Is there any evidence that his approach is more effective? Has he really identified this or is it just advice in the style of a diet or lifestyle guru?Mathematically,of course you should pay off the highest interest loan first.What Dave Ramsey has identified is that the likelihood of someone sticking with accelerated debt repayments and the associated hardship that goes with it (rice and beans!) is greatly increased with a few early wins by killing small debts early in the process.
It's lifestyle guru advice aimed at getting the financially illiterate to buy his books and online courses.Is there any evidence that his approach is more effective? Has he really identified this or is it just advice in the style of a diet or lifestyle guru?
ya he mentioned that debt is a behavioural issue before a mathematical issue and that by clearing a smaller debt first people will build momentum to attack k the next one.Whilst the logical thing to do is to prioritise the loan that attracts the highest interest rate, potentially there’s merit in killing-off a cheaper loan more quickly if it generates momentum and keeps the person motivated. It depends on the individual.
I don't think there is anybody like him here. he is very entertaining and has helped a lot of people in USA create an easy to follow plan to tackle debt. it is eye opening to how much debt some people are in over there. student loans, credit cards etc. I wouldn't be able to sleep at night. combine it with lesser social welfare/pensions, scaryDo we have anyone like Ramsey in Ireland? I find his show fairly entertaining. It also really opened my eyes to how rich a lot of Americans are. I know it's a bad sample but it seems everyone in Middletown USA working a job that would get you maybe €60/70k in Ireland is on $150k. They also LOVE debt.
Do we have anyone like Ramsey in Ireland? I find his show fairly entertaining. It also really opened my eyes to how rich a lot of Americans are. I know it's a bad sample but it seems everyone in Middletown USA working a job that would get you maybe €60/70k in Ireland is on $150k. They also LOVE debt.
I don't think there is anybody like him here. he is very entertaining and has helped a lot of people in USA create an easy to follow plan to tackle debt. it is eye opening to how much debt some people are in over there. student loans, credit cards etc. I wouldn't be able to sleep at night. combine it with lesser social welfare/pensions, scary
Potentially lots of things may have merit. But I doubt that there is any evidence that the approach is effective. It's a shame because it would probably be possible to do a decent study on this. 3 cohorts with people with debt who want to pay off debt, each given an hour's free financial advice:Whilst the logical thing to do is to prioritise the loan that attracts the highest interest rate, potentially there’s merit in killing-off a cheaper loan more quickly if it generates momentum and keeps the person motivated. It depends on the individual.
The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each remaining balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.
Here’s how it works:
Step 1: List your debts from smallest to largest regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
Now, before you start arguing about the interest rates, hear us out. If your largest debt has the largest interest rate, it’s going to be a long time before you start to see a dent in that crazy balance of yours. But when you stick to the plan (without worrying about interest rates), you’re going to be jumping up and down when you pay off that smallest debt super quick. That excitement is what’s going to motivate you to keep working hard—all the way to that debt-free finish line.
Maybe it doesn't stack up behaviourally either. Hard to say without any evidence so without evidence it's expensive bad advice.I've been dipping into the Ramsey Show these past few weeks. It's entertaining and informative but I would be selective about what to take from it, especially in an Irish context. Some of the salaries are eye-watering, but so too are the levels of consumer/student debt that these high earners are carrying.
The 'debt snowball' concept doesn't stack up mathematically but, behaviorally, I see the logic in attacking your lowest debt first (and paying the minimum on the rest), just to create a sense of momentum and help you to stick with the plan.
Their assumptions on investment returns and safe withdrawal rates in retirement (10-12%) are too risky IMO.