sheer effectiveness of his method might be a rather strong argument in its favor…).

I came across an article that was penned nearly a year ago that takes issue with his Debt Snowball approach. In many ways it’s not much different than similar arguments, but it ends up misunderstanding the debt snowball (as taught by Mr. Ramsey) pretty badly, so I thought it would be fun to take it apart a little bit.

If you’re drowning in debt, one of the worst things you can do is to listen to conventional wisdom – particularly from anyone who’s asking you for money. Think about it: Their incentive isn’t to get you out of debt, it’s to get themselves rich.

It’s impressive that from the start the author manages to slip on her clairvoyance-hat so as to know the inner thoughts and motivations of, well, apparently anyone who has ever had a business that provides any kind of service in the history of all the world. 

There is also the blatantly obvious fallacy of the false choice, since one can provide a service, have a business, etc. that helps people and which also makes money and- gasp!- may even make them rich. Additionally, it is entirely possible- as far as Dave Ramsey is concerned at least- to learn and understand his principles and methods without spending anything.

Finally, the “conventional wisdom” is actually what the author will end up advocating, so there’s that.

Between Dave Ramsey, Suze Orman and that angry guy who manipulates stock markets, you’re left with seemingly simple Texas two-step plans that are either banal or outright wrong. If you’re looking to get debt-free, it’s important to take the personalities out of personal finance.

Including, we might presume, the author of this article?

The famed Dave Ramsey advocates the “snowball” theory of debt relief: after making the minimum payments, work towards paying off your smallest debt first, then gradually move up to your largest. He tells you to ignore the interest rate on your debts, and instead to focus on the momentum-granting psychological satisfaction that comes with paying off your debt. But there are two problems with this: If your highest-interest debt is also your largest, you’ll end up paying a lot more in interest.

A lot more, of course, being a very relative number, especially prone to math with correct premises, as we will see.

If all your debts are large, you won’t get a psychological benefit.

Why must this necessarily be the case? Isn’t paying off a large debt something one can feel good about and get motivation from?

Ramsey says that you’ll be motivated to stick with your savings if you have the satisfaction of closing accounts – and that motivation is worth paying more interest for.

By ‘savings” she means the difference between the debt savings on the debt snowball vs. the debt avalanche (paying off highest interest rate first). But the motivation behind his baby steps plan is not to mathematically parse the difference between debt payment savings, but rather to completely reorient the way one approaches money and debt. The whole gazelle intensity approach is meant to make one feel the liability that debt is; as he even says sometimes- the reason for the $1000 emergency fund is to kind of make you a little afraid, since there is very little buffer between you and the world.

And since Ramsey’s “gazelle intensity” is also intended to have you get out of debt as soon as you possibly can, the “savings” between methods become more and more negligible. The interest rate in the short term and the amount of interest saved matters less than actually getting the debt paid off, which is the primary motivation.

By that logic, if you only have one credit card but you’ve racked up $10,000 on it, your best way to pay it off is to open another credit card, run up a $200 debt and pay it off before tackling the bigger debt.

This has to be one of the stupidest things I’ve ever read. Why would that be a logical approach? Again, the author misunderstands the primary motivation of Ramsey’s debt snowball plan, which is to get out of debt. This is obviously logically incompatible with taking out additional debt. The phycological motivation that comes from paying off a debt is not the sine qua non of paying off debt, but rather concomitant with it, which means that the author is mistaking ends for means.

Here’s an illustration of how the “debt snowball” method can cost you.

“Cost” being a somewhat relative term, since we are really discussing interest savings of one method over another. Of course, “illustration” is also a relative term since some of the mathematical premises are impossible.

You have three debts and $500 a month with which to pay them off:

Loan Type

Interest Rate


Minimum Payment

Credit card




Student loan




Auto loan




From the start the author’s premise here is bogus. It is mathematically impossible that one could have a minimum payment of $100 on a credit card debt of $15,000 with an 18% APR, as at that amount and rate it would not be possible to pay off the debt since the interest would accumulate faster than the minimum payment would pay it off. Unfortunately, the rest of the calculations seem to be built off this faulty premise, which gives us some rather implausible numbers.

If you use Dave Ramsey’s method, you’ll be debt-free in 101 months – about eight and a half years. You’ll pay out $22,613 in interest. That’s pretty substantial, almost equal to the amount you borrowed.

Again, the author doesn’t seem to really grasp the totality of Ramsey’s system, since he would never advocate that someone should take 8.5 years to pay off $28,000 in debt, or any debt snowball for that matter. And while the $200 extra might be a good start, he would advocate that the person paying off the debt get another job, cut their budget down to nothing, sell things, etc. so as to expedite the debt payoff. Realistically, for the average American income of around 50K, he would probably expect the person to be out of debt in 2.5 – 3 years, not 8.

And interestingly, if we start with a more realistic premise on the credit card debt, that is close to what we would get. Let’s assume that the minimum payment of credit card debt is actually $375 (which is a number many minimum payment calculators provide) and that the others are actually pretty accurate. If the debt snowball plan were followed, and no more than $200/mo extra applied to the debt, one would be out of debt in 48 months, having spent an additional $8,629 on interest payments (as opposed to $11,897 over 115 months).

Instead, if you do the mathematically sound method – paying off your highest-interest debt first – you’ll be debt-free in 86 months, just over seven years, and you’ll pay a total of $14,650 in interest.

Actually, if our premises are brought in line with mathematical reality, using the debt avalanche method you would be out of debt in 45 months, having paid $6,331 in interest.

In this (admittedly simplistic) example, following Ramsey’s advice would increase the amount of interest you pay by over $7,000. That’s a pretty steep financial penalty.

In all actuality, the difference in interest payments would only be around $2300 and 3 months. This of course assumes that no extra money is ever applied to the debt; that is, only the extra $200 is ever used over that entire 4 years.

To be sure, the debt avalanche will cost less in interest payments and entail a shorter term, but that decreases in importance the faster the debt is paid off. Let’s assume that an extra $750 instead of $200 could be applied per month. In this scenario the debt snowball pays it off in 25 months with $4692 in interest, whereas the debt avalanche pays it off in 24 months with $3029 in interest, or a spread of one month and approximately one month’s payment.

Granted, not having to spend an additional $1700 would be great, but the point is not necessarily to save on interest payments (which one will already do), but rather to get out of debt. In proportion to the amount of debt repayment the faster you pay it off the less significant the interest savings are. 

Now, let’s look at problem #2: if motivation’s what you’re after, what happens if it takes a while to pay off your debt?

Once again, the author conflates a means with an end. The motivation from paying off a debt is not the end of paying of debt, but is concomitant with it. It’s a fairly easy distinction to see.

In this scenario, you’d close your first account – the auto loan – in 18 months. Psychologists estimate that habits take anywhere from 21 to 66 days to form. If you can pay off a balance in three months, you might get some benefit from the debt snowball’s boost. But if you pass the 66-day threshold, saving and paying off your debt become ingrained – your habits form their own momentum. You’re paying extra interest for no added gain.

The difficulty with this example is that paying off a debt isn’t meant to be the type of motivation or momentum that a habit gives, any more than the habit of diligently studying in school negates the extra motivation and excitement that graduation brings. That it takes four years does not thereby make reaching it less of a motivation for what comes next.

Since Ramsey’s debt snowball isn’t intended to be a stand-alone step, but functions in conjunction with saving up the original $1000 and- more importantly- cutting one’s lifestyle down to nothing and working to develop a budget and correct the behavior mistakes that have led to the financial mess, the motivation from reaching these goals is not an end itself but is more a confirmation that the behavior changes are actually working; positive, tangible feedback that one’s financial picture is changing. Given that success with money is far more determined by behavior than by math, to work a system that provides these feedbacks more quickly is likely far more important (or at least as important) than not having to pay a couple extra thousand dollars.

Instead of banking on a dubious motivator, follow three steps to get rid of debt quickly and in the most cost-effective way possible.

1. Try to lower your rates

Credit cards

Negotiate your interest rate with credit card lenders by threatening to leave for a better interest rate. Tell them,

“I’d love to keep this account with you, but I need lower rates, and I can get an interest rate of 7% at a credit union. What is the lowest APR you’ll give to move debts from other cards?”

If they don’t lower your rate, follow through: transfer your balance to another credit card. Choose one with a 0% APR period, preferably one that doesn’t charge an upfront balance transfer fee. Minimizing the amount you have to pay is the most pain-free method of debt reduction.

This isn’t exactly a terrible idea, but it only makes sense do this if you then absolutely stop using the credit card. The 0% can make it tempting to want to start using it again; after all, you just saved on all that interest, so why not spend a little bit here or there since you now have all those savings? Another pitfall is that if you try and game the system to get the rewards (like cash back or whatever other crap the credit card companies use to entice you to borrow from them), you will be statistically more likely to both end up carrying a balance (and thus adding to the debt) and spending around 15-18% more than you normally would, which would completely negate the “savings” from the balance transfer.

As an example, let’s imagine one spends around $20,000 with the 0% APR credit card on the things that you get cash back for on credit cards (e.g., groceries, gas, etc.). Since one is statistically likely to spend 15-18% more than with cash, that means that during the 4 years of debt payoff in the scenario above one would spend an additional $12,000 without even realizing it, which is a far more costly scenario than interest savings between debt pay down methods.

Naturally, the credit card companies are counting on your lack of resolve, which is why they dangle these sorts of carrots and no doubt love having people advise this strategy to get out of debt. 

But it’s everyone else who is a terrible driver, right?

The biggest difficulty is that making this sort of move doesn’t really address the behavior that led to the debt in the first place, and in many ways is actually making those same poor behaviors more possible and more tempting.

Dave Ramsey advocates motivation at a price, seeking the psychological boost no matter the financial cost.

This seems a bit of an overwrought statement. Again, the author misunderstands that it’s not the psychological boost that is the driving factor, but rather getting out of debt. Dave Ramsey’s debt snowball is predicated on what he terms “gazelle intensity,” which entails tremendous focus and energy towards the goal of paying off debt. He admits that mathematically it makes more sense to pay of the higher interest loans first, but, as he often says, it isn’t a math problem which gets people into these messes but rather a behavior problem. Ultimately, the financial cost of not getting out of debt is far greater than the few thousand in interest between the two methods.

3. Make one decision, then don’t make any more

The easiest way to stick to your debt payoff plan, however, is to take yourself out of the equation.

This is probably the absolute worst advice one could ever receive, as it is often an inattention to financial decisions (i.e., taking one’s self out of the equation) which leads to financial struggles.

Figure out how much you can realistically put toward paying down your debts. Got the number? Great. Set up an automatic transfer between your checking account and a savings account for exactly that amount, or have that amount direct-deposited from your paycheck into a savings account. Then, use all the money in the savings account to pay off your debt. Depending on the type of loan, you might be able to automate that transfer too. Out of sight, out of mind: If you don’t see the extra money to begin with, you won’t spend it.

I have no problem with automated payments, but the behavioral problem that many people have with money is precisely that it is out of sight and out of mind. Debt is perhaps the ultimate expression of that. Ultimately one is only going to get control of one’s money with behavior changes, and that means that one does the exact opposite of this advice, which is to be constantly making decisions about what all of one’s money is doing.

In many ways this advice works against a robust debt payoff strategy since it effectively compartmentalizes the problem, or at least tries to compartmentalize it. It treats the wrong problem with the wrong treatment. Trying to insulate oneself from the reality of the debt and the debt payment is a nearly sure-fire way to ensure that one has no idea what is going on, which is part and parcel of how debt accrues in the first place.

After all, life is never static, which means the numbers are constantly changing. New jobs, raises, moves, additions to the family; all of these things change a financial picture and have to be managed all the time; otherwise, a budget which may have been realistic at one time may suddenly be laughably small or overextended. You cannot trick yourself into behaving better with money- setting it aside one time and putting out of mind is a great way to never come to grips with how to handle money.

Ramsey points out, with some truth, that we can be our own worst enemies when it comes to long-term goals like becoming debt-free. To counter that, make the decision to set up automated transfers so you can’t sabotage yourself later on.

Again, nothing wrong with automated transfers, but the notion of trying to set up a system where you  won’t be able to sabotage yourself later only belies a misunderstanding of what getting out debt requires, which is a complete behavior change when it comes to money. If one has to trick oneself into not spending X money, then the behavior hasn’t changed, and it is very unlikely that one will actually get out of debt.

In the end, the thing that makes Dave Ramsey’s approach as effective as it has been for so many millions is not that it has a corner on the math, but rather that it takes the focus off of trying to do the most mathematically sophisticated thing and places it onto what really causes people to be able to pay off their debts, and that is shifting the focus onto the actual behavioral practicalities (and changes) of actually paying it off.

The reason the snowball tends to work better than the avalanche isn’t because it’s more efficient (since it’s not). The debt avalanche often fails to bring traction because it focuses on a relatively unsubstantial aspect of the debt payoff process (that is, the interest savings), when in the grand scope of the entire debt-payoff and wealth building process the distinction is hardly worth mentioning.

Mr. Ramsey’s debt snowball certainly isn’t perfect, but most of the time paying off debts is more about not letting the perfect become the enemy of the good.

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