We do have a good income, but my credit cards don’t put me in debt. They keep me organized, get warantee/breakage coverage, and provide rewards, cash rebate. The safety of not walking around with $1000 in my pocket helps a bit as well. I’ve not paid a cent in interest since I was young and stupid, over 20 years now.

As an educated numbers guy who years ago always struggled with paying off debts, I can relate to BOTH sides of this argument. I continued year after year of trying to pay down debt (highest interest rate first), in nearly the same situation that is outlined in the example: One large debt with high interest, a couple of moderate debts with moderate interest and several small debts with low interest.

I kept trying to pay down that large debt and never seemed to make progress. And having the smaller debts just getting by with minimum payments creates an unnecessary amount of stress. Those bills were always hanging around and still needed a lot of attention.

About 4 years ago, I first learned about Dave Ramsey and the pay low balance snowball method. What he talks about, mainly staying out of debt, makes total sense. And it is common sense. Sure it isn’t the “mathmatical” way to do it, and he always says that if we were doing things on pure mathematics, we wouldn’t be going into debt in the first place. Mathematics says, if you don’t have the money to pay for something, you can’t buy it. Because if you’re borrowing money to buy it, you are paying MORE for it that it is worth because you will be charged interest which increases your cost of what you bought.

I tried out paying the smaller balances first, and low and behold, those quick wins by paying off many of the smaller debts, created a ton of motivation to get everything paid off and become debt free. The stress relief of having fewer bills bombarding me every month was enormous.

The mathematicians, accountants and financial world LOVES to bash Dave Ramsey, calling him all kinds of unfair things. But if you truly think about it, his advice is pure common sense. Just stay out of debt. And if you’re in debt, this method will provide you with the most successful way to get out of debt. I truly believe now that it wasn’t the math that was the problem, it was me. I needed those little victories of paying off the small debts to see the finish line.

Yes, there is a cost to paying the lowest balance first. He concedes that every day. But the chances of getting the out of debt victory are higher. As a mathematician, would you totally ignore (for example) an 75% success rate over a 25% success rate? As someone who has been on both sides of the fence, you cannot ignore the high probability of failure and the continuing cost of trying to kick-start failure after failure of a debt snowball by paying the higher interest first.

And the comments above about his audience being “uneducated” or not having degrees is total B.S. I believe it is just the opposite. The vast majority of the people that call his show are people that have graduated college and now are working have student loan debt that they don’t know how to pay down, along with their 2-3 cars, credit card debt and $300K homes. The lower income callers are definitely in the minority. Doctors and lawyers call every single day because they are drowning in debt. So that “uneducated” audience assumption is totally wrong.

Also, he does NOT ignore when you have such a high interest on a large balance. He is constantly advising people to move high interest debt to lower interest rates in most cases.

Yes, he is a teacher, and God bless him for that.

My question to people is this: If your household income is $100K/year and you have an emergency fund of 6 months, why do you see the need to keep your credit cards and go into debt? It makes no sense, for ANY income.

My $.02.

Another fact that I find interesting is that that there is (believe it or not) a valid mathematical justification for paying off debts by size of balance. Most credit cards charge a sizable late fee if your payment is even one day late, and for most people, there is a nonzero probability that they will accidentally forget to pay any given bill on time for whatever reason. By paying off your smallest balances first, you reduce the total number of bills that you have to pay over the lifetime of the debt. Even though these fewer bills represent a larger total amount of money, the trade-off can be worth it if you are forgetful and prone to missing payment deadlines. The exact strategy that works best depends on your situation. If, as in Joe’s example, the difference is $4000, then you’re not likely to save that much in late fees or interest on the late fees, but for a difference of $400 or so, it might be worth it.

Two cents (maybe from someone who one way or another has worked a little more with the masses? I would bet money that the overwhelming majority of those reading and participating here are four-year college educated, and so you are writing for a much more literate audience than the nation at large.)