Where Dave Ramseys Debt Snowball Fails

Where Dave Ramsey's Debt Snowball Fails

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Last updated on August 27, 2022 Comments: 30

I’ve written extensively about how Dave Ramsey’s “Debt Snowball” does a disservice to families and individuals struggling to get out of debt. By acquiescing to the emotions of money, those who most need to separate emotions from their financial decisions don’t. Not everyone who is in debt are in that position due to emotionally-driven decision making, but many are. When you look at total time spent getting out of debt and total cost, making the choice to take a less emotionally-driven approach to getting out of debt is better. No decision is never fully logical because we are human, but the ability to recognize the pull of emotional decision-making is necessary for improving financial decisions in the future. And in some cases, people just aren’t aware that the Debt Snowball method is potentially more expensive and more time-consuming than other options.

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A reader encountered a different problem when applying the Debt Snowball method. Here is her experience, slightly edited:

SnowballA few years ago I found myself in $27,000 of credit card debt. I heard about the Ramsey Debt Snowball method and liked it, so I tried it out. It worked well, and I paid down one of my three credit cards quick! Then I got a letter from the second credit card. They were not happy simply receiving the minimum payment while I was paying down the first, and they considered me a “risk” because of that, so they bumped my interest rate from 9% to 18%. WOW! I was shocked!

I started my own way to pay down my debt: the transfer method! I transferred all my debt to the lowest interest card, that was 5%. Then a few months later, I started hunting down 0% interest cards. When I found one that had at least a term of twelve months, I transferred a portion of the balance on the 5% card to the new 0% card that I could pay off in twelve months. Then when that was paid, I’d hunt again, and transfer out another portion I could pay off during the 0% promotional period offered.

What this reader experienced could happen to anybody, regardless of the debt payoff method. It could happen even if you’re using the mathematically superior Debt Avalanche or if you’ve created your own hybrid method. Despite the new regulations as a result of the Credit CARD Act of 2009, credit card companies can still change your interest rates in limited circumstances. The reader must have run afoul of one of the few situations in which issuers are allowed to raise interest rates on existing balances.

Using credit cards that offer a limited-time 0% APR on balance transfers is one way to immediately reduce the amount of interest you’ll pay over time. Even with a balance transfer fee of 3%, you could save money if you play by the credit card’s rules. You’ll also need to consider the impact of opening a new line of credit; if you’re looking to buy a new house soon, a new credit inquiry and account could temporarily lower your credit score, forcing you to qualify for a higher interest rate on a mortgage.

If that type of consequence is not important to you, you can save interest costs by finding the right credit card introductory deals for as long as you need to pay off your full balance. If you don’t pay off or transfer a balance under a 0% APR program by the deadline however, the issuer will likely charge you their regular interest rate, even on the balance you had paid off until that point. It’s a sneaky trap, especially when combined with a credit card issuer that doesn’t reliably send out statements.

Keep your eyes open if you plan on playing the 0% APR balance transfer game. Although it was related to 0% APR on purchases, not balance transfers, problem many years ago with a credit card company that penalized me with back interest after not sending me statements.

The reader continued, offering tips for other readers hoping to take advantage of 0% APR balance transfer offers to pay off debt:

Now with this method you definitely must make sure that you make your payments on time, and be sure that you can pay off any amount you transfer during the 0% promotional period. Also, take into consideration the fee for transfer, which usually is around 3% of the balance. I have been doing this for a few years and I am proud to say that I am down to my last 3 payments (balance of $2900 at 0% interest), and have managed to save $10,000 in a liquid savings account. I hit these payments with $1,000 a month.

It took lots of discipline, so if it is important to you, look through all of your bills and see what you can cut out. I have a basic home land line (just a dial tone and basic internet), no cable, just basic cell phone with texting (no web or data). I use coupons avidly, eat out rarely, and buy clothing on clearance or shop at thrifts. I also do some hobby work on the side that covers my gas expenses and kids lunches for school. This has worked for me and my family, and being a single mom, I think I have done pretty darn well! The sacrifice has paid off. Beware of that Ramsey Debt Snowball. You might get one slammed right in your face like I did!

Again, this circumstance could happen with any debt repayment plan — not just the Debt Snowball. Remember to read all the statements that come from the credit card issuers so you don’t miss an important notice like an interest rate change. Any changes would require you to re-evaluate your plan for paying off debt.

Photo: OakleyOriginals

Article comments

Brian Goetz says:

I did a hybrid snowball payment plan with a new car in mind.
I took my higher interest card and put them into a 0% interest credit card for 18 months and again 18 months later.
I knocked out $50,000 of debt in 4 years, and now I can afford a car I really want.
I know the last part is not Dave Ramsey’s plan, but it’s my hybrid plan and financially smarter because of it.

Chris says:

No credit card company sends out letters to customers saying they are a risk because they are making only the minimum payment. Even if they did, who cares! They can’t fault you for making the payment, even if it is the minimum amount. Get your facts straight. Doing multiple 0% balance transfers are is not the “snowball” effect. Again get your facts right. Terrible financial information.

Cassie says:

How would a debt snowball function when you continually have more debts coming in?!

Stephanie Colestock says:

Cassie, the goal is always to be throwing as much money as possible toward your debt. If there’s more debt continually being added on, though, then you don’t really have the “extra” cash to be putting toward your debt in the first place.

Would you mind telling me a bit more about your situation? Are these student loans, credit card debt, etc? Regardless of your exact debt, your primary concern here should be to NOT add more of it to the pile. Once you do, you’ll also be paying interest on that debt — which will suck up even more of your cash flow.

If money is just too tight, you should be paying the minimum payments that you can get away with, while ensuring that your budget is balanced enough to cover monthly expenses. Do everything in your power to avoid another penny of debt being added. Trim ALL of the fat — no eating out, carpool/use public transportation to work, cut out cable, maybe even move back in with your parents (if that’s an option). Refinance loans if possible. Get a different car if your monthly payment is too high. There are so many options.

Once you get to the point where you are covering your basic expenses, making at least minimum payments on debts, and still have a little cash left over, THAT’s when you can implement the debt snowball (or avalanche). Attempting to throw extra money at your debts if there isn’t extra money to begin with, and increasing your debt balances in the process, just won’t work.

Anonymous says:

You are providing a lot of misleading information here ! Every time someone transfers a balance to so called “0%” Intro APR credit card, they get charged a minimum of 4% balance transfer fee on the entire balance. If you do this twice in a year, you will end up paying a ton of fees instead of interest. You might want to clarify that for your readers.

Luke Landes says:

The comments from the reader in the article clearly points out the drawback of balance transfer fees. There is no misleading information, but everyone should be aware of how balance transfer fees can hurt. Thankfully there are some cards that offer intro offers with no fee.

Anonymous says:

The debt snowball method is safer than the avalanche method because it will free up cash flow, and that has value. Blindly following the avalanche is stupid if your highest interest rate has a large balance, because your risk of default and/or needing to borrow to pay for an emergency is higher since you are not freeing up any cash for a long time.

Anonymous says:

I’ve gone thru the gammont of about every which way to pay-off my credit cards and what I did was put my mind set to paying off my credit cards……… not just pay the balance down, because I think both are 2 total different mindset. Paying off is just that , now it will be hard but it can be done and it doesn’t matter what you make ( provided if you’re employed) , the key to this is pay on it( and not the minium amount) and try not to make another charge on the same card that you just made a payment on because if you do, then the process takes longer than it can and you end up spending closer to the amount that the credit approved is granted
If you have more than 1 credit card, then you have 1 to many IMHO . it can be done….You have to want to do it..

Luke Landes says:


Good advice and great attitude.

Anonymous says:

This is a horribly flawed example to use in your personal vendetta to ‘expose’ Dave Ramsey’s snowball method.

First: Dave always pushes people to transfer balances to a lower or zero balance credit card if possible, which should have been a part of this woman’s plan from the start, even with the debt snowball method.

Second: Dave points out himself that while there are other ways to mathematically pay less overall in paying off your debt, he has developed his system for the majority of debtors out there who start off with your system, which by the way, is the first method any logical person would come to on their own, pay off the highest interest rate first. However, as anyone who has read any amount of Dave Ramsey’s literature, the snowball method has several benefits over the the standard method of paying the highest rate first.

One aspect is the emotional benefits of early success, which is an obvious one. It takes time for people to separate their old emotional attachments to money, and seeing these early successes jumps starts that process, and does not hinder or prolong them, as you seem to believe.

In addition, when you have many differing debts to pay back, and are dealing with a set income, and a set amount of minimum payments each month, you only have a set amount of income above your monthly minimum payments to work with paying off your debt. By focusing on the smaller balances, which often are not proportionally the same in overall balance as they are in monthly payments, this can free up much more in your monthly income in the front end, giving you a lot more options for success early on. First instance, one of my lowest balances is a vehicle, however it is also one of my highest minimum payments. By paying this balance off first, I can free up a lot more money each money not only to pay off the next lowest balance, but also on a monthly basis, if something comes up, or changes, I have more fluid income that won’t cause me to backtrack and miss a payment, or dip into my emergency fund.

Dave’s entire plan is setup to keep people moving forward, not backward. And for the large majority of people in debt out there, this is the key, not getting there the fastest, it is simply getting there succesfully.

You don’t set out to run your first marathon and win it. You set out to simply finish, and then improve from there.

Luke Landes says:

First: Not everyone has access to a zero balance credit card. In fact, someone recovering from debt problems is going to have difficulty signing up for any new card, much less one with a benefit that’s offered to those with higher credit scores.

Second: Dave may point out that there are other options, but not everyone of his followers receives that message judging from the comments of many Dave Ramsey followers, and those who do, don’t consider it because they’re apparently being told to ignore people who disagree (an ingredient in successful cult-like behavior).

Emotional benefits of early success: In most cases, even when paying the high-interest-rate card down first, you still have early successes like paying off a card in full. Even if you don’t, you can re-frame success milestones slightly differently for the same emotional impact.

Your math is off in the next paragraph. If you have a set amount of leftover income to pay off debt, the only way to have the most most money to pay off debt faster is to pay the highest interest rate first. The only way to free up your monthly income to the maximum is to reduce the highest expenses on the front-end.

Both plans move people forward. The Avalanche method moves people faster, and there’s no hard evidence to support that people are more likely to give up if they follow this method than if they follow Ramsey’s. But Dave is *telling* people they’re more likely to be successful, and this seems to have a “living down to expectations” effect. People who are never told that the Avalanche method isn’t as successful as the Snowball method are just as likely to succeed in paying off their debt, until there’s a study that proves otherwise.

To use your marathon analogy, using the Avalanche method is running a straight 26.2 mile marathon. Using the Snowball method would be running a marathon but adding up to another, I don’t know, four miles to the path and still calling it a marathon. It’s taking a detour and getting to the finish line later.

Now, I’m all for a mixed approach. I don’t care what path someone takes to pay off their debt as long as they move forward. There are many circumstances where debts should be prioritized in a manner that has nothing to do with balances or interest rates. But they should do so with the full understanding of what they’re sacrificing, and in the case of the pure Snowball method, they’re sacrificing time and money. Their own time and money. And if they don’t value that, then they haven’t really learned the lesson of sound money management, unless they understand this sacrifice and have some other legitimate reason for trading it off for something else. And because “it feels better” and because “Dave Ramsey told me so” are not legitimate reasons.

Anonymous says:

My point is, no one, not even Dave Ramsey, is refuting your so called ‘debt avalanche’ method as being mathematically the quickest and least costly method. That is easy to show, and again is the first logical method people should come to when attacking debt. This is a legitimately effective approach if you are able to consistently adhere to the plan from start to finish.

However, none of the above diminishes the effectiveness and purpose of Dave Ramsey’s approach. Literally thousands of people have become debt free using Dave’s approach, and this could only be true if his approach worked, and it does. This is a great thing. Dave has taken the usual approach, the logical mathematical one like yours, a step further to address reality, and that is what actually happens as most people pay off there debt: things change, and people lose motivation. This is why hes has found such success, because he has found a solution the not only works, but it identifies with the majority of people out there.

I find a lot of great material on this blog, but the numerous times I have seen you address Dave’s methods as inferior, flawed even as outright wrong, and to tag ‘your method’ as the ‘debt avalanche’ using a blatant ripoff of Dave’s ‘debt snowball’ just diminishes your overall message, and really comes across as frustration or jealousy of Dave’s success.

Luke Landes says:

I have no vendetta or animosity against Dave Ramsey. I’m happy he’s helped a lot of people, and like every successful guru, he has a way with connecting with people on an emotional level.

I’m not saying the Debt Snowball isn’t successful, nor am I saying I’m the first guy who came up with the idea of the prioritize-by-interest-rate method. All I’m saying is a lot of people are leaving their money on the table without realizing it, and it’s a shame that there are people who are willing to do whatever a popular guru says without thinking for themselves, even against their own best interest. The Avalanche method, or whatever you choose to call it, has all the advantages of the Snowball method plus the benefit of the potential to save money and time.

I chose to call it the “Avalanche” as a play on Dave’s Snowball because it’s good imagery.

That is all. Not once have I made it personal. Well, except maybe the title of this article, but that’s just to get people’s attention, and apparently it works. If you do read material on this website, I think you would see I don’t make issues personal. My only goal is to get people to think for themselves when getting out of debt, and if they choose the Snowball method with the full understanding of its drawbacks, at least they’ve made an informed decision.

The only way to go to the mat with a strong voice like Dave’s is with an equally strong opinion, which is the reason I go so far as to call the Avalanche the “correct” method. I think you’ll find in my writing that I am quite comfortable with the idea that everyone has their own path and there are many approaches to the same goal, but the best decision is an informed decision.

For further reading.

Anonymous says:

Your Alalanche realy makes no difference at all to the time it takes t pay off the debt. And there will be little difference to the overall interest either. If £500 is all you have or aim to create to throw at your debt every month, then by paying off the lowest first, it wiill still take the same amount of months as if you were paying it off last Also by paying of the smallest ones, you rapidly increase your credit scores, which will help keepthe interest rates stable as credit card companies know, that as you begin qualifying for alternative credit company offers, you are likely to jump ship if you get a better offer.

Paying ff the smallest is designed to give you the sense of accomplishment that keeps you on track with the plan. It makes no sense to have a ow interst on £700 while you have a high interest of £6000 and then attempting to pay of the £6000 first, you will feel like your skiing very slowly up very steep mountain.

The point of ‘snowballing’ or debt accelorator margig as John Cummuta calls it, is that you find a regular amoung of extra money and point it where is gves you gains, be that the smallest debt, or at an asset that will help increase your income or reduce your expenses.

Analysing the interest rates will keep you stuck in the paralysis of analysis. If you need to analyse anything, look over haow much interest you have paid since the debt/credit card interest first began!

Anonymous says:

My husband and I are applying the Dave Ramsey method now, and we actually did in fact look at other options, like 0% APR on transferred balances, ect. We came to the conclusion that there was no way we were going to start applying for more credit in order to pay off the credit we already had. Dave Ramsey clearly states in his explanation of the snowball method that you may end up paying more in interest in the long run, but that if you start with the smallest debt amount and throw everything you have at it while still making minimum payments on the other cards, you will get the first one paid off quickly. Then, you apply the payments you were making to the first debt amount to the next one in addition to the minimum you were already paying. My husband hates this idea, and so we began our snowball with our federal return. We paid off 3 major creditors in one day, and had the rest of our plan already in place to take over the following month. There are many ways of making the snowball work for you, but you have to write out a budget first, stick to the budget, and stop spending building the debt.
I would never consider transferring balances and hunting for more credit to be a safe option to pay off debt. All it does it make it easier to spend money and increase your debt.

Anonymous says:

Way too many words in this post. You keep saying the same unoriginal crap. Debt avalanche. Come on.

Only one word matters. In her letter, she even highlighted it with quotes


That is the only way to rank debt repayment. Not by rate, not by balance, or size or color or first letter or amount payment.


If you have a debt that can balloon, or owe the IRS, or a debt to your potential father in law, risk is a greater consideration than your mathematically superior theory.

If you own a loan shark, you better pay that off first. Even if you have a CC with a higher rate. Tough to pay anything off if your legs are broke, or the IRS garnishes, or you piss him off, so he tells his daughter no to you, and she walks.

Adoreandu says:

Where do you live that a father can deny his adult daughter the right to marry the man she wants to? Sounds like an awful place.

Anonymous says:

Excellent insights thanks for sharing this. Kudos to your reader, to her resourcefulness, and to her dedication to getting this done.

Anonymous says:

I’m conflicted on this. As we all know, mathematically, paying as much as possible on the highest APR debt and the minimums on all the others will 1) pay off all the debt faster than any other method, and 2) result in the least interest expense. Working to minimize APRs, through transfers for example, would speed the process.

But there’s an assumption implicit in the above: The debtor follows the strategy flawlessly, like a computer program would. We can make our aim persuading debtors to do just that and show them examples of the dollar difference between the snowball and the method above, but the reality is, in my opinion, that some people are more likely to succeed in meeting the goal–paying off debt–under the snowball method. I think debtors should do an honest self-assessment, or get the help of a credit counselor, to get a feel for which method is most likely, given their unique personality and circumstances, to succeed in fully retiring the debt.

And the main thing is: Rather than spending a lot of time procrastinating and contemplating the nuances of competing debt payoff methods, GET STARTED!

Anonymous says:

Disclosure: I got here via your @DaveRamsey tweet. While I had studied various “less emotional” payoff methods in the past, it was only the *very simple* debt snowball method that actually helped my wife and me become debt free! In every other attempt, we somehow kept playing with it, thinking we were smarter than the “system.” Not only are we debt free, but we are looking at our finances in a completely new way. All this was an emotional change.

Your article seems to have an undercurrent of: “be careful paying off that debt…” a fear-based approach that seems to aim to keep folks in debt. For the record, I know that there are debt-reduction models that are *very slightly* better than the debt snowball, but for me the proof is in the pudding: I’M DEBT FREE!

Thanks to Dave Ramsey and all those who make a living setting people free.

Anonymous says:

I’m glad I’ve never been in this position but I feel people should have knowledge of the different methods on at least a high level to determine what is best for them. If I read Dave Ramsey only and was in debt I’d think it was the only way to go despite being more of a rational rather than emotional person when it comes to money.

Anonymous says:

It always floors me when credit card companies use the “you were late with your payment” or the “you’re an increased risk” to raise someone’s interest rate, and the usual minimum payment hike that comes along with it.

Yeah, we think you’re having financial difficulties, so we’re going to make it even HARDER for you to pay your bill. Does nothing more than raise the risk that they’ll just stop paying all together. Makes no sense to me.

Anonymous says:

It makes sense from the perspective of: We aren’t sure that you will pay us in the future, so we’re going to get as much money out of you now as we can.

Anonymous says:

The story in this article is a bit misleading. Credit card companies cannot raise the APR on existing balances, future purchases only. Therefore, there is no reason for that person to pay a 3% fee or whatever, it is a complete waste of money!

Luke Landes says:

It could be that the reader had his or her minimum payments raised rather than interest rate, or there was some other problem with the relationship. Credit card issuers *can* raise interest rates on existing balances, even after the Credit CARD Act and the resulting regulation, in limited circumstances.

Anonymous says:

Everything I’ve found has said “A penalty APR or any other interest rate increase can only be applied to an existing balance if you are over 60 days late on payment.” Since that wasn’t the case with the reader, I too am curious what really happened here.

I’m also curious what wording they used in the letter communicating the increase. I am sure it didn’t say anything about their happiness! I would be extremely surprised, even before the CARD Act, if any bank raised your rate for *paying off* other cards, since that lowers your utilization and thus makes you a better risk.

Anonymous says:

One of the major changes of the Act was the end of the practice of universal default(raising the rate on say, your BOA Visa because you’re past due with Wells Fargo’s Mastercard)

So I’m pretty sure the company mis-communicated or the reader misunderstood in saying the rate on that card was increased for anything related to their actions with another.

Anonymous says:

Interesting. I wonder why the second CC company considered the reader a risk just because they concentrated on paying down one card at a time? Seems like the approach almost any responsible person would take.

Luke Landes says:

Here’s why I think this happens. The “change in risk status” is basically the only reason a credit card company can give, due to new regulations, for raising the APR on existing balances. As a result, credit card companies are simply raising users’ rates with this excuse for any reason they see fit. The companies probably have a legitimate argument if they say that “most people who pay just the minimum are doing so because they have some sort of financial problem,” thus someone who does this behavior — even if for no other reason than they have organized their debt into a Snowball pattern — can be thrown into a riskier bucket than where they belong.

Anonymous says:

I also wonder was she paying more than just the minimum before and moved to paying just the minimum to throw more at the other cards?