6 Reasons Dave Ramsey Is Totally Wrong About His Favorite Debt Payoff Strategy

When it comes to paying off debt, Dave Ramsey's "debt snowball" method has gained a loyal following. Ramsey contends that by focusing on eliminating smaller debts first, you can build momentum and motivation as you work toward becoming debt-free.

But is the snowball method really the best strategy to crush your debt? Critics point to some significant flaws that might make you reconsider this strategy.

Here's a closer look at the debt snowball method and why it might not be the smartest choice for your financial journey.

The debt snowball method prioritizes paying off your smallest obligations first, regardless of which of your debts has the highest interest rate. Once the smallest debt is paid, you roll that payment into the next smallest debt, and so on.

In contrast, the debt avalanche method targets debts with the highest interest rates first, saving you money over time by reducing the amount of interest you pay.

While the snowball method emphasizes psychological wins, the avalanche method focuses on the math of minimizing costs.

Here are the reasons why the debt snowball strategy might not be the best approach for you.

One of the biggest downsides of the debt snowball is that it can cost you more in interest over time. Since the method doesn't prioritize high-interest debts, they continue to accumulate costly charges while you tackle smaller balances.

For example, if you have a credit card with a 20% interest rate but focus first on a smaller loan with 5% interest, you could end up paying hundreds — or even thousands — of dollars more than necessary.

By ignoring interest rates, the debt snowball method can extend the time it takes to pay off your overall debt. High-interest debts grow more quickly than low-interest ones, making it harder to get ahead.

On the other hand, the avalanche method reduces the principal on your most expensive debts faster, potentially shortening the repayment timeline for all your debts and helping you reach financial freedom sooner.

The primary appeal of the snowball method is its promise of quick wins that will boost your motivation to continue paying down debt.

However, if you're already determined to pay off your debt, you may not need this psychological boost.

For those who are disciplined and focused, the avalanche method provides a greater sense of accomplishment by showing progress through reduced interest costs and faster debt elimination.

And getting rid of your debt quickly is the key to growing your net worth faster.

Advocates of the debt snowball method argue that paying off small debts entirely provides the motivation you need to continue to pay down debt. But it's also possible using this approach could destroy the momentum you already have.

After all, if you pay off one small debt but see the cost of the rest of your debts continue to rise, it might discourage you enough that you throw in the towel and abandon your attempts to become debt-free.

Another overlooked downside of the debt snowball is its potential impact on your credit score.

Paying off small debts in full often results in closed accounts. When an account closes, it can sometimes lower your credit utilization ratio temporarily.

When this ratio — which represents the percentage of your available credit that you are using — drops, it can cause your credit score to dip, although this is usually temporary.

Meanwhile, the high balances on larger debts remain and could potentially grow, which could also hurt your credit if they aren't addressed promptly.

Balancing debt repayment with maintaining a healthy credit score can help with long-term financial stability.

By focusing on paying down your smallest debts first, you might get the impression that paying down debt is relatively easy.

That mistaken belief can lead to a rude shock when you are forced to slog through paying down bigger debts.

Paying down debts is usually a challenging process. But no matter how difficult it becomes, it's always worthwhile.

If neither the snowball nor avalanche method feels right, there are other strategies to consider. For instance, debt consolidation loans can combine multiple debts into a single payment with a lower interest rate.

Balance-transfer credit cards may offer 0% APR for an introductory period, helping you chip away at your debt interest-free.

Additionally, working with a credit counseling agency can give you access to personalized advice and assistance tailored to your financial situation.

The debt snowball method may offer quick psychological wins, but its flaws — such as costing you more money in interest and extending the time to pay off debt — are worth considering.

Exploring other strategies such as the debt avalanche method or other alternative solutions can lead to better financial outcomes.

As you reflect on your journey to become debt-free, ask yourself a question: Are you prioritizing short-term motivation over long-term savings, or is it time to rethink the approach to managing debt?