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The Debt Avalanche: What Do You Think?

I read an interesting article by Consumerism Commentary last week (hat-tip to The Simple Dollar) on "the Debt Avalanche":

If you have a certain amount of money available to pay off a portion
of your debt each month, even if that certain amount changes, there is
a mathematically correct way of paying off that debt. You can call this
approach the Debt Avalanche. It is similar to Dave Ramsey’s popular “debt snowball” method, with one small but important detail: With the Debt Avalanche you will pay off your debt faster and pay less total interest to banks and lenders.

The simple calculation for the Debt Avalanche
requires only the interest rates for each debt account. This assumes
that all debt accounts have the same tax liability, but if that’s not
the case, determine your interest rate after taxes for this calculation.

Read full article.

When my husband and I got married, we purposed to stay out of debt if at all possible while he went through law school. Now that law school is behind us and we’ve avoided debt this long, we’re really determined to completely avoid debt in every way, shape, and form for the rest of our lives.

We’ve sought to debt-proof ourselves through a number of means: living on less than we make; living on a strict budget; building a six-month emergency fund; communicating openly and honestly as a husband and wife about finances; and investing in good life, health, and disability insurance. Only God knows whether we’ll be able to completely avoid debt our entire lives, but we are quite determined to do everything we can to keep from being enslaved to it.

While you all well know that I am a huge Dave Ramsey fan, since I’ve never been in debt, I personally can’t say what works or doesn’t work with regards to getting out of debt. And I don’t necessarily think the same exact steps will work 100% perfectly for each and every person and situation.

So, what do you think? I know a number of you readers are seeking to get out of debt and I’d love to hear what is working for you. Do you think that Dave Ramsey’s "Debt Snowball" method is the method for debt reduction? Or would you agree more with Consumerism Commentary’s proposed "Debt Avalanche"? What has worked for you?

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  • Nicki says:

    The Debt Avalanche is, without a doubt, the most cost effective method of paying off debt, but Dave Ramsey’s Debt Snowball addresses some psychological issues associated with debt; you see your progress almost immediately which is very encouraging.

  • Rini says:

    The Debt Avalanche is, mathematically speaking, the “best” way to pay off debt. This is blatantly obvious to anyone doing the math, including Dave Ramsey.

    The ONLY reason that Dave Ramsey advocates the balance-based order of debts is for morale. If your highest interest debt is also your highest balance debt, it will take you a long time to pay off that first debt. When we have to wait a long time for a reward, it is difficult for us as humans to persevere.

    However, if you start with your smallest debt – regardless of the interest rate – you can pay it off relatively quickly. Then, with the increased payments of your “snowball”, the next highest debt goes away faster than it would have if you’d tried to pay it first. Ideally, this method means you will only have a couple of months between each debt payoff, keeping you motivated to continue the program.

    On the other hand, using the same set of debts in an interest-based order, it could take a year or more to get that first debt paid off!

    The Debt Avalanche will pay off your LAST debt more quickly than the Snowball. However, using the Snowball method ensures that EACH debt payoff will come more quickly than it might using the Avalanche, reducing your wait time between rewards. That is why it works for people who don’t have the self-control to get out of debt otherwise.

  • Tim Owens says:

    The problem I see with the Avalanche approach is the following statement:

    “The big assumption is that you will be able to focus on the larger goal of paying off the entire debt without a quick rate of successes to constantly motivate you.”

    If those of us who are currently struggling to get out of debt were smart enough to focus on the big picture, likely we would not be in the place we are in the first place! I’d imagine if a study was done between the two approaches Snowball would be a clear advantage very much because of those small motivational gains of being able to say “Yes! I paid this off! Yes! I won’t have to make that payment anymore! Yes, I’m debt free!”

    Pretending that people who struggle with a large (or even small) amount of debt are going to make rational decisions regarding money and interest rates sort of blinds oneself to the larger picture and psychology of it all.

  • jacci says:

    We have used the debt snowball and it works marvelously. We have been out of debt for almost a year and have almost half the 6mth emergency fund. I can’t say how much it has changed our lives. Money can still be tight (most of our extra $$$$ comes from hubby’s overtime and lately it has been slow) but knowing that we have a backup means all the difference. I will admit that I have turned into one of the biggest cheapskates. I save money like crazy!!! Also, I use cash for all my shopping. I take out an allotted amount and the excess for the pay period goes in an envelope. It is nice to know it is there should I ever need it (or need a night off and order Pizza Hut)!

  • Save100ADay says:

    The difference between the 2 is psychological more than mathematical. Yes, paying the highest interest debt first will get you out of debt quicker in theory. But we are human and we are motivated more my emotion than logic. If my highest interest debt is one of my larger debts, then I may feel “stuck” in the first step on my debt avalanche. But if I pay off my smaller debts first, I get to see progress much faster, which for me (and I dare say many or most people) motivates me to spend even less and therefore have even more to snowball, making the total debt actually paid off in less time. What so many financial people don’t take into account — and Dave does — is that behavior is more emotion than logic. That’s what gets us into debt messes in the first place!

  • Marcia says:

    I can personally say we have tried both ways. The avalanche starting with step 3. Didn’t work because we didn’t have step one and two in place. If you aren’t mentally there you won’t ever get there. Now that we are mentally ready to get rid of our debt. We are trying it Dave’s way. While yes we will pay a little more in the end, it’s worth it now to have some kind of excitment and push to keep going (each time we pay something off). We were so far in debt we are still trying just to break even (monthly…some bills wouldn’t get paid)…but we are almost there after 6 months of trying and are about to start saving for our emergency fund. Thanks to Dave and Crystal

  • marney says:

    This is the original way I learned about using the debt snowball several years ago on the Motley Fool. I also read Dave Ramsey and they are not really that different. I think you can combine the best of both – whatever works for you. That’s what I do, anyway – pay off a few of the smaller debts first and then tackle the bigger ones by interest rate.

  • Maria says:

    How would these 2 methods work when our credit card debt is at 0% interest? I’m new to this site and Dave Ramsey (I’m in chapter 3). Here’s my situation. I owe $120,000 on a mortgage at 5.75%, 16,000 on a credit card at 0%, 13,000 on another credit card at 0% and we currently lease a van whose payment is $292.97 (I know now that I shouldn’t have leased–but hadn’t read Dave Ramsey when we signed up). So, according to the debt avalanch–I would pay extra on the mortgage instead of the credit cards? I thought that I should maybe pay off the credit cards first and then work on the mortgage. Any advice anyone? Also–I have been transferring the credit cards from one to another for 6 years now in order to keep the 0% rate…

  • Julie says:

    We personally did the Debt Snowball approach. I think the snowball helps keep you motivated. Especially if it is going to take you a while to get completely out of debt. Our first small debt was paid of very quickly which encouraged us to keep at it. I don’t think that the Avalanche method would have worked for us. We did not have a huge amount to put towards debt when we started and our highest interest debt was a credit card that had very little on it and it ended up getting paid second via the snowball but our next highest intrest was our car and we had just bought it so it was also the largest debt minus our home that we had. I would have taken a few years to get it paid off and I think we would have become discouraged quickly because the results would not have been so obvious. We may have saved interest that way but I doubt we would have been able to stay on track as easily.

  • Erin says:

    I have heard of both Dave Ramseys Snowball and the articles way of eliminating debt. Although they are both closely related I think there are pros and cons to both and I think it depends on your personality as to which one works best for you. With the articles way of doing it you will be paying less in interest overall, saving a little more money because you are getting rid of the highest interest rate first but with Ramseys way you are getting rid of the smallest debt first which makes you see results faster. For me, Ramseys way works better because I want to see IMMEDIATE results which helps me to continue on doing what I’m doing because I can very quickly see my debts being paid off, that is EXCITING!!. In the end I might be paying a little bit more money in interest but I think I’m alot more likely to stick to the debt elimination in general if I pay off the smallest debts first and then snowball it down to the biggest.

  • Kelly says:

    Well it depends on each families situation and how much debt you have. Dave Ramsey says that mathematically his system may not make sense, but if someone was “Good with the math” then they probably wouldn’t be in debt in the first place. For us Dave’s plan worked because his idea about seeing “progress early on” helped us. As opposed to tackling the biggest debt first and feeling like you are not moving forward.

  • Kacie says:

    I think that Ramsey would agree that paying off the highest interest balance first would save you the most money in the long run, BUT if it’s a high balance, it can be more difficult to stay the course.

    If someone had a $1,000 debt and a $10,000 debt and tried to pay the $10k off first, they might be more frustrated at the pace, since it might feel like they weren’t making progress.

    A big part of getting out of debt is the emotions involved, and sometimes paying off a smaller debt first can be the motivation people need to continue on.

  • Abigail says:

    I can understand how DR’s Debt Snowball method works especially for someone who is overwhelmed by their debt but as someone who makes a living in an industry dominated by playing with interest rates, I just cannot agree with it in practice. This Debt Avalanche method makes much more sense to me.

    Example: I would NEVER throw money at a low-interest debt when I had a high-interest debt outstanding, it is just not the best use of each dollar. I exercise this in practice by leaving money in savings accounts (currently earning 3%+) rather than paying down my student loan (fixed at 1.65%) and I will continue to do so as long as I can make more money earning interest on savings than I am paying in interest on the loan.

    That said, I do commend DR and agree with many of his other methods/tips/techniques, and even agree that his Debt Snowball has an important place in the financial picture of many people. For people who are not as familiar with the ins and outs of interest rates or who just don’t have the time to devote to running scenarios and finding out which is most efficient, it is a very sound, reliable method for getting out of debt.

  • Susanna says:

    Personally, I’m a huge fan of the debt snowball. When I got out of college five years ago, I had about $5k in debts that I owed. Using the debt snowball plan, I had this all paid off in about 8 months after beginning my first job (helped that I lived at home with the parentals during that time!). But the point for me was, the debt snowball method is a complete psychological boost. I cannot even begin to tell you how great I felt after I paid off that first debt – I just wanted to run down the street cheering! Instead of tracking interest rates, etc., it worked much better for me to just check things off my list.

  • It is so nice to see someone talking about doing things by the interest rate. I have mentioned this to people before, and get the “But Ramsey says” in response. Ramsey is great, he helps a lot of people, and I like most of his advice. But this is one thing I really disagree with him on.

    It really is great to hear more talk about focusing on interest rates. I also think it teaches people more about their money, it is frightening how many people don’t grasp how their interest rates affect them.

  • While I know that the debt snowball works for many people, it seems to me that the debt avalanche is the most financially sound method because you pay off your debt in a shorter period of time and pay less interest.

    But whehter than debating the merits of each method, I think it’s best for people to pick the method that works best for them and stick to it.

    The end result of the avalanche/snowball is getting out of debt. And that’s the point.

  • Iva says:

    After reading the article, I would say that the Debt Avalanche approaches debt from a logical and mathematically way and the Debt Snowball approaches debt from an emotional way.

    I think people should use whatever works for them…whatever keeps them motivated.

    It seems to me that a woman might prefer a debt snowball where a man might prefer a debt avalanche (assuming a woman is more emotional and a man more logical – please don’t assume I’m sexist…LOL)

  • Mrs. Querido says:

    I read the Debt Avalanche article. It seemed to me that the author was more interested in feeling superior than helping others out. He argued that divorcing your emotions from your finances is the superior way to handle your money. He might be right, but he forgot that humans are EMOTIONAL beings. We can no more separate ourselves from our emotions than we can separate our skin from our body.
    When my husband and I took the FPU (Financial Peace University) course, I balked a little at paying off the smaller debt first rather than attacking the higher interest rate. But when we paid off that smaller debt quickly, it gave us the added EMOTIONAL boost to pay off the others.
    The author doesn’t take into account that it is PERSONAL finance, not corporate finance. You have to do what works for you. The Debt Snowball worked for us.

  • Lori says:

    The very first time I read about Dave Ramsey’s debt snowball concept, I thought – why would anyone do that? You end up paying interest on larger sums of money for a longer period of time, and that means you lose more money in the long run.

    But from my cursory glance and Dave’s website, I got the impression that he already knows that. He seems to prefer the motivation that is gained by erasing a small debt over the extra spending. Psychologically, this may be just the thing a lot of people need… and that may be why he claims that it works so well. If you need that kind of motivation, then do the debt snowball.

    But it seems pretty straight forward to me – if your goal is to spend the LEAST AMOUNT OF MONEY, you have to get your brain past the “quick win” mentality, and set your sites on the high interest stuff first, even if it will take a long time to erase that debt. The Debt Avalanche is the way to spend the least amount of money while getting rid of debt…. you just have to find the motivation elsewhere (like setting other short term goals, as the article suggests.)

  • Hanna says:

    I was skeptical about the avalanche method until I just did the math. I think it might be a little bit faster than snowballing. Please keep in mind I am completely not an accountant, so my numbers may be way off (I was guesstimating things); however, see what you think:

    Loan A – $100 and 10% interest rate. Required monthly payment $10.00
    Loan B – $500 and 20% interest rate. Required monthly payment $90.00.
    Extra cash available – $5.00 per month

    If you put the extra cash into Loan A, I calculated that it takes 10 months to pay it off and then an additional 4 months to pay off Loan B.

    However, if you put the extra amount into Loan B, it should take 12 months to pay it off and only another 1 month after that to finish paying the balance on Loan A.

    Not a huge difference, but a difference none the less. That’s all I got. My head is fuzzing now! Someone else with better math/business skills?

  • Joanna says:

    The difference is Math vs Psychology.

    In the Debt Avalanche method, you end up spending less money, paying less interest, and probably paying your debt off faster overall- it’s just the way the math works out.

    With the Debt Snowball method, you get more “immediate gratification” of paying off loans- you see small numbers get smaller, and smaller debts get put out of the way entirely right at first. This is very motivating for many people, and Dave Ramsey understands that- what people need most to get out of debt is motivation.

    If you & your spouse are perfectly logical & math-motivated, the Debt Avalanche is obviously the way to go, because it costs less. For us, we went with the debt snowball method, and paid off almost $20,000 in student loan debt about 2 years after we graduated (it’ll be gone next month!) as well as saved up a house down payment & bought a house. If we looked at pure numbers- our savings interest rate was higher than the student loan rate for a long time, so it made no sense to accelerate student loan payments. Now, we have a mortgage with a higher rate than the student loans- again, the Debt Avalanche would have us paying our HOUSE before the student loans.

    Because we are very debt-averse, the Debt Snowball method of having the fewest number of debts made sense for us.

    And we’ll be debt-free except for the mortgage next month! Hooray!

  • There is a great debt payment calculator found here:

    You can choose which way you want to look at the debt, by amount of interest, or by balance order. If you want to do the Ramsey Snowball method, choose “balance order” in the first box. If you want to do the avalanche method, choose “interest order”. And no matter which one you choose, when it gives you your payment schedule results, it will also tell you how much more or less you would pay if you had chosen the other method.

    We do have debt, unfortunately, and I’ve used this calculator a few times. I would save less than $150 going with the avalanche (interest rate) method rather than the snowball (balance due) method. That amount is worth it to me to have the psychological boost of getting closer and closer to paying of a particular bill. I’ve already paid off three out of five credit cards in just over a year using the snowball method – I’d still be paying on four of them if I had gone with the avalanche method.

  • Lynne says:

    My husband and I personally took Dave Ramsey’s Financial Peace University course. We followed the Debt Snowball plan and were able to get rid of two credit cards, a car loan, build an emergency fund, and pay for my husband to go back to school out of pocket when financial aid wouldn’t help completely. It worked for us simply because we were committed to it and stuck to our budget we had devised.

  • Rachel says:

    As I recall, even Dave admits that going by interest rate will technically save more money– but that the point of the snowball method is the psychological effect it has. You see your debt falling away, and your payments on the remaining debt increasing. It’s more mentally satisfying than chipping away at the debt with the highest interest, because it takes longer to finally erase that first debt than it would to erase the lowest balance debt first.

    I think it just depends on the person, really. For some the snowball is more satisfying, for others they find the the avalanche more satisfying. I myself had/have a lot of medical debt, which while it has no interest has $50 or $100 payments per month. I’m more satisfied by erasing those debts first before I attack my higher-balance and higher interest credit cards. I feel like I’ll have more resources to work with once I do get to that point. I may switch my method to the avalanche when that happens, who knows…

  • Aryn says:

    About a year ago, Money magazine tested both theories and found that Suze’s method (debt avalanche) offers a marginal savings over Dave’s method (snowball) for the average person with only credit card debt. I think The Simple Dollar did a similar test.

    The trouble occurs if you have multiple kinds of debt. Under Dave’s method, you might pay off a $3,000 car loan at 6% before paying off a $9,000 credit card debt at 18%. You’d waste a whole lot of money on interest that way.

  • Bethany - Lubbock says:

    My husband and I are Dave Ramsey followers and have used his debt snowball successfully. We came together in marriage with student loans and credit cards and took his course and dug oursevles out one step at a time and did it in 2 years with a lot of work and sacrafice.

  • Stefanie says:

    Once your family is disciplined and totally committed to paying off debt, it’s better to do an avalanche method and consider tax liability. We follow Dave Ramsey’s advice for the most part, but after all of our high interest debt was paid off we switched gears and built our six month emergency fund. We did this rather than pay off my student loan because the loan is 2% interest and can be written off on our taxes. The emergency fund yields 6% interest. If at any time we change our minds, we can withdraw the emergency fund to pay off the student loan. We still pay more than the minimum on it every month though.

  • deano says:

    The “debt avalanche” appears to be focused on paying off the debt with the highest interest rate first. Dave’s way is with the smallest debt first.

    The mathematically-correct way is the highest rate first.

    But as Dave says, debt and personal finance are not mathematical, they’re behavioral issues. If we all operated in a mathematical fashion, none of us would ever be in debt, would we???

    Take the emotional high of the win of paying off even the smallest debt, and snowball that into picking off the next and the next… It’s the emotional snowball, not the mathematical…

    I didn’t follow Dave’s exact formula, but before Dave, I didn’t think paying off the mortgage made any sense!

  • SophiaOnFire says:

    Great post!

    I like ‘Debt Avalanche’ best because it just plain saves you more money due to interest – but only if you stick to it. I see why Ramsey insists on paying down the lowest first for psychological reasons, but I’d tend to recommend the Avalanche to people first.

    I give myself three months ‘off’ each time I pay off a loan. It offers me an incentive to reach the finish line, and a chance to replenish my savings and slush fund.

    I recommend keeping an online spreadsheet where you can track your progress. It’s exciting to actually watch your debt decrease!

  • Kansas Mom says:

    I’m inclined to agree with a strategy that looks at the interest rates. In our case, we’re putting extra money into savings and just paying the minimum on our student loan debt because ING’s interest rate is higher than the interest charged on the student loan. If the ING rate drops, we can always start paying more toward the loan

    Money Saving Mom here: Kansas Mom, you *so* need to listen to Dave Ramsey and get a copy of The Total Money Makeover. Get that loan paid off and get yourself some freedom!!

    Of course, if you like to carry around debt bondage, that’s your call, too. 🙂

  • Heather says:

    Our smallest debt also happens to be our highest-interest debt, so this isn’t much of an issue for us. I understand what they are saying in the article, but I also think it is HIGHLY psychologically motivating to be able to pay off a small balance in a short period of time instead of plugging away at the larger balance first. If our debts were reversed we would probably still pay off the small one first – because 2k is so small compared to 45k.

    I think if two balances are in a few thousand dollars of each other, then you should absolutely look at the interest rate. Otherwise, you should think about paying off the debt that will most motivate you to keep going. That might be the smallest balance, the one that has nasty creditors hounding you, or it might be that you see the money you’re wasting on finance charges and that is motivation enough to “stick it to the man” and get rid of the debt. Different things motivate different people, and the author of the article sounds like he is motivated enough by interest rates.

    Dave Ramsey himself says (loose paraphrase) that it’s smarter to pay off the higher interest rate first, but people don’t usually get into debt by using their head, so they’re not going to get out of debt by just using their head.

  • I’m just getting started in this whole “nose to the grindstone” get out of debt and living debt free lifestyle. I can see the arguments for both programs. Yes, it makes sence to pay off the highest debt first, but if you can eliminate a payment that’s good too.

    I’m still trying to figure out where I can get extra money so I can pay off my debt ;}

  • Lyn says:

    Like Nike’s slogan says – “just do it”. We’ve simply paid off debts by their ranking of importance and by paying off items with higher interest rates first. Personally I feel that getting out of debt takes lots of determination, sacrifice and denial.

    We are almost out of debt, while living on $21K net this year. If we can do it on our income, so can many others. I read somewhere recently that said that people who make higher incomes are more frugal. I don’t believe this to be true. I continually read about many who make good-sized incomes and still have tons of debt. I would rather be living on a lower income and be out of debt than making a larger wage and having tons of debt.

  • Kris says:

    It seems to me that they both work, you just have to be consistent and committed to being debt free. If it was me I’d pick Dave Ramsey’s way just because I’l like paying off the little debts and having one less check to write each month. Mary Hunt has some great calculators on her site that can help decide how best to pay off debt

  • Heather says:

    You know what though? It’s a little silly to quibble about the method someone chooses – either way you GET OUT OF DEBT!! WAY TO GO to everyone who is working hard at this, whatever way you do it!

  • Amy says:

    Marney — Pay off those credit cards first and don’t use them again! 😉

  • Jan says:

    We follow Crown (used to be Larry Burkett) and they advocate paying off the smallest debt first, then apply that to the next, etc.

  • Cole & Lia's mom says:

    Personally, I don’t think $0 debt is a necessary goal for everyone. We are in good financial shape, in that we pay off our credit cards every month, and both our cars are paid off. We do have a small mortgage which will be paid off in 4 years — but in the meantime, the interest portion of those payments is tax deductible. So, the APR on your mortgage is higher than what your actual out-of-pocket is, because of the tax effect. For that reason, any debt that carries non-tax-deductible interest should be paid off first. That, of course, is from a purely economic perspective, not taking into account any emotional factors which might affect you — these have not been an issue for us so we are able to look at pure economics.

  • Wow I’m impressed you avoided debt while your husband was in law school. That’s where all of my debt came from!

    Anyway, the debt avalanche definitely makes the most sense to me. I never liked the Dave Ramsey approach because it doesn’t make sense to me to pay more interest to get a slight psychological boost.

    I get my boost from calculating how many fewer months I will be sending checks to Sallie Mae, if I just send a little more each month. Just yesterday I increased my minimum due by $90 a month and cut 28 months off my payment time!! That is boost enough for me!

    The problem I’m having lately though is my interest rates keep changing on my student loans, because of all the current economic turmoil. So I’m constantly having to reconfigure what I’m paying to who 🙁 This complicated monthly bill paying process is one of the reasons I really want to have no debt and I admire your ability to do so.

  • mommyoftwoboyz says:

    We have a math geek here in our family and we are aware of the whole interest rate math, however this is how we approach it. (maybe different for us because we are self employed) We go smallest to biggest, because if we were to have a down turn in our business, our monthly obligations are less and less the more debts we get paid off (for instance car loans and student loan payment amounts don’t decrease as it goes down) So if you spent a long time paying off a large bill and you had a job loss or something happened you are still obligated to the same amount of money for bills that could have been paid in full if you took the debt snowball route. So that is why we do the debt snowball approach! Not merely for the psychological boost. This is also how we have figured out that the small $1000 emergency fund works too for DR because if you have a big snowball going after a little while that could essentially get added to you $1000 for a little more money and you wouldn’t create any more debt. Just my two cents.

  • Heather says:

    We have ben following Dave since early this year. I pledged to follow him to the T just to get rolling and then tweak along the way if need be.
    So that said I did do the ” Debt Snowball”, I paid off a student loan and a credit card a total of $5000 by June.
    Although we still have $18,000 debt not including our mortgage- it sure feels great to have just 2 measly bills arrive every month! It keeps me pumped and by paying $250 a month towards that credit card instead of $100 makes me feel I am really making headway!!
    My husband fought me and would have done it by highest interest first, but we would not have bee nable to delete a creditor that way and since I handle all the finances- I did it the Dave way- hoopefully we can get together on these matters in the future.

  • Flexo says:

    Money Saving Mom: Thanks for sharing my article with your readers. There are many great comments here.

  • Krista says:

    This is for Maria who asked about the 0% credit cards –

    Pay off the credit cards before your mortgage. Should something happen, you could probably sell your house and pay off what you owe on the mortgage. I bet that is not the case with your credit cards. Credit cards also have other fees associated and as you’ve seen, the rates change and you’ve already been moving that money around for 6 years. Focus on paying it off, and then you can stop the interest rate dance.

    As for the general topic at hand, I prefer paying off any dramatically smaller debts first to get some momentum and motivation and then paying larger debts off by the highest interest rates. I’m a math person, so the avalanche appeals more to me. My husband is an impulsive person, so the quicker motivation of the snowball method is better for him. We tried to compromise and find a good balance between the two. Regardless, if you stick with either program, you’ll pay off debt, which is the important thing.

  • Tammy says:


    Dave explains in later chapters that the Debt Snowball is for consumer debt. Paying off your home is comes after consumer debt, emergency fund, maxing retirement savings, education savings, etc. Hope that helps!

  • Stephanie says:

    I agree with what Flexo said to Maria. Pay off those credit cards! You should be getting to that in Dave’s book – pay off consumer debt, then work on the mortgage.

    I won’t go into the pro and con or reasoning behind each method; those have been covered well so far. But I will share what we did. I learned of Dave Ramsey while we were working off paying our student and car debts. This was immediately after we graduated. I had never heard of the “avalanche” method till now, though that is what we used. Being math people, we both knew that paying off highest interest first would get us there while paying less money. We didn’t need the quick returns that the Snowball method relys on because we didn’t have a problem with spending and not saving, per say. Instead, we created a graph of the anticipated “Pay Off” date of all of our combined debts. Each time we paid off another debt, we would recalculate the “Pay Off” date. It was so encouraging to see that date move closer and closer. As we paid off some of the larger ones, we would celebrate. I had origionally determined to pay off my debts within 5 years of graduating. Then I got married, and we combined our debts. Together (with almost exact amounts of debt) we paid off our debts in 2.5 years! Yeah, we didn’t travel to see family and friends like we would have wanted, we didn’t eat out a whole lot, our house was pretty bare, and our “vacations” were visiting with family or a weekend camping trip. But it got done.

    I don’t think it matters so much which one you use, just that you GET IT DONE. =) We did this same aggressive paying on our last house and had it almost paid off in 2 years. Having no other debts frees you to do stuff like that. I keep thinking of how much money we will be putting into our savings when our current mortgage gets paid off (I’m hoping in another 2 years). What freedom that will be. After that I don’t want another debt; not even another mortgage.

    It can be done. So for those of you on this road, keep going. The end is GREAT!

  • Jen says:

    In the end the amount of money saved it usually very trivial. I am talking about less than $1000 and sometimes less than $100. So, put it into a calculator first to see what happens.

    However there is another reason I like the Debt snowball more. Let’s say your highest interest debt is $1000, while your lowest one is $500. Say the minimum payment on both is $50 (not realistic I know but stay with me). Starting with the lowest balance first you will free up that monthly payment sooner. That way if something “comes up” it may be possible to use that money instead of dipping into your e-fund if it is something small. Plus, if you do have to dip into your e-fund you have some money freed up already to pay back into it. If you are not at a point of snowballing yet and you start with high interest first, it is going to be a lot longer before you have any extra money freed up.

    If you want to join my snowflake challenge this week click on my name. You can win a free book from David Bach!!

  • Erin says:

    We did something similar to Dave Ramsey and it totally works! Like someone above said, I think it is more of a mindset change than anything else!!

  • Jeanne says:

    Honestly, the kind of squabbling that goes on debating interest first vs. smallest balance first cracks me up. If this was about math, the people that are so tightly strung up with the interest and money saved wouldn’t have borrowed money in the first place.

  • I’m a math/logic person (or I thought I was). I tried to get rid of debt for years and years paying off the highest interest rate first. But my debt level remained “about the same” at about $5000 total. Somehow or other it was not GOING down!

    Then we went to a Crown Ministries seminar where they mentioned two things; It does not make sense to have money in savings and credit card debt. And the snowball method.

    I cashed in my “Emergency fund” stock and used the money to pay off my car. Then took the $300 a month I’d been paying on car loan and started throwing it at the lowest balance of credit card. Pretty soon (about a year) they were ALL gone. Then the $300 a month went into savings.

    Fast forward three years. My husband quits his job to go back to school. I get pregnant and we have a baby. We are moving back to Texas to be closer to family. We have $40K+ in savings sitting there to help pay for schooling, pay for move, and enable us to make this decision without having to find a job down there first. We can get God’s prompting to move, and Just Go.

    It makes me sick to think how much money I wasted before I got serious about paying off debt.

  • butler5 says:

    I feel that we need to keep it simple. If you focus on interest rates then it could take a lot longer to pay off. Yes you may save more money in the long run, if you are able to keep the energy up and actually pay everything off. If you pay by the smallest debt first you see success, feel proud and become more motivated.
    I have heard of so many people rolling their debt into smaller interest rate credit cards and never really getting anywhere. I fear that if you focus on that factor that is the way you may go too.

  • Mommyof2boyz mentioned something very important – minimum payments due. Assuming your working on credit debt here, you’re going to have a monthly minimum on each one that’s only going to go down very slowly as you pay down the accounts. Each account still open is going to require a certain minimum that you *have* to meet each month, and if something big comes up that eats into your extra payments, you’ve still got ALL those minimums to meet. Paying off the snowball way gets some of those minimum payments out of the way more quickly. Then, if something comes up for the month and you don’t want to dip into your emergency fund (or it’s bigger than your emergency fund!) you can back off the extra payments, but you don’t have to worry so much, because you’ve now got fewer minimums to meet than you did when you started. I am SO glad that I only have two minimums to meet each month now, rather than 5!

    I highly recommend using that debt calculator, it’s very simple to use and easy to understand. And if your debts don’t have widely varying rates, the differences in the two methods are probably not as big as you might think they are.

  • marney says:

    Tammy and Heather: It’s Maria @ 12:30pm that has the 0% interest rate on credit cards (I wish!) not me! I paid off my house years ago!!!

  • Martha says:

    This is a little off topic, but since you touched on it in your post, I was wondering if sometime you could share what you are using for disability insurance. I’m quite concerned about this since I’m a single mom. There is no one who *could* go to work should I become disabled. Thanks!

  • Allen says:

    Just a thought on this topic…what about this view? Perhaps it might be a good idea to keep things like mortgages and student loans because of the tax benefits on interest paid. Meanwhile, invest the extra money that you would have been paying in a “snowball” or “avalanche”. Considering that, over time, the markets have earned 9% yearly. I’m not saying there is anything wrong with paying off debt early, just wondering if this opposing view has merit. Of course, you’d still want to get rid of any credit card debt and vehicle loans ASAP.

    Money Saving Mom here: So, to reverse that, you’d borrow on your house to invest money in the stock market or mutual funds? Because basically that’s what you’re doing when you keep the debt bondage on your home in order to invest money.

    But if the financial experts are recommending this, that would explain why most people nowadays are struggling so much financially.

    By the way, I just have to say it: you really need to read what Dave Ramsey has to say on this. 🙂

    I don’t know about you, but I personally like the benefits of owing no man anything. It sure is F-R-E-E-D-O-M!!

  • kristen says:

    I think it is true that if you were THAT hung up on the numbers and interest rates, then you wouldn’t have gone into debt in the first place. But I also believe in a heart-change and someone who didn’t quite pay close attention to the “numbers” can have a change of heart and really learn and grow and want to pay more attention to the numbers as they get out of debt.

    It looks as if most of what can be said has been said in the previous posts. . .I know I’m preaching to the choir here, but one thing I did want to mention is that paying off the smallest debt first doesn’t “eliminate” a payment from your monthly budget, but you keep paying that same amount onto the next highest debt. (Now, I know most everyone understands this, but I just didn’t read about it in the posts). So you don’t “free up” cash each month by paying that debt off because you just keep paying that payment onto the next highest debt, and so on, and so on, until you knock out all your debts. I think, in that way, you aren’t wasting too much money buy doing the snowball because you are able to put the big “snowball-ed” amount onto that high interest debt (depending on what order it comes in)which will pay it off quicker. Also, according to the “gazelle intense” approach, you throw anything and everything extra you can at that debt. That alone could hasten your debt reduction dramatically. I know a couple who only could pay $.92 extra onto a debt one month, but by golly (yes, I just said by golly), that’s what they did with that $.92!!! THAT is being motivated and gazelle intense!!

    Anyway, I really appreciate this site and love the daily motivation it gives me to stay on my written budget. We are a family of 6 and have just under $12,000 to pay off(not including the mortgage). Seems like a drop in the bucket compared to some others’ debt, but with a family of 6 living on 55,000 a year, it sure is slow-going. Thanks for the motivation!!!!

  • michelle says:

    I’m a law student and I’m interested to know how you made it through with no loans at all. Did you have to work to support your husband?

  • Shannon says:

    Rolling the debt around ruins your credit score for later on down the road, when say, you want to BUY a car instead of leasing. We called our cards and lowered the interest rates, and the highest one we negotiated a set price of paying it off within two months with the company. They took a couple thousand off of the balance and settled it with us. It didn’t hurt our credit at all. After two years of paying what we could on all of them, we are credit card debt free. I WILL say this, CITIBANK is THE WORST one out there. Beware of their offers, there are always strings attanched. Cutting those cards was SO liberating and freeing when they were paid off!!! I loved calling the companies and canceling them. I say pay off the highest debt first, but if there is a smaller one you can completely eliminate, then by all means do it.

  • My Boaz’s Ruth:

    I’m not sure how much you had in your emergency fund, but I’d really caution against everyone just cashing it all in. Yes, it does not make sense to have a massive amount of savings in the bank at 2-3% interest while having credit debt many times that rate. But if you don’t have a financial cushion, you could end up right back in the hole.

    We recently had to put about $700 of work into both our cars. If I had not had money in the bank to cover that, almost the whole amount would have gone on the credit card, and my credit reduction would have gone kablooey. I was SO thankful to have that money in place! I even did a Frugal Friday post on it the following Friday.

    Moral is, don’t keep tons in savings when you’ve got debt, but do keep some.

    And I can’t wait until we have the debt paid down enough to start putting lots in savings – I love having savings! 🙂

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