100 Words On: The Smartest Way to Eliminate Your Credit Card Debt

I don’t care what you’ve heard about Dave Ramsey’s debt snowball, the credit card debt-elimination method that calls for paying off cards with the lowest balances first — regardless of their interest rate. It’s wrong.

Ramsey claims the debt snowball provides a psychological boost. Okay. But paying down credit cards charging 0% interest on, say, a $1000 balance, while simultaneously making minimum payments on others charging as much as 29% interest with even higher balances is, frankly, financial folly.

The bottom line: Forget feel-good psychology. Always start by paying off the highest-rate credit card first, then focus on your remaining cards in descending order.

Photo Credit: ff137


  1. 1

    Chris Eaker says

    You’re right that paying off the highest interest credit card first makes the most sense financially. But you have to realize there is a human component here. People are not machines. The people Dave Ramsey is talking to are people who are basically at wit’s end over their debt, and in many cases at the verge of bankruptcy or foreclosure or both. And any psychological boost is, in my opinion, money well spent. If you compare the difference in total interest paid between the two methods, it’s probably not very much in the grand scheme of things. So if paying the smallest balance first, regardless of interest rate, gives someone the encouragement they need to see it through to the end, then so be it.

    • 2

      Len Penzo says

      If that’s the only way people feel they can begin to get their finances in order, Chris, then I agree with you — so be it. But I would never recommend this method to anyone.

      In cases of severe debt that require long timelines to pay down — which I assume is the case for a good chunk of people attracted to this method — I can imagine plenty of scenarios where the financial impacts would be significant.

  2. 3

    Chris P. says

    Kinda hard to have a blanket “this is wrong” statement there. If it works, is it wrong? It may not be the best solution, but if it gets the desired result, I’d say it’s still right.

    If we were all rational in the first place, all of these people with large amounts of credit card debt would realize that it was a “financial folly” to spend more than they earn in the first place!

  3. 5

    tracee says

    Oh man sorry Len I have to disagree!! I tried the highest interest method for years and always quit because I got discouraged. Then I tried Dave Ramsey’s way and it was great. I got out of debt in 18 months. Due to the snowball method I paid off four of my ten cards in just five months…which was awesome and had me finding ways to throw more money at the debt. In the end I got rid of 15,000 dollars of consumer debt paid off my car and started a 1,000 dollar emergency fund all in 18 months!!! I lend Total Money Makeover to everyone who wants it.
    I do agree it may not be the smartest or cheapest way to do it, but for me seeing card after card get paid off was worth it in the end! Still Love the blog though. :)

    • 6

      Len Penzo says

      That’s okay, tracee. We can agree to disagree. :-)

      There’s no doubt the debt snowball can inspire some folks to eliminate debt who wouldn’t do so otherwise. I just hate the thought of them intentionally choosing to pay more interest than they have to.

  4. 7


    Perhaps the word wrong implies a judgement being made and maybe that things are black or white. The issue here comes down to smart investing. While it is great to pay off credit card debt, why not do it in a way that saves you money? Too many of us focus on the paying the lowest rate of interest (which is focus on amassing debt) when we need to be looking at ways to amass wealth (in this case by holding onto more of our dollars that are paid out to the creditor).
    Better yet figure out how to be on the receiving side of interest. Now you can collect and compound your money like the evil credit card company.

    Overall, look for progress when making change. Perfection is an illusion. Thanks Len for your stimulating blog.

    • 8

      Len Penzo says

      You’re very welcome, Aarron. I realize that life is not black and white and different strokes for different folks. However, for those inclined to look at the debt snowball method from the perspective of minimizing losses via interest paid, rather than simply retiring debt, it is not the correct answer.

  5. 9


    I have to say there is a big difference between zero and 29% but for most people the difference might be between 15 and 18% so it may only be a few hundred dollars difference in interest between the two. That is a small price to pay for success vs. failure.

    • 10

      Len Penzo says

      Yep. In that case, the opportunity cost of getting that psychological boost may certainly be worth it to many people. I’m just not wired that way when it comes to paying interest. :-)

  6. 15


    Len’s completely in the right. Whether people choose to accept that or not is something different. The debt snowball belongs in the same category as the low-tar cigarette and the nickel slot machine; half-measures for a full problem.

    It all depends on what problem you want solved. If you want to permanently behead the Hydra of credit card debt, do it Len’s way. If you’d prefer to have psychological highs, do it Dave Ramsey’s way.

    • 16

      Len Penzo says

      I knew I could count on you to weigh in on this one, Greg. In fact, I think you summed it up even better than I did.

    • 17

      Kyle says

      I think the analogy to low-tar cigarettes has some merit, but I think its more accurate to say that the debt snowball belongs in the same category as the nicotine gum. Some people need a small stepping stone while others can do it all in one fell swoop. I actually fit in the same category as Len and Greg, however, many of my friends definitely do not. I’m not trying to tell you guys that you shouldn’t use the debt avalanche method, I’m just saying that discounting the debt snowball method can easily become a relational folly – don’t ask me how I know.

      In fact, there is a significant psychological research about how success is often through a strategic series of small events. For example, would the Iphone have ever been as successful if there wasn’t the small steps leading up to it in the Ipod? There were many devices similar to the Iphone in the past that never even came close to catching on. If you’re interested in this topic from someone who can actually explain it, there is a book called Long Fuse Big Bang that uses many real world examples.

  7. 18


    Its not financial folly.. its financial idiocy! One way I got out of debt was using one of those 0% balance transfers that my credit card company was offering.. for 18 months. Transferred the amounts of with the highest interest rates and paid down the rest. I’m not a debt guy, I mean a compulsive buyer, just had a few life circumstances happen awhile back.

    Love what Greg said above.. “The debt snowball belongs in the same category as the low-tar cigarette and the nickel slot machine; half-measures for a full problem.”

  8. 20

    Marie says

    I’m glad to see somebody out there who doesn’t think Dave Ramsey’s steps are perfect! I thought I was the only one in the world who disagrees with him at times. (Although I do definitely think being debt-free is important!)

  9. 21

    eric d says

    You are correct that from strictly a money perspective that paying highest interest first is more efficient. But I think that the point of closing accounts give a sense of accomplishment.

    Also you are less likely to forget to pay a card or pay late and incur fees if you eliminate that bill. If you have 10 credit cards outstanding and you can reduce that to 5 fairly quickly by getting rid of the smaller ones you are much better off now that you only have to track 5 instead of 10.

  10. 22

    tim says

    I think that the ways to pay off credit card can be ranked in order :
    1)Don’t accumulate credit card debt
    2)Pay balances based on interest
    Tied 2)Use 0% arbitrage to move balances as they are paid down
    4)Pay smallest balance to largest balance
    5)Hire bankruptcy attorney and let society pay for you.

    Unfortunately, some people are unable or unwilling to use technique one or two. However, I still respect people who choose method 4 instead of method 5.

  11. 24

    Mike Gibbons says

    While I agree with Dave on 90 percent of his ideas and about 90 percent of the ideas presented in this forum, what I think people should do is pay off the biggest debt you can pay off right now. That is the reason why you need huge tax refunds. It forces you to put money aside where you cannot touch it until the IRS decides you need it. Then when you get it, pay the biggest amount of debt off you can that will be with you more than 6 months. 401K loans are another good way to help yourself. I got one I paid 6 percent interest on about 6 years ago and refinanced (and then closed) several credit cards that we paid from 16 percent to 29 percent on. Oh, and that 401K loan was the only investment during the recession that made money. That is the only 401K loan I let go away on it’s own. When we got last years refund I saw the loan was going away anyway in 3 months so I paid off another 401K loan I had used to refinance high interest debt instead. Today we got a letter from the IRS saying that in 2 to 3 weeks we will have the rest of our refund. With that, the only debt we will have is 2 credit cards (each of us has our. her limit 900 and mine 1400), our home loan (70K), my wife’s student loans (1 for 5K and one for 15K), and an upgrade to red time from blue in our timeshare (5K). I am starting to run out of debt to tackle with our refunds and it feels GREAT.

    • 25

      Len Penzo says

      I am a big proponent of using IRS refunds to force you into saving money, Mike.

      For most people, the financial advantages of holding the money themselves are so small they aren’t worth effort, not to mention the risk of blowing the cash on impulse purchases down the road.

  12. 26

    Lori K says

    Wow – let the IRS keep your money for a whole year when you could be reducing your interest or earning interest on it? That’s sound financial advice. Yes, I married a CPA = life circumstances created debt, hated debt. He was always pay the highest first, then real life kicked in and why on earth would you charge a new stove or dryer or car repair on yet another credit card while trying to crawl out from under debt due to life circumstances, not frivolous spending? These items make me question the shoebox mentality here. Money and life is not one size fits all. Yes, there is logic to paying the highest interest first, no, not everyone is debt is a financial idiot. But to me, allowing your money to be held by the government when you could be using it to invest is the epitome of financial stupidity. Dave Ramsey’s program is not for the well off, maybe upper middle class at best who have spiraled out of control at best, but to have a blog endorsing huge IRS returns doesn’t exactly show financial smarts either…that’s like a dieter saying no ice cream in the freezer for a whole year when everyone knows if you don’t learn self control you will never change.

    I find his program to be a solid, depression era, methodology for paying down debt. Even weight watchers and AA do one day, week, month at a time. For most Americans available cash is an issue, so if a Penney or any other dept card is sucking 25 a month, plus late fees..isn’t it more practical to get it off the radar and cut it up?

    I deeply think financial “experts” are flawed in the ability to step outside the paper world of spread sheets and idealistic life styles, they all should be required as a part of the CPE’s to re-take Soc 101 every year. Some of the comments have been so “superior” which is a constant battle I have with my spouse. Life isn’t a ledger, there are serious emotions and family obligations involved.

  13. 27

    Walt says

    The key is ‘Get a Plan’ whatever it may be. When I finally developed my plan it was a combination of high interest & low balance. I called it the ‘melting snowball plan’. I read Dave then read others and soon developed my own approach. I had numerous medical bills small to large. I wanted to keep in good graces with my doctor & hospital. The high interest was the credit cards, it didn’t matter who was first because the interest rates were basically the same. I paid more to the lowest balances but made sure to send a little more than the minimum to the higher ones.

    I next listed my fixed accounts making sure to send the payment on time but no more. I then listed all my misc & medical. Paying the lowest balance more but always making sure to send just enough to satisfy the rest. I was able to eliminate the all the small misc & the medical first. I then moved that allocation to the high interest cards, paying the lowest balances off first. I stated with a combination of 7 retail and credit cards. When I finally paid off all but the highest balance credit card I was able to attack it with gusto. I paid it off in 3 months. I still had the fixed rate/payment accounts that were all paid off within the next year.

    It was a 3 year process and I eliminated all the debt. The reduction & elimination of balances was extremely motivational. I could see the balances shrinking and would probably shutter if I had broke down how much interest I paid over that time but it’s now behind me and I can’t say what is the best way, I just know what worked for me was sticking to the plan no matter what. All through this I made sure I allocated enough to meet my living expenses, saving goals and set enough aside to do a few fun things. I have increased my with holding and get at least $3,000 a year from both state & fed, I use it to re-balance my savings & emergency funds each year. I have maintained our spreadsheet budget for 5 years now, it has become a small chore I usually spend less than a couple hours a week on.

    We discuss each & every large purchase, then take a 48 hour delay allowing us to talk ourselves out of a lot of impulse purchases. We live frugal but not cheap and have enough to make most purchases in cash. Our mortgage is paid off, our newest auto is a 2005, keep our auto liability (sans collision/comp) insurance in line with our net worth and have cut the cord on cable, have a streaming service, have DSL rather than cable ISP. The evil cable company has lost it’s grip on me. I have a basic flip phone, no data or text, wife has a little better one, she likes to text but we have no data plans. I have no subscriptions and never allow auto payments except for the auto insurance, watch my bank accounts daily. No Gotchas there. I only have 2 memberships (Costco & AARP). Ask for discounts for cash/age/AARP wherever we go.

    Only thing I would do different, not cancel my credit cards (ok to cancel retail) it dropped my FICO score about 50 points but have since recovered, I have zero inquires over the last 2 years. I opted out of allowing the credit bureaus to sell my name. Has minimized my credit card offers except ‘Discover’, evil cable company and the massive mailings from the health insurance companies in Sep-Nov. I subscribed to the ‘Do Not Call List’ and changed our numbers. Still get those POS robocalls but usually never answer any calls unless I know the caller. I google the unknowns before calling back.

  14. 29


    I go back and forth with Dave Ramsey. I’ll say, most of his stuff I can’t stand – like the fact he uses 12% as your estimated annual return on investments… come on.

    To your point in the post, I agree with you, but I can also see the other side. If it’s 0% interest we’re talking about, then it’s a no-brainer to hold that debt and pay off the higher interest rate. I think where the conversation gets interesting, though, is when rates are similar.

    For example, if you had a credit card at 7% interest with a balance of $1,000 and a personal loan with a balance of $12,000 at 8% interest, I’d still knock out the credit card first. Psychologically, it’ll be easier on my mind. I’ll get the card paid off then focus on the big debt.

    This has been the argument since Ramsey came out with this concept, though. Mathematically and financially, it makes absolute no sense whatsoever to pay off smaller balances first. One thing to consider is that many people lack the financial wherewithal to conceive an elaborate payoff plan. So they pick up Ramsey’s best-selling book and do what he says.

    As always, great thoughts and thanks for sharing.

  15. 30

    Amanda says

    A coworker recently responded to my expressed glee that I was on track to have my mortgage paid off early with “Any financial advisor would tell you that it’s better to invest that money rather than pay off a mortgage because you’ll earn at a better rate than you pay on your mortgage.” My response was, “True. I understand and agree. I also know myself. I will pay of my mortgage early with extra cash. I won’t invest extra cash. I will blow it on clothes, eating out, travel, and any number of things that won’t offer any kind of monetary return.”

    The psychology matters. In ten years I will have a paid off house and small investment account rather than another 15 years on my mortgage, a tiny investment account and a bulging closet of outdated clothing.

    Ramsey’s psychology works on the same kind of people who will give up a healthy diet and exercise plan if they only lose a pound every other week. It’s hard to stay motivated if you don’t see results.

  16. 31


    My head agrees 100%, but my heart wavers. I’ve settled this timeless debate in my mind this way: any ‘system’ that works (succeeds in paying off debt) is better than any system that does not. In the end, we each have to find our own, best way to debt freedom.


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