There is a certain money guru out there who has recently taken the personal finance community by storm. I wasn’t going to mention him by name at first but, hey, what the heck-I am speaking about Dave Ramsey. Now, obviously the man has some very good ideas about improving your personal economy. I see him on TV and advertised at speaking engagements all the time.
Having said that, it is not my place to say that he is wrong or stupid or crazy or anything else, because, well, he’s a lot more successful than me. And honestly, I have never really taken a good, hard look at the ideas that he has.
However, I do question some of the things that he talks about. One of them I think is loosely associated with his concept of the “debt snowball.” I think what he proposes is that you write down all of your debts on a piece of paper, from the one with the smallest balance due to the largest. And then he suggests attacking your debt that way. I guess the point behind this is to be able to enjoy the satisfaction/motivation of eliminating the number of debts that you have. I would consider this a “psychological approach.”
I do not think that this is the most effective way to go about attacking your debt. First, the number of debts that you have as far as I’m concerned is completely irrelevant. I think it is more important to look at your overall debt picture from a dollar standpoint-how much money do you owe? The second question to ask is-what is the cheapest and most effective way to go about eliminating it?
The way I dug myself out of debt was this. And trust me; I was probably as deep if not deeper in debt than most of you out there. I organized my debts on a piece of paper according to the interest rates associated with each debt. With the highest interest rate going at the top of the list-a much more logical approach. From there, when I was able to, I would send the minimum amount due to all other debts, and send the most money that I could to the debt that had the highest interest rate. This is a more cost effective way of eliminating your debt compared to Dave Ramsey’s concept.
Of course, it will probably take you longer to actually cross the debts off of your list, but it will cost you less money in the long run.
Don’t get me wrong, I am all about motivation and I wanted/needed as much of it along the way as anybody. However, I would not sacrifice cost-effectiveness in solving my debt just to have a little boost every once in awhile by crossing an entire debt off of my list. Grab your motivation from the fact that now you’re going about solving your debt in the most efficient and cheapest way possible. If you’re on your way to paying off your debts, I doubt any lack of motivation receive from crossing a debt off of your list is going to sidetrack you in the least.
To learn more ways to improve your personal economy, stay tuned for my soon-to-be-published book, Don’t Be A Mule-A Common Sense Guide to Saving More, Spending Less, and Generating Extra Income in Your Everyday Life.
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