Good Advice vs. Feel-Good Advice

Surfing around in the personal finance blogging and podcast world, there is no shortage of advice. Mostly good advice and some not so good advice. Oftentimes, advice that may be appropriate for some or even most investors would be completely inappropriate for others due to different risk aversion attitudes, investment horizons, and so on.

Occasionally, however, I come across examples of truly and irredeemably bad advice. Recommendations that are suboptimal under any and all circumstances I can think of, irrespective of the preferences and parameters of the individual. What’s worse, the financial experts spreading this nonsense do so not because of ignorance or incompetence. Rather, they are fully aware of the suboptimality and against better knowledge spread something that’s less than ideal. And the rationale? It may not be good advice but it’s feel-good advice. Let’s take a look at the two examples of feel-good advice I recently came across:

  1. The debt snowball: While paying down multiple credit cards, start with a card that has the lowest balance, even if that’s not the highest interest debt. Achieving a “win” of paying off one debt in full is more important than paying down all debts as fast as possible.
  2. Keeping an emergency fund in a money market account while still having credit card debt: Apparently, cash sitting around in a money-market account, earnings essentially zero interest is more important than tackling high-interest credit card debt.

In both cases, the rationale is that it makes you feel good. The “easy win” of completely paying down one debt or the sense of accomplishment of a having a $1,000 cash cushion certainly feels good.  Of course, those two measures probably make you feel better than the status quo, i.e., not tackling your debt at all or not having any savings at all. But wouldn’t the average person feel even better if they knew a faster way to get out of debt? Does anyone else find this troublesome? Do the financial gurus view their readers and listeners as a bunch of feeble financial fruitcakes? Is this some sort of personal finance edition of “You Can’t Handle The Truth” with Jack Nicholson / Colonel Jessup?

You can’t handle the truth … about paying down your debt faster!?

Even if our financial gurus believe that we are all so dumb, why don’t they educate us? It is a mathematical certainty that if you have multiple debts then the most efficient way is to use the debt avalanche method, i.e., first repay your debt with the highest interest rate. What about the mathematically inclined people who actually had the right intuition and wanted to use the debt avalanche method? What if they now follow the so-called expert advice and use the snowball method instead after listening to the financial experts? I hope I’m not the only one troubled by that!

But, but, but, … what about the Harvard Study?

I’m glad you asked. The snowball fans now claim that they have the definitive proof of the superiority of their strategy: A study featured in the Harvard Business Review claims that there is empirical evidence that the snowball method is more effective.

Let me start by asserting that whether you’re from Haahvaahd, Haahvaahd Square, or even Haahvaahd Qubed: Your experiment will not invalidate simple arithmetic that shows that the debt avalanche method is more effective.

The only quantifiable result in the study is that people who concentrate their effort of paying down one single debt appeared more focused, motivated and faster in their debt reduction effort than folks who disperse their repayment effort. They found this fact both in a sample of actual customers with credit card debt who tracked their transactions at HelloWallet as well as in a lab experiment (Experiment 1). If I may quote:

“We found that consumers who concentrated their repayments on one of their several accounts paid down more of their card debt than those who dispersed their repayments equally across multiple accounts.”

That’s a really cool and interesting result! But both the snowball and avalanche method concentrate their debt-reduction effort. One concentrates on the lowest balance debt and the other on the highest interest debt. So, the higher motivation for working and paying down debt would apply to both. How this proves that the snowball method beats the avalanche method is a mystery to me.

In Experiment 2, the researchers then go completely esoteric and try to measure the “perception” of the debt reduction progress:

“[P]articipants who had been assigned to a more concentrated strategy […] did indeed perceive greater progress toward their goal of getting out of debt”

Feel Good Advice CCdebt
The ERN family credit card “debt” as of June 8. I should say that we pay off the balance every month, of course, so this more a float rather than credit card debt. PersonalCapital makes it really easy to track your balance, so what’s all this “perception” about?

Well, if someone has, say, $2934.58 in credit card debt and his or her perception of this debt differs from $2934.58, then maybe credit card debt is not the most serious problem in this person’s life. But maybe I’m just too analytical and too much of a quantitative geek to appreciate the need of introducing some mumbo-jumbo perception measure for something that can be measured easily and precisely to the second decimal. But even if you go that route, again (!) the perception of more progress in paying down debt applies to both the snowball and the avalanche method. This is still no evidence of the snowball beating the Avalanche method!

In experiment 3, though, they claim victory for the snowball method:

“[I]t is not the size of the repayment or how little is left on a card after a payment that has the biggest impact on people’s perception of progress; rather it’s what portion of the balance they succeed in paying off.”

Well, this sounds like that pesky perception measure again. In the lab experiments, there isn’t even a mention of debts with different interest rates. Why would people who use the avalanche method and actually pay down their debt faster then perceive their progress as slower than with the snowball method? This doesn’t make any sense!

Even worse than the snowball advice: Having an emergency fund while still carrying credit card debt

If you thought that the insanity of the feel-good advice above is hard to top, you are so wrong. The inefficiency in the snowball method emerges from the interest rate spread between the smallest loan and the highest interest loan. Probably only a few percentage points in most cases. Sometimes the smallest balance may even have the highest interest rate, so there is no harm at all.

But in feel-good financial advice #2, let’s increase the stakes, i.e., accelerate the pace at which you’ll fall behind with sub-optimal, feel-good advice:

Keeping an emergency fund while still carrying credit card debt.

The number one source for this insanely bad advice: Dave Ramsey recommends saving $1,000 in an emergency fund even before paying off credit card debt. Now we are losing money to the tune of the spread between the credit card interest rate and the (after-tax) rate of return in the money market account where we keep the $1,000 emergency fund. This could easily be in the double-digit percentage, say, 16% credit card rate and 1% after-tax return in the money market account.

Let’s still look at the following numerical example. Imagine a person has $2,000 in credit card debt currently charging 16% plus a $1,000 emergency fund. What is the incremental advantage of not following Dave Ramsey’s advice? What happens when we pay down the credit card balance with the $1,000 savings? The numbers are in the table below. Notice that the $12.50 advantage is independent of whether an emergency actually occurs or not. If we don’t have an emergency we save the credit card interest on the $1,000. And if we do have an emergency after a month then, well, we charge it to the credit card and still have a lower balance than Dave Ramsey. It’s a win-win situation!

Feel Good Advice Table01
It’s optimal to use a $1,000 windfall to pay down a high-interest credit card. You outperform the feel-good emergency fund by 1.25% per month, for a staggering 16% annualized risk-free rate of return!

You are now leaving cash on the table, all for the purpose of feeling good. True, it’s only $12.50 per month. But remember, the $12.50 per month is meaningful enough for someone who wants to get out of $2,000 of debt. If you want to spend $12.50 per month to make you feel better, why not use that money to pay down debt faster?


On this blog, we strive to give good advice. Sometimes good advice may not be consistent with what feels right or feels good, whether it’s due to behavioral biases or computational limitations. Sometimes I catch myself “agreeing” with people who propose suboptimal advice, thinking “well, if it makes them sleep better at night, then go ahead and do the irrational thing…”   I shouldn’t! I owe it to my readers to point out flaws in the feel-good strategies like the debt snowball. Maybe smoking makes you feel good, but a health expert has to look at the health facts, not feelings. If people continue to feel good about bad advice, then we in the personal finance blogging community haven’t done a good enough job to explain some of the shortcomings of widely cited suboptimal strategies. After all, there is no better feeling than getting out of debt faster and building wealth faster!

Sorry for ranting! If you want to leave your own rant, please comment below!

70 thoughts on “Good Advice vs. Feel-Good Advice

  1. The reality is that people know math but they don’t remember it when they’re living their daily lives. The debt avalanche is mathematically optimal but human beings are, on average, not mathematically optimal. They’re fallible, irrational beings who routinely make poor choices – so the best way for someone isn’t always the mathematically optimal way.

    Is it feel good? Sure. But that’s not why it’s espoused so often.

    If we were all mathematically optimal, credit card debt would not exist in the first place. Who in their right mind would pay 18% on a slice of pizza???

    (and for the cynical, I point to George Carlin’s famous line – “Think of how stupid the average person is, and realize half of them are stupider than that.” 🙂

    1. If the right debt reduction plan involved some complicated math problem I could forgive people for not maximizing their decisions 100% of the time. But in this context, all we have to do is to change our simple heuristic from the bad to the optimal.

      Also agree, that people are irrational, sometimes stupid. But no person should ever be considered irredeemable. Even though I call the snowball advice irredeemable, I never call the people that. Especially if folks have decided to get their life in order they deserve the correct and rational and optimal advice.

      Thanks for stopping by!!!

      1. Thanks for the thoughts. The biggest “advantage” touted in the snowball method, paying off the smallest balance first, is purely behavioral/emotional. However – from the perspective of someone working in financial planning – we should instead be changing our behaviors to align with what makes the most sense financially/mathematically. In this case, using the fact that paying the higher interest rate debt first to guide our behavior. Or, for those giving advice, the aim should be to help shape client behavior to what makes the most sense financially. Unfortunately, as you point out, that’s not always the case.

    2. “If we were all mathematically optimal, credit card debt would not exist in the first place. Who in their right mind would pay 18% on a slice of pizza???”

      Love this quote. Unfortunately a lot of people would rather pay 18% later than the $1.5 now.

  2. Great post! I’m surprised you don’t even mention the emergency fund in general (even for those without debt) as an example of bad advice…

    1. Great point! I personally prefer to keep as little cash/bonds as possible due to the opportunity cost of lower expected returns than equities. But, and this goes back to the sentence in the fist paragraph, not everybody has my kind of risk appetite. If someone has lower risk tolerance they should hold more bonds/cash. Today’s two examples referred to cases where irrespective of risk tolerance a true arbitrage opportunity exists.

  3. Isn’t the point of an emergency fund to avoid a personal liquidity crisis if credit card borrowing is not accessible? Use of a credit card can be terminated by the issuer. This is particularly likely to occur during a general economic downturn. Having an emergency fund of readily accessible cash offers some protection against that risk. Can the cost of concurrent credit card and cash balances be viewed rationally as a form of premium for insurance against a liquidity crisis?

    Businesses with sophisticated financial management operate that way. Even when they have revolving lines of credit and ready access to debt markets, they often maintain cash balances greater than their short term needs. They do that because they seek to avoid a liquidity crisis if their access to credit dries up. A number of investors have made significant money by being willing to step-in and fund businesses caught in that kind of crisis that would otherwise be forced into bankruptcy.

    Isn’t personal finance the same?

    1. AmateurInvestor, so if you pay down that credit card $1,000 and don’t have that in your emergency fund, you still have $1,000 available in the case of an emergency because you have that liquidity available on the credit card. And you are better off because you have been saving $12.50 every month. In my opinion, comparing a business to a person is comparing apples to oranges because if you were paying your bills on time every month, your credit card company wasn’t shutting down your access to credit on credit cards you already had open. A business, on the other hand, might have all sorts of fancy debt covenant requirements they need to maintain at all times, and if they break said covenants they go into technical defaults on their loans and their access to credit can get shut off completely or reduced significantly. For example, in the 2008 recession, my income was 1/4 of what it was the previous year and sinking asset values made my debt/tangible net worth ratio get all out of whack. I paid all my bills on time and my availability on the few credit cards I had didn’t change. If I were a business, I would have gone into technical default! I think your point is important, however.

    2. These are two good objections to my argument but I still believe they don’t apply:
      1: My personal credit card utilization is in the low single digit %, sometimes below 1%. But even for the more indebted nobody can tell me that can’t scrape together another $1,000 of credit line somewhere even if banks are tightening credit. People probably used a ot of creativity to get into this debt, they might use some of that skill in the unlikely event of a) an emergency occurs and b) a 2008-style liquidity crunch happen at the same time.
      2: Business vs. Personal: WishICouldSurf wrote a great reply, which I couldn’t have written any better.

  4. This. I read that article recently and felt the same way. No, no no. The math is relatively easy in these two cases. And don’t get me started on ANY Dave Ramsey financial advice. Someone gave me a book from him recently and I while I made a valiant effort, I couldn’t make it past the 3rd chapter.

      1. Listened to it. I would have been a lot more critical than they were… but it’s DR’s schtick and I guess he is just sticking with it. My opinion is that DR wants you to find ways to make a lot of money and then spend a lot of it because he assumes ridiculous rates of returns on investments so you don’t have to save quite as much. I guess it makes sense for the masses but his advice isn’t the best because math.

  5. A wise man once said – if you go through life expecting people to be logical, you’ll be sorely disappointed. Not everyone make decision logically. Most of us go with our feeling. That confounded me for years, but now I’ve accepted it. Just do whatever works best for your situation. If feel good advice works, then that’s better than nothing. Or even good advice that you don’t follow.
    I’m with you on the emergency fund. That’s ridiculous…

  6. I don’t personally use the debt snowball, but I still have to disagree with you here. People are not robots so feel good matters. Some people need wins to keep their motivation forward. How that happens is not always optimal mathematically, but payoff is better then nothing.

  7. fyi, there’s a typo in the last table. “Advantage over Debt Snowball” should be “Advantage over Emergency Fund.”

  8. Great points, obviously humans are not very logical creatures. Rather we like to think based on emotions and what feels good, hence the feel good advice. When something is marketed properly, any advice will sell.

    The one thing I also find annoying sometimes, is the saying that debt is the root of all evil. Of course, paying off debt is admirable and often necessary. But in our personal case (different tax rules), we don’t have any advantage in paying of our debts over investing it instead. So we pay down the minimum and invest everything we save.

    1. Ha, great point! We have the same pet peeve about “debt is evil”! If used in moderation it’s a very nice tool to hack taxes and personal finance! Couldn’t agree more!

  9. Thanks for sharing. Why even carry credit card debt? How are you spending money you don’t have? That’s the question I have for people who are drowning themselves in debt. No one’s forcing anyone to take on more than they can take on. No one’s forcing anyone to buy the new clothes, the new cars, or eat out. And yet, all my friends do it. And the bigger irony is, why complain about it after? Or ok, you took on $300K in student loans (these are real scenarios). No one forced you dude! So stop complaining about the adult decision, that you made. As an adult. Rant over! =)

  10. I’ve been critical of Ramsey’s snowball, and I paid off all my debts in largest-rate to smallest-rate sequence. Nevertheless, I think he has a point when he claims debt is more behavioral than numerical. If you’re good with numbers and have spreadsheeted the alternatives, I expect two things of you:
    1) you won’t have multiple stupid debts in the first place, and
    2) you won’t call Dave Ramsey’s radio show.

    Ramsey is engaging the behavioral issue. Folks who are hurting financially appreciate analgesics and I won’t begrudge them this (provided it’s not a lot of money). Thus give the debtor a quick-win of paying off the a little debt to help stiffen his/her spine to lean into the bigger debt relative rates notwithstanding.

    Did I do this? No. But during my avalanche pay-down I grew excited and motivated to pour even more money into debt service as I knocked off mortgages. The snowball leverages this psychological effect to squeeze more debt service out of the snowballee. And more debt service narrows the snowball-minus-avalanche difference further.

    What I haven’t done, and would like to see, is a financial basket case with many debts at different rates repaid via snowball versus avalanche pay-down strategies. I suspect that the disadvantage narrows non-linearly with lower rates over shorter time scales.

    1. The behaviour aspect might be the reason he suggests this. For many people, starting with a quick win might be the only way to actually start, regardless of the interest rate. For those people, it is better to start small than do nothing at all.

      They gain confidence and might then read more and finally switch to the right mathematical solution.

      1. As I wrote in another response: Then we should redefine what’s a quick win: Make it “Pay off your first x dollars” rather than pay off your first card. How much one has paid off is so easy to track now with!!!

        Thanks for stopping by!

  11. Good post, again! I see the debt snowball the same way I see the “everyone gets a trophy” mentality. I had a bunch of credit card and student loan debt coming out of college years ago, and I felt bad about it until I paid it all off! As a result, I cut expenses, did without some luxuries, worked overtime, and paid it off as fast as I could, which also meant tackling higher interest debt first. As the balance went down, I felt less bad about my debt, rather than good. Since then, I’ve avoided most debt like the plague because I don’t want to feel that way again. I think accepting responsibility for your situation, feeling bad about it, and then taking steps to correct it and avoid it in the future are better than giving yourself a participation trophy so you can feel good every time you take a small step towards paying it off. That’s what works for me, anyhow. I think you need to bifurcate and not let feeling bad about your debt spill over into other parts of your life, and indeed, I still look on that period as a golden era – because with youth and a little imagination, you can still have a great time without spending a lot of money, even with a bunch of debt.

    1. Ha, that’s a great point! This “feel-good advice” is definitely related to the “everyone gets a trophy” thinking. So, here’s what it takes: More inspirational stories like yours and less emphasis on false/arbitrary “quick wins”
      Thanks for sharing!!!

  12. I think you picked a less effective example than you might have. Any aggressively frugal lifestyle that pays down debt will be successful. To me the really horrible advice is borrowing money to buy lots of rental property, buying whole life insurance, buying any kind of annuity, investing in penny stocks, leasing new cars. Of course you are correct, you are obviously an intelligent guy facile with math, but it’s not like the snowball system won’t work at all, it’s just not mathematically optimum. On the other hand I probably wouldn’t have read an article that didn’t have a hook in it. So I have to admit, I enjoyed reading it!

    1. Ha, I gotcha!
      And agree: The snowball method is probably not the worst advice in D.R.’s portfolio, but it seems to be the one that became most mainstream!
      Glad you enjoyed today’s post!!!

  13. Invest in growth funds with front-end loads via my ELPs to get your 12% per year!

    If Dave didn’t give us so much ammo, I don’t know that we’d be talking about him nearly this much. He may be onto something.


    1. Ha, D.R. has blessed us with so much bad advice, we can’t handle that all in one post. The 12% myth and the recommendation of actively managed funds are particularly pernicious!

      1. Myth? The S&P 500 has produced an average annualized nominal return of 12.12% since 1926.

        We could have a long discussion on average annual vs CAGR or nominal vs real but what he says “The stock market’s average annual return has been 12%” is accurate.

        1. Even if it is accurate, it is misleading because it implies that your money would grow at 12% annually which is false. Dave Ramsey’s target audience is definitely not the people that would understand the difference between what he is saying and what they think he is saying.

        2. It is completely nonsensical to compute annual returns and then take the arithmetic average. The CAGR is the only way to calculate this.

          Example: after 2 years, your stock portfolio is up by 21%. That’s a 10% CAGR, no matter what the path was.
          With the “arithmetic average over annual returns” different paths have different average returns even though they have the same final portfolio value:

          100/110/121 -> +10%/+10% -> 10% average

          100/100/121 -> 0%/+21% -> 10.5% average

          100/50/121 -> -50%/+142% -> +46% average

          So, Dave Ramsey would call the last example an average +46% equity returns? You’d have to be completely mathematically inept to do that. But maybe he is. Who knows!?

          1. Is stating your mortgage interest rate instead of your APR mathematically inept?
            Its not mathematically inept, just a different calculation and different metric. The same applies to average annual and CAGR.

            If I ignored all stock market valuation metrics what would my expectation be for next year’s return in the stock market? The average annual return of 12.12%.

  14. Big ERN,
    Another great piece of work on your part; a very nice distraction from my vacay!

    Not a huge fan of the D.R., but his program is targeting a different segment of the personal finance market than ERN readers. D.R.’s books, FPU, and radio program are focused on the mass market of typical consumers who are pretty much clueless on money matters. I occasionally listen to his radio show to re-acquaint myself with how disconnected my thoughts are from the masses wrt to personal finance. It is rather disquieting how many of his callers are able to ask trivial questions and perceive the D.R.’s responses as insightful; even more perplexing is hearing a caller rationalize (“rational-lies”???) the most insane financial decision. D.R.’s callers are usually not rational, hyper-optimizing homo-economicus by any stretch of the imagination. Just getting them to LBYM and invest for the future is a Herculean (or is it Sisyphean?!?!?) task. He uses the phrase “baby steps” that he co-opted from the movie “What about Bob?” (fully disclosure: DrFIRE rates this movie 3.5 stars and owns this movie on DVD) to make his process seem less daunting. In short, he is solving a psychological problem, not a logical problem. Satisfice (Simon, 1956) is the operative word for D.R., not optimize. Additionally, while there is plenty of what the D.R. proselytizes that is clearly not optimal, it is hard to argue with the results of the marketing machine he has built.

    Time to get back to my vacay…As a fellow homo-economicus, utilization of dynamic programming yields that it is optimal to have a Cheeseburger in Paradise! I like mine with lettuce and tomato, Heinz 57 and french fried potatoes, big kosher pickle and a cold draught beer….(full disclosure: DrFIRE owns the digital version of this album and rates it an 11 out of 10).

    1. Funny that you say this because I do the same. Sometimes when I flip through the channels and I land at Suze Orman I keep watching. She’s also cringe-worthy with her non-rational advice (just as debt-averse as Ramsey) but it’s entertaining at times.
      Your defense of the D.R. baby steps is the right response to the wrong problem. There are (personal) finance problems that are too complicated to optimize for the average person. We have to resort to simple heuristics, satisficing, etc.
      But the debt snowball is different. The snowball is never superior and most often inferior to the avalanche method. Here the simple heuristic of always using the avalanche is actually optimal. Certifiably! And some people still don’t want to use it. That is really puzzling to me. Hence today’s post!
      Anyway, enjoy your well-deserved vacation! Thanks for stopping by!

  15. Big ERN,
    “It ain’t so much the things we don’t know that get us into trouble, it’s the things we do know that just ain’t so.” What is particularly humorous to me about this quote is that it’s author is actually not known with certainty even though it is commonly attributed to Mark Twain.

    I hazarded a guess that hyperbolic discounting and framing effects could explain a goodly percentage of your puzzlement about intertemporal spending preferences of the “average joe” that D.R. targets with his marketing machine. Just to continue playing Devil’s Advocate (again, I am not a D.R. fanboy), a key aspect of a program such D.R.’s is the ability of a person to stick with it over time. A quick googling of various combinations of terms such as hyperbolic discounting, credit cards, debt repayment, framing effects, and intertemporal preferences turned up and along with many other reads that will likely prove to be a complete cure for insomnia. But hey, these folks are from Wharton, Chicago, and Stanford, so what could they possibly know?!?!?! LOL

    In short, your metric for superior/inferior ain’t necessary the same as metric used by the crowd that D.R. preaches to. For a person with hyperbolic discounting challenges (homo-consumericus in juxtaposition to homo-economics := Big ERN), focusing on the “reward” of paying off smaller debts first (implicitly defining a “win” as completely paying off a debt) may be what they need to stick with the D.R. baby step 2 versus going back to their old debt-ridden ways. See for a neuroscience article along these lines.

    1. Comment

      Thanks for the links. I totally agree that there is hyperbolic discounting. Otherwise known as permanent procrastination. I’m sure that’s what got most people into their credit card debt mess.
      But let me make a bold statement: Dave Ramsey’s advice on both the Debt Snowball and the Emergency Fund while still having CC debt is actually so stupid and so sub-optimal, that not even a hyperbolic discounter would follow it. That’s because there is no intertemporal tradeoff in either of the two examples. The cash flow difference in the optimal vs. suboptimal strategies is +/-0 today and >0 in the future. Not even a hyperbolic discounter would be stupid enough to mess that one up. (The hyperbolic discounter would not be willing to forego $10 today in exchange for $20 tomorrow. There is an actual intertemporal tradeoff in there.)

  16. Some of these comments about D.R. remind of one where the caller call in having a linking roof and D. R. said tarp it and save up before breaking out the credit card. Nothing like seeing a band-aid put on one of their biggest investment.

  17. While I agree that mathematically a “debt avalanche” method is objectively superior, I think you are discounting the time/mental effort benefits of the debt snowball method. Many people who end up in this kind of debt (high debt load/multiple lines of credit) usually have plenty of stress in their lives. Family, your job, kids, and life in general all result in a demand of limited time and mental effort.

    If you can easily eliminate a few low-balance debts, you get to save all the time of worrying about it. No more having to remember if you sent the check in time, if a debt collector will call about the balance, or what your password is for the account.

    I think that this is the key to understanding why this method may work for others yet seem ridiculous for you. This link ( is a horrible, click-bait article that is completely anecdotal and has no scientific backing, yet I think it can still be illustrative of how different a mindset other people come from. What I got out of this was that when you are under this kind of stress, you are mainly just reacting to events. In this situation, I can see how getting a few items permanently off your plate right now can seem better than a slight improvement in long-term economic benefits.

    1. And hence my criticism: Would a balance that disappears faster with the debt avalanche reduce some stress? Why reinforce people false intuition about the “quick wins”? Why not call it a quick win to pay off $1,000?
      You are exactly making my point! We should no longer encourage people to chase after false quick wins.

      1. Perhaps I did not convey my point well, but I must disagree that my argument supported your point. I was attempting to show that different types of stress exist and that a reasonable person could weight their stress priority differently. Different weighting will result in plans that make sense for different people.

        From my understanding, your argument is that financial benefits are the only thing that matters. Because financial benefits are king, reducing financial stress faster will reduce total stress faster. Therefore the “quick wins” argument makes no sense and the debt avalanche is superior in all cases.

        I argue that, for some people, financial stress is only a small piece of their total stress. In particular, I focus on time stress and mental recall stress. Each bill that you pay requires a fixed amount of both time and mental recall. Since people weight their stress differently, a debt snowball may make more sense, because some people value the reduction in required time/mental recall more than their financial gains.

        Personally, I agree that the debt avalanche is better for most people. I just disagree with you that there is no rationale for the debt snowball.

  18. Many people are not particularly rational or well informed. I think Dave Ramsey’s advice sounds foolish, but I’m not most people, nor are those who read FI related blogs. To folks who are not particularly rational, they may well have the follow logic, which is what got them in credit card trouble in the first place:

    1) my debt feels overwhelming
    2) paying the large highest interest feels like it makes slow progress
    3) I’ll go buy a large TV on credit to make me feel better about that

    As there is a behavioral (non-rational) component to many things people do, it is also the case here. If people are more likely to control costs and stick to the plan if they pay down their debt snowball fashion, well, it is clearly sub-optimal. But it is still better than people floundering and feeling overwhelmed. A sub-optimal path towards a goal that makes steady progress is still better than no path at all. Dave Ramsey style cheer-leading may in fact be good for some…

    1. Thanks!
      But I still think that’s a false choice fallacy: Either the DR way or no debt pay down at all. Why not paying down debt the optimal way, and on top of that explain why it’s optimal and motivate them that way!?

  19. I don’t think this is bad advice per se and mathematically the debt avalanche is probably smarter. However, it also depends on what you mean by “effective.” If you mean effective sticking with and paying off debt I wonder if the debt avalanche is the best. I mean PF is primarily behavioral in nature. Lots of people, unfortunately, live via pathos and not necessarily logos. So I would like, if it is out there, more designs of studies to determine sustainability of both methods.

  20. It occurs to me that there is another aspect that we have not considered when comparing the debt Snowball vs Avalanche. That is risk. Dave Ramsey serves a market that includes a lot of financially marginal people. They got a zillion debts to pay for incidentals and commonly ask how to avoid bankruptcy. They may suffer a reversal and abruptly stop debt service. In such a case paying off the many little debts concentrates the effort of renegotiating debt to those accounts most amenable. And if I halt repayment on all my debts, it won’t matter that I paid 90% of my big high rate loan when I could have serviced several smaller loans 100% otherwise.

    The avalanche is the best way but it assumes a smart borrower who isn’t at risk of bouts of stupidity or hard luck.

  21. I’m with you mate. Compound interest can be your best friend and worst enemy. I used a combined approach with my student loans, because each loan had the same fixed interest rate. So, in my budget, I decided how much could go against my student debt. Then, I made the minimum payment on the loans with the largest balance and all the rest against the loan with the smallest balance. Had one of those loans had a higher interest rate, regardless of balance size, I would have maximised against that one.

    1. You rock, Jeff! And quite amazingly, in your case you were indifferent due to the identical interest rates and you made the extra payments toward the largest (!) balance, so the opposite of what the Harvard Study and Ramsey call the most feel-good strategy. Thanks for sharing!!!

  22. So I’m gonna tackle making an argument for the $1000 emergency fund even though it’s totally sub optimal. And of course the argument is all behavioral.

    People who reflexively pull out a credit card (i.e. homo consumicus) to cover bills often have terrible spending habits. They don’t look for things on sale, look for things used, shop around for quotes, try to fix things themselves, ask if they really need it, try to go without for a period of time, ect… When these people suddenly face the constraint of only having a $1000 available they may be forced to implement these habits because A) they don’t have enough money, or B) it hurts to see their hard earned money leave.

    Many people in debt don’t weigh the pain of saving money against the pleasure of spending, hence the debt problem in the first place. I really do believe the DR approach helps people rewire their brains which is way more important than strictly the math side of a few percentage points in optimal savings.

    Once a person gets their brains wired properly, the emergency fund is, of course, nonsense. A >50% savings rate is the best emergency fund that exists.

    Anyway, all this debating is in vain because anyone who is reading this site is way past the DR target audience. 🙂

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