Dave Ramsey Is A Hack And A Genius

Written by on June 11, 2012 in Money - No comments | Print this page


Total Money Makeover is an effective method for getting out of credit card debt.

Credit Card Debt Destroys Life. Total Money Makeover advocates an effective but inefficent way to get out of debt.

Dave Ramsey has become the voice in paying off debt. Many people love him and some people despise him. While much of the information that he exposes can be found on internet sites, such as this one, no web site will ever reach as many people as Dave Ramsey has. While his methods are not the mathematically fastest or cheapest way to pay off debt, they are certainly the ones promoted the loudest. In many ways that really does make them the best.

There are many ways to pay off debt. Many that are cheaper and quicker than Dave Ramsey’s approach, but financial freedom isn’t just about the numbers. It would be nice if people made financial decisions based purely on reason and math. They don’t. Feelings, confidence and a since of reward also play a large part in it.

The Total Money Makeover Strategy

Dave Ramsey advocates taking 7 “Baby Steps” to get out of debt and gain financial independence.

These 7 steps are:

  1. Save $1,000 for an emergency cash fund.
  2. Do the Debt Snowball strategy.’
    1. Gather all credit card bills.
    2. Start paying off smallest bill first.
    3. Repeat paying of each bill from smallest to largest.
  3. Complete the emergency fund with at least 3 months worth of savings.
  4. Invest 15% of income in a retirement fund.
  5. Set up savings for college.
  6. Pay off the mortgage.
  7. Start investing and enjoy life.

The Debt Snowball

The core of this philosophy is the debt snowball. It is where many financial advisers disagree with him. It is why many newly debt fee people love him. The debt snowball strategy is where he is very wrong. The debt snowball strategy is where he is very, very right.

The basic idea is the same as anyone else would advocate use extra cash to pay off high interest credit cards. Put everything possible into paying off one credit card at a time. Then once it is payed off use the payment that would have gone to that to pay off the next card, and so on. In this way paying of one credit card leads to a larger payment on the next one. The size of the payments will build as each credit card is payed off.

Where he differs from most advisers is in the order that he believes people should pay off their cards.

The traditional approach is to pay off highest interest cards first. In this way the least amount of money is spent on interest rates. Dave Ramsey advocates paying off the lowest balance credit card first.

Why Total Money Makeover is Wrong

Math. That is why Dave Ramsey is wrong. It is far better to pay off high interest cards before low interest cards regardless of the balance. As an example take a card with a $1500 balance, 22% interest rate and 2% minimum payment. Over 6 months making just minimum payments the total interest payed will be $164.31 with only $14.94 going to paying down the principle. Compare that to a card with a $1000 dollar balance, 18% interest rate and 2% minimum payment. Over the same 6 months $29.65 will be payed on the principle and $88.88 will be payed in interest, still a lot, but half as much as the higher balance card. Pay off highest interest cards first for maximum savings.

Why Total Money Makeover is Very, Very Right

His strategy has worked for millions of people.

Most professional financial planners would say that even always paying off high interest cards first is too simple of a strategy. They would instead create a variety of plans based on many different factors and propose them all to their clients.

Their strategy isn’t bad if you are a genius at math or have your own personal financial expert out there to help. For the rest of us it fails miserably. We quickly get lost in a sea of numbers. Dave Ramsey book Total Money Makeover is a lifeboat in that sea.

It works for 2 reasons:

  1. It offers an easy step-by-step guide to get out of debt and build financial security.
  2. His system quickly provides the rewards and milestones that many people need to stay focused.


Those struggling with debt and budgeting should definitely read Dave Ramsey’s Total Money Makeover. It may not be the perfect tool for financial independence, but it is one of the first that is easy to use and understand.




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About the Author

Matt Brand

Matt Brand is QLR's money saving expert. His experience with credit cards and student loans have made him take a strong interest in personal finance, saving money and sharing his knowledge. He is passionate about teaching others how to avoid the trap and make smart financial decisions. View all posts by Matt Brand.