Dave Ramsey’s Snowball Method vs. Suze Orman’s Method for Getting Out of Debt

Here’s Dave Ramsey’s Snowball Method for paying off credit cards:

Step 1 – Make a list of all your credit cards, ranked in order from the highest balance to the smallest balance.

Step 2 – Beginning with the card with the smallest balance, pay as much as you can on that card while paying the minimums on the other cards.

Step 3 – Once the card with the smallest balance is paid off, take the amount you were paying towards that card and apply to the card with the next lowest balance.

Step 4 – Keep on keepin’ on until ALL the cards are paid off.

Now, contrast Dave’s Snowball Method with Suze Orman’s Method found in The Road to Wealth:

Step 1 – Figure out the largest possible amount you can afford to pay each month toward all your credit card balances together.

Step 2 – Add $10 to each minimum payment that your credit card company is asking you to pay.

Step 3 – Add up all your minimum payments plus $10 added for each card.

Step 4 – Hopefully the difference between the figure found in Step 1 is GREATER than the figure in found in Step 3. If so, apply the difference to the card with the HIGHEST interest rate.

Step 5 – Once that card is paid off, you continue the process (Steps 1 – 4) until ALL the cards are paid off.

Which method’s the best?

Dave’s Snowball Method is great for boosting self-esteem since it gives you a great feeling when you have paid something off. It’s also a great feeling to take the amount that was applied to the smaller card balance and ADD it to the payment on the next smallest card.

Suze’s method makes the most sense mathematically since you are concentrating on the card that is costing you the most. And, once you get that card paid off, you can start on the next card. I also like the fact that you are paying MORE than the minimum payment each month, which is pretty much ignored with Dave’s Snowball Method.

The main thing to take away from this is to get your cards paid off as soon as possible. The method won’t really matter that much when it’s all said and done.

What do you guys think? Do you prefer one method over the other?

79 thoughts on “Dave Ramsey’s Snowball Method vs. Suze Orman’s Method for Getting Out of Debt”

  1. Malcolm – I sure have. I used my debit card and rented from Enterprise for 3+weeks after a car accident. NO problem. I haven’t used credit cards in over three years. I’m NOT debt free, yet – still have the two car payments and loan my in-laws made to hubby when he was 18…but breaking the pattern of I-want-it-I-must-have-it-now-and-make-payments-for-it-later means we can afford to lose my income after our baby is born…THAT is priceless.

    As for my credit score, I got a great apartment with a lower rent than the big complexes offered…the guy didn’t even RUN my application before telling me the unit was ours if we wanted it. I spoke directly to the owner; asked how he evaluated his tenants, was frank about having been in a mess, blunt about never going back there again. I pay early every month and will have a great reference when it’s time to consider a mortgage.
    I listen to DR, but guess what? My decision about getting out the hole was made years before I ever heard of him…so was getting rid of the cards and, here’s a shocker, not buying something if I couldn’t afford it.
    DR’s plan is (un)common sense. The debt snowball is only one part of it. I suspect for someone who has the discipline to fight through, inserting SO’s plan into Step 2 of the DR plan would yield a similar result. The key is the discipline. And that discipline and drive is easier to maintain when you see results…one less phone call from a creditor…one less bill in the mail…one less thing to worry about each month. The relief is indescribable.

    I don’t miss my credit cards one little bit. Nothing that I ever put on any of them is part of my life now.

  2. I have to tell you that I follow BOTH Dave Ramsey and Suze Orwman.

    I am very grateful for Dave where on his website I saw in plain math that I was overspending about $700 per month. I thought there was nothing I could do. I felt very discouraged. I watched on Sunday morning (from the Saturday night CNBC) Suze Orman show and she provided some encouragement from her talks to viewers. I could also hear Dave scold me for making dumb moves – I don’t think it was bad to hear Dave’s comments , in fact it’s something I needed to hear. I tell you, between the two of them, I cut down my expenses (got rid of two cleaning service, car washes, gym service, extensive vacations), sold two cars I couldn’t afford, and by this September, will be out of debt. I’m amazed. This was the first year thanks to Dave that I followed my budget, had enough to pay the property taxes, car, flood and homeowner’s insurance in cash (so strange to pay it in full). Thanks to Suze, my FICO score has gone up… and it has never been so high…refinanced the home at 5.25% no points fixed, get credit card offers of 0% (which I’m not taking). The next step is cutting them all off (but for me.. want to wait until I have six to eight months of emergency fund. Then…I plan to considering the emergency fund as an inverse credit card…where if I use it, I have to pay it back.

    In a nutshell, I’m grateful to both Dave Ramsey and Suze Orman!!

  3. The same philosophies could be applied to a hypothetical weight loss scenario:

    If you were a 5’6″ individual who weighed 250#, under which set of circumstances would you be motivated to continue working out at the gym?

    1) You go to the gym 3 times a week to work out. At the end of six months you lose 50 pounds instantaneously. (Suze)

    2) You go to the gym, and by the end of the second session, you weigh yourself and find you’ve lost one pound. By the end of the next week, you’ve lost 3 pounds all together, etc. (Dave)

    Which is going to keep a person going? A goal that’s painful, long, and seems unattainable, or the one that shows small but quicker results?

    Just like being skinny seems a difficult/impossible goal to the obese, being out of debt seems like an impossible possible goal to those used to living through debt. Small victories are proof that the plan a person is on is working. Without the quicker results that show the plan is working, there is no motivation to make difficult personal sacrifices and try to conquer the impossible.

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  6. I was in this ‘bad place’ years before Dave or Sue were in the public eye. I had the good luck to have a CPA who admitted to me, it was much easier to ‘do as I say, not as I do’. Anyway, I took his ‘do as I say’ advice. It was similar to Daves, but took into account interest rates (think Jimmy Carter years with 18+% interest on bank loans, and credit cards that looked like loan shark rates).

    The first major sin in economics is to run out of cash. So, get on the positive side of a cash flow curve. If the ‘easiest’ is to pay off a couple of ‘small debts’, then do it. Then attack highest interest rate ones first, with the positive cash flow. Just because you have cash or you have debt, doesn’t mean you can spend on anything except ‘necessities’, you still cannot spend on ‘wants’.

    Necessities include,
    1) all payments current
    2) a short term cash buffer ($1,000)
    3) pay off credit cards, in the order of
    a. highest $ payment / $ total to be paid
    re-evaluate after any pay raise or
    a credit card is paid off.
    This raises cash flow fastest
    (Dave’s style).
    b. highest interest rate first (Sue’s style)
    4) when payments are under 30% of your gross,
    set aside more money to go with the $1,000
    cash buffer, and fund it until you have
    6 months of living expenses. Keep this in
    an interest bearing savings account. Not to
    easy to get to, but there if you need it.
    5) Once credit cards are paid off, and you are
    have 6 months of buffer, start (1) give away
    10% of your income, save 20% (roth IRA is
    great, but anything helps! this is LONG
    TERM savings), live on the rest (70%).

    If you have an emergency you CAN spend the
    ’emergency fund’, but you MUST replace it
    starting NOW, as fast as possible from regular
    cash flow.

    That does not mean just spend it. From that
    SAVE for short and medium term expenses.
    Like, cars, insurance premiums (don’t pay the
    ‘service charges’ that allow monthly payments)
    buying school clothes, etc.

    DO NOT use a credit card as an emergency fund.
    You can use a credit card, but pay it off

    Yes, some months are hard and it would be easier
    to ‘just bend’ the rules. But that is just being
    tempted to fall back into ‘old habits’ that are VERY hard to brake.

    Have I had debt since then? Yes, a house, but we did pay our last one off, and it was a relief to have it paid off!

    I also got a loan on a car, at a high interest rate once. But as soon as I could arrange to get money from a savings account (it was in another state and took almost a month, with all the checks needing to clear … many years ago), I paid it off in full before the second payment was due. The dealer called me up and told me I cost him money, because the kickback that dealers get on loans have some contingencies built into their agreements that make them take some financial risk in case the loan is paid off to soon. I informed them that I lived up to the terms of the agreement I signed, and that if they had an issue, they could take it up with the loan company they contracted with. I wasn’t popular with them, but I got the car on the terms I wanted within all legal and ethical means.

    Anyway, you can get out of debt. No one method will be optimum for everyone. But any of these work. Start one, and start it now.

    Sue’s may be mathematically more correct, Dave’s gives more psychological feedback sooner. My combination worked. Just do one. ANY one, but do it!

    Oh, how to my finances work when I liked it the best? Give 15%, save long term 15%, save for medium/short term $10%, blow 5%, now save and live on the rest for daily expenses. I have tried this before and after taxes, either way, it works. If you do it before taxes, you need to put a 30%+ factor for taxes in there.

    I have friends with businesses, and they ‘tithe’ their business. Most have been blessed. This means after considering, income, expenses, including overheads, they give 10% before they consider they are making a profit.

    To give, I prefer religious organizations, but if you are not a believer, give anyway. Give more to one place rather than $5 to whomever asks. I would suggest any of: Habitat for Humanity, Heifer International, Angel Food Ministries, Red Cross or Red Crescent (ifrc.org), your local PBS TV station, a local homeless family shelter, or to a college that your and your family did not attend, SIL.org, and go get involved with the organization.

    Jesus taught, and it seems to be true even in non-religious arenas, that giving helps the giver more that the receiver if the gifts are given in the right frame of mind. Giving helps us keep in mind that money is a tool, and important tool, but only a tool to help make life worth living.

  7. Perhaps list all debts under 10-20% of your total debt.
    Line those up in Interest rate order and pay them..
    Then line up the remaining debts and pay them off in interest rate order.
    Quick wins/low hanging fruit for morale – but then reinforcing the pay off the highest interest rate line

  8. Personally, I use the which one has the highest monthly payment method. If I can eliminate a $500 monthly car payment, then I can certainly apply that $500 monthly towards other debt. And they all seem so small after that.

  9. For all the math geeks:

    If interest rate is such an important consideration when paying off debt, then why did you borrow money at a high interest rate in the first place?

  10. I am glad to see a lot of comments on this topic. Dave Ramsey’s way isn’t about math as far as adding interest over time. But Killing the lowest debt first with all your might and keeping that ball rolling. If you ever been to a FPU class you know that most people are in some tight spots and are not there to learn math. IT is very emotional and that is the biggest driver. Debt Free For Life!

  11. I would just like to say that, as a person who has tried to “outsmart” debt by moving it around, and then by paying the highest interest rate debt first, and failing miserably, I am now firmly aboard the Dave Ramsey plan. What I LOVE about paying the smallest debts first is that, regardless of the interest rate, it’s one less bill each month, one less due date, one less minimum payment, basically one less hassle. It may cost a bit more interest in the end, and when I’m finally down to the last two or three of the largest debts I will most likely switch to the one with the highest rate rather than the one with the lowest balance because they are about the same balances, in the meantime I’m enjoying looking forward to opening one less bill every month where something is finally paid off in full…and we haven’t used the credit cards since starting the program, something I wasn’t able to do previously for any length of time because “emergencies” kept coming up. We’ll be on step #2 for four more years…but at least we’re making progress and not going backwards. Paying the smallest debts first works best for us.

  12. What most of you anti-Dave posters are not understanding is that Dave DOES tell you to get your cards down to lower interest rates to save you $$. He doesn’t want you to keep them at high rates throughout the snowball.

    But paying down the lowest balance is the absolute BEST way to do it. If you pay the highest interest rate, you could be paying it for several months/years and ALL of your other bills will still be sitting there every month.

    By paying down your lowest balances, you may have several of them knocked out within just a few months, therefore leaving you with just one or two bills to pay off. How awesome is that?! That in itself is a huge win and will keep you on the path to freedom.

    And, by the way, those of you on here that are justifying keeping your credit cards around ‘just in case’, that is BAD news. You don’t need them. If you walk with a plastic crutch, you will always limp financially.

    And one more thing…

    You only need a credit score to go in to debt.

  13. Some of you don’t get it. Since getting out of debt is 80% psychological and just 20% head knowledge, paying off the debt with the highest interest rate will take MUCH longer and most people will tire and quit because they don’t see results quickly. By paying off the smallest debt and then using that money to pay off the next smallest debt (and so on), there is instant reward. You see the plan working almost immediately! THAT boost to a person’s psyche will keep them working to get debt free. I am a volunteer facilitator for Financial Peace University. My husband and I paid off $18,000 in debt in just one year. On a $94,000 income we have just our $824 house pmt. When I begin teaching in the fall we can add another $36,000 to our income. We don’t use credit. We use our Visa Debit card all the time. We drive older cars and we choose not to be house poor. We are able to donate to all the causes we love, help family and friends, and NOT worry about being broke or opening that dang mailbox to find it filled with bills(as we once did). Dave’s program has proven success. Start by reading his books at the library. Then consider paying the $100 for his classes; they are WELL WORTH IT if you are truly serious about taking responsiblity and getting yourself out of debt. Good luck to you.

  14. Dave Ramsey does admit, though in passing, in Financial Peace University, that, yes, indeed, paying more on the credit card with the highest interest rate does make more mathematical sense, but, yes, he attaches great emotional value to paying off a credit card, completely, and that is likely going to occur by paying off the lowest credit card balance, first.

    Either way, in terms of pay-off time, the difference is not that great, in my experience. So… even though I have the mathematical background, myself, I am learning to appreciate the emotional benefits of the Dave Ramsey Debt Snowball philosophy!

    Phillip S Foster CPA
    Dave Ramsey Endorsed Local Provider

  15. Getting deep in debt is not just for “irresponsible” people. I’m really tired of hearing that from people who have been lucky to avoid disasters in the last few years. To those people.. try living in hurricane country, having serious family medical problems, skyrocketing medical and insurance costs (that literally mean life-or-death) and major reduction of income at work.

    After years of trying to pay down credit cards, them having to use them again in real emergencies, if finally occurred to me that we were looking at the wrong priorities. Unless you close a card, it will be extremely hard to pay down during a period of reduced income.

    So we switched to paying only CC minimums, and instead pay extra only on our physical assets, via Snowball method.

    Every payment on a car note, house note, etc., -permanently- rids us of principal on a debt that cannot not reappear through any future borrowing (like CCs).

    And, should we lose all of our income and have to declare bankruptcy, etc., at least we will not lose our home and automobiles. For that matter, after paying off a physical asset, you then own 100% of a physical asset that you can later sell . Or, perhaps even borrow against at a lower rate to pay other high-interest notes. Once we safely OWN all of our physical assets, we’ll switch back to paying down the credit cards.

    Since switching a year ago, we’ve paid off a car note, our primary mortgage, and some farm equipment loans. That has freed up a lot of money to finish our remaining notes, plus the satisfaction of outright owning our major assets.

    Many of the strategies posted above are clearly “pencil exercises” written by fairly well-off people who have never personally experienced danger of losing everything they own!

  16. I am doing Dave’s plan I really am onboard with it. If you are a math nerd and are worried about the interest you would have never used a credit card to began with. you were wanting something that you could not afford at that time. instead of saving up for it, and paying cash for it.

  17. Dave’s plan is more than what you said. It also includes a zeroed out budget, which you pay any money extra that you have onto your debt. Suze’s won’t work if you cannot afford 10 dollars more on each. Dave’s will as you end up paying more than the 10 eventually, but you only pay as much as you can…

  18. Orman’s advice is as dumb as Ramsey’s, as both of them lack any basic knowledge of mathematics.

    PAY OFF THE HIGHEST INTEREST FIRST. That’s the only correct advice, no matter what those uneducated “financial gurus” tell you.

  19. I appreciate the debt snowball tactic, specifically exactly how Dave suggests accomplishing it. If you happen to be instructing the world like Ramsay, something everyone is deficient in is definitely drive. The majority of people must be enthusiastic to keep proceeding, therefore start with the tiniest personal debt and pay it off first.

  20. I think this issue is 99% emotional, and 1% rational. People get into serious CC debt not because they are making rational financial decisions, but rather making emotional financial decisions. I think the roll up method is completly appropriate in this case because people struggling to pay off CC debt need all the emtional motivators they can get.

  21. I sat down one night and did hardcore math looking at every possible scenario to determine the fastest and cheapest way to pay off my debts. Here is what I found:

    (background information – I have about $106,000 in debt from 25 different accounts – student loans, cars, and credit cards for both me and my wife)

    The snowball method would put me out of debt the fastest and would save me the most in interest (by a couple thousand dollars) if my monthly payments were minimum to minimum +$200

    Paying off the highest interest rate first would get me out of debt faster and cheaper only if my monthly payments were higher than minimum +$300

    Although it doesn’t make “sense” the math shows that the snowball method is indeed the fastest and cheapest way to pay off debt, but there is a threshold at which that no longer becomes true based on how much over the minimum you are able/willing to pay.

    Hope this helps.

  22. I go for Dave Ramsey. It’s a clear-cut way to live worry-free about money.
    I am currently on Step 6, myself.
    I’m blogging about how I plan to pay down my mortgage by age 30.
    Check it out if you want.
    I am living a happy life, and now a less materialistic one… thanks to Dave.

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