Pay Smaller Debts First: Dave Ramsey Was Right

Brent Pittman —  08/17/2012
big car vs. small car

Pay off your smaller debt first. Credit Jesper2cv

Have you struggled with the question of paying down your smallest debt first, commonly called the debt snowball method, or paying down the highest interest rate first?

I’ve had this discussion with many as I’ve coached families on their finances. Both methods work in theory, but which method will most cause the most people to be successful over the long term.

I’ve advocated paying smaller debts first. It seems both Dave Ramsey and myself were right.

Pay Smaller Debts First: Dave Ramsey Was Right

The basics of  the debt snowball involve paying your smallest debt first regardless of the interest rate.

It seems and is now proved by researchers David Gal and Blakeley McShane that the the debt snowball method wins over paying off your highest APR% first.

The researchers based their data off 6,000 people who paid off their debt and how they did it through a large debt settlement company.

So Dave Ramsey, Crown Financial, and many other groups and financial coaches were right. Behavior trumps math.

Behavior Trumps Math

Why doesn’t pure math work in personal finances? Simple. We are human and not robots. Humans aren’t 100% rational–we have emotions.

By using the debt snowball method, we’re able to see quick victories, get a boost and go on to fight the next battle.

“We conclude that there is evidence that the mere existence of achievable subgoals motivates early goal persistence,”- David Gal quoted in Moneyland

We need to win and win quickly when approaching debt. If you try to eat that big elephant or even a small horse it’s going to take a while and most will just give up.

Small Victories = Success

As you approach your debt payoff, weight loss, or other goals. Both the research and antidotal evidence points toward setting smaller goals and achieving small victories as quickly as you can.

Action: Break down a goal into smaller subgoals. If it is debt–use the Debt Snowball Method.  I’ll see you at the finish line!

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Brent Pittman

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.
  • I get it. The psychological boost from getting rid of one debt trumps all. Our minds are not always rational.

    • debt is not rational in the first place if you really think about.

  • krantcents

    It makes sense, if you need the encouragement. I would just add all the debt together and pay down the highest interest rate debt, but I am extremely disciplined.

  • AverageJoe

    Isn’t it funny that we have to trick ourself into winning? I use milestones this same way. I’ll always try and cut big goals into smaller ones. Right now I have a huge client project. My motivation: write 1,000 words per day toward it and it’ll get done soon. Sure enough, I’m almost there!

    • Wow! Sounds like a fun project! Will we get to read it or is a private project?

  • I’ve been pondering this for a few months now.. I have not been consistent with how I am paying my debt. Sometime I pay more on one card than another. I think this is a pretty good idea and I think this post has just given me the push to start doing this as of this month and next. I think the fact when you pay one off it gives you some satisfaction. This will propel you to keep up the hard work and do the same with the rest.

    • Ryan, Awesome! Please let me know when you’ve paid it all off! You can submit your debt free story to Slow Roasted Money too.