Why the Debt Snowball Method Doesn't Work: How to Pay Off Credit Card Debt FAST

[@DowJanesFinancialEducation]

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[@mbvx7]

The reason the regular debt snowball works is in a situation where you have 4 cards: $800 balance with a $50 a month minimum. an $1500 with a $75, a $2500 card with a $100 minimum, and a $5000 card with a $150 minimum. You pay off the small one and then you use that extra $50 to pay on the $1500 card that has the $75 min, Then when you pay that off, you use the $50 AND the $75 (as well as ANY extra) to go along WITH your min due on the $ 2500 card. So now you are paying the $100+$50+75 ALL on that one card with $2500 on it. At that rate, you will pay it off MUCH faster. Then when that is paid you then use the $175+ the $150 min to pay off that last card. If you spend all your time on that $5000 card with the highest interest, then you will just keep paying massive interest on all of the other cards. So I disagree here.. you use the snowball method because it works. That final card is getting $310 a month and that will pay that largest loan off crazy fast.

[@ourchickensandgermanshephe1851]

Exactly!

[@RichV20]

WRONG

[@michaelday6987]

The reason why Dave Ramsey suggests the Snowball method is because it is part of his overall baby steps. Not just an individual tool to win with money. If you are FAITHFULLY doing the Baby Steps, you NEED to do the Snowball method. Remember, your savings is only $1000. Your FIRST goal is to reduce your minimum monthly payments as much and as quickly as humanly possible. When an emergency comes up, you will need to return to minimum monthly payments while you get through it. This will leave you with more available cash to withstand that emergency, because you have have reduced the number of monthly payments you have to pay. Otherwise, this is a perfectly valid way to pay down your debt.

[@michael_mackley]

Perfectly described. Life happens and things break or emergencies occur. A person may need to temporarily default back to paying minimums on everything to get through a hardship. Can't do that if one is just focusing on the largest debt first. But if 3, 4, or 5 smaller debts are paid off, it frees up so much capital.

[@martin4819]

I really like your approach…..I think the psychological effect of being able to feel progress is a powerful motivation to keep continuing, so I was glad to see that you included that as a first step. I think a lot of people just need a taste of progress and could then continue successfully to what makes more math sense (paying off the highest interest). I view it as being similar to working out or losing weight….people just need to get over the inertia. People though just need to be honest with themselves and their psyche. People also need to look at the actual numbers….say your highest interest debt is also your largest debt, and would take two years to pay off……I can see where people might lose motivation and where it might make more sense to pay off all the small ones and leave the largest for last.

[@dozergetscrafty]

Fortunately for me my smaller debts are also my higher interest.

[@DailyDadMode]

So you start with snowball for first debt then move to avalanche method for remaining debts, got it.

[@marshallwise1763]

Divide your minimum monthly payment if that is all you can afford and make 1/4 the monthly payment. Each payment the credit card company receives forces them to recalculate the interest, saving you $$ and paying off your debt sooner.

[@Pihlalorjoone]

@@marshallwise1763 It depends on the exact terms in the contract, but it could help a bit.

[@PVLocalFirst]

thank you for the video, one thing I'd like to mention is how the words economy and ecology have the same Latin root word, eco, basically translating to home. To me, this shows that to have a healthy home, we need solutions that are both economically AND environmentally intelligent.

[@Pihlalorjoone]

The snowball method has TWO advantages: 1. the psychological advantage, which you mention, and 2. the fact that with snowballing your mandatory payments go down as fast as possible. In other words: snowballing is the method which reduces your financial risk as fast as possible. The Dave Ramsey method is focused very much on debt- AND risk-reduction. What your "smart' method is doing is: get a higher profit (ie less interest paid) by running more risk. Your channel would benefit if you called it out like that. It would help viewers to make a better educated decision.

[@Pihlalorjoone]

All debt-payments are mandatory, ie fixed costs. Higher fixed costs are a higher risk, lower fixed costs are a lower risk. The snowball method usually lowers the fixed costs faster than the mathematical fastest method. Thus the faster lowering of risk. The mathematical fastest method usually leaves the fixed costs higher for a while, but saves a bit more money overall. Either method works, pick the one which fits your preferences, based on honest and complete information. And please stop the name-calling, it is usually a sign of somebody being a bad loser. And it does not help the quality of your channel...

[@nicolejackson3133]

Thank you. I'm going to check my interests rates.

[@rw9347]

How come every time I start paying some debts down, it seems some type of money is needed and back to the debt because I don't have enough money saved to cover that purchase like a hot water heater or something?

[@rosemarieklei5438]

It appears that any method is going to depend on the behaviors of that person in debt. Behaviors are the blocking factor to get out of debt.

[@CK-J16]

7% interest rate sounds like a dream- try 28-32% here in South Africa. NO WAY to get out of that. 7% is not even what you pay on a home loan here.

[@PVLocalFirst]

With this in mind, the Federal tax credit for Solar PV and solar hot water panels is 30%.

[@kevini4295]

I'm not worried about the math. I have about 8500 in credit card debt and a crappy credit score because of it. Maxed out low limit cards. I just paid off the smallest one at 29% interest. That was 500 balance. Moving into the next smallest one. Again 27/28% interest. Do what works for you.

[@blackdiamond4584]

How much do you recommend you save before starting paying the debt?

[@DowJanesFinancialEducation]

You should save a $1,000 emergency fund to start with. You can learn more about emergency funds here: kzbin.info/www/bejne/gZurf2aAhtqXgpY

[@pamelafunk]

Thank you

[@DowJanesFinancialEducation]

You're welcome 😊

[@THutch052]

What’s the best way to get rid of a huge IRS debt?

[@shachede6828]

Calling them to negotiate and monthly payments. It’s different other debt

[@miguelsandoval8203]

When you add math people don’t stick to it, snowball method is effective because it’s easy to understand and it’s effective ..

[@Kessadayo]

Thank you!

[@DowJanesFinancialEducation]

You're welcome!

[@Jypsie415]

Great suggestions, but the jerking of the video, zooming in and out, was nauseating.

[@jdssurf]

Hi, I have a balance transfer card ending in a couple months, 5k for transfer and 2400 for purchases. Then, a card for 3500, on for 2500 and one for 600. All high interest rates. Balance card is 150 per month, next is 105, next is 85 and the other only 30. My real goal is to get rid of monthly payments ASAP. I can’t decide to focus on one of the 3500 or 2500 cards, or start hitting the purchases portion of that balance transfer card…. Hitting the balance card it’s still gonna be a long time befor I can full rid that payment,,but one of the others I can pry do fairly fast. However 23.0 interest will start accruing on the transfer card once the zero percent ends in a couple months. Any thoughts

[@danieldugan6870]

It’s not a math problem it’s a behavioral problem. Stick with Dave’s method.

[@Undisputed00]

No

[@donaldlyons17]

Not if it is a numbers problem

[@debraabbey5732]

Dave Ramsey? The Christian?

[@kittyweisman6655]

This IS Ramsey’s method. It just doesn’t cost you more.

[@globright9127]

Nah he doesn't know what he's talking about. What he does may work for him but not for everyone. He also gives inaccurate information on a lot of things for example his explanation for VA loans was way off. I do not trust the guy.

[@SenorTucano]

You were $40K in debt? Those were rookie numbers to my ex-wife.

[@greekfootball9576]

Peace

[@angelicavelasquez554]

The continuous zooming in and out of your video is very distracting, and I had to make myself finish watching it. It was like nails on chalk board. Just food for thought for future videos.

[@rlmercer18]

Guess Dave Ramsey got it wrong - thanks girls!!

[@AlchemistaAcademy]

I am learning so much from you ladies. I just signed up for your course and there is so much I didn't know. Thank you for all your are teaching me