When it comes to financial literacy and education, Dave Ramsey knows what he is talking about. After creating several highly profitable enterprises, Ramsey pivoted into the world of books, podcasts and public speaking events in order to pass on his knowledge of personal finance to the world. In an early 2024 blog post, Ramsey gave advice for ways to pay down debt. However, other financial experts might not agree with his tips 100%.
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GOBankingRates spoke with Mark Henry, founder and CEO at Alloy Wealth Management, about where he disagrees with Ramsey’s approach — and how he suggests you pay down your debt.
The Ramsey Method
“Ramsey’s basic steps for paying off debt are in line with what I would generally recommend: Total all of your debts including credit cards, student loans and personal loans,” said Henry. “Then set a budget that prioritizes debt payments, and use the snowball method to attack your loans.”
Henry also agreed with Ramsey’s recommendation to leave your mortgage out of the calculation: “A mortgage is ‘good debt,'” explained Henry. “It provides you with a place to live, has a long, set lifespan, and payments help you build equity. You might not be able to overpay your mortgage while paying off other debt, but owning a home is a good thing and doesn’t have to add to a personal debt mountain.”
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The Snowball Method
Ramsey’s suggested debt snowball method entails making minimum payments on all your debts, but making bigger payments on the smallest debt to pay it off first. Then you “snowball” the money you were paying toward your smallest debt into the next-smallest, then the next, until all your debts are paid off.
Pause on Investing
To pay off debt faster, Ramsey suggested pausing all of your investments — including retirement investments like your 401(k). His reasoning is that you want to be debt free as fast as possible, and you can invest more for retirement once you’ve paid off your debt and saved up an emergency fund.
Use the Cash Envelope System
Ramsey recommended the cash envelope system, also called “cash stuffing,” to control your spending: Take cash in the amount you’ve budgeted for each category and put it in an envelope — once the cash is gone, you have to stop spending in that category for the month.
“This is the kind of habit that will hold you accountable and keep you on track,” he wrote.
What Might Work Better
While Henry did not completely disagree with any of Ramsey’s points, he had a few notes to add as an addendum for the average consumer to take into account.
The Avalanche Method
Specifically, Henry said the snowball method isn’t the only method for paying off debt, and it’s not always the best. If one or more of your debts have a very high interest rate, Henry noted you could also try the avalanche method.
The avalanche method is very similar to the snowball method, but instead of starting with the smallest balance, you start with the highest interest rate and work your way down. This may mean slower progress, but it also means you’ll pay less in interest in the long run.
Henry explained, “The snowball method is great, but sky-high interest rates can make it nearly impossible to get out of debt. If you aren’t sure what’s right for you, try consulting with a finance professional to get you started.”
Keep Investing for Retirement
Henry urged anyone in debt to still continue to grow their personal wealth through investments.
“While debt should be your number one financial priority as you pay it off, do your best to contribute at least the minimum amount to your 401(k) or other retirement plan to qualify for employer-matching contributions,” Henry said. “It’s OK to pause other investments right now to reallocate money to debt payments, but missing out on employer match contributions is like leaving free money on the table.”
Keep Using Your Credit Card — Responsibly
“Cash stuffing may not be the best or most efficient idea for everyone,” Henry said. He acknowledged that using your credit card — and adding to that balance — “might seem counterintuitive” when you’re trying to get out of debt.
“If you use your credit card wisely, however, it can be an excellent tool to accumulate rewards or cash back that you can put towards your debt payments or help cover other necessary expenses,” Henry explained.
He added, though, that the key is to only charge what you know for sure you can pay off by the due date, so you don’t accumulate even more high-interest debt.
“If you don’t trust yourself to use your credit card responsibly or need to break a bad habit of overspending, cash stuffing may indeed be a better option, but it’s not the only way,” he said. “Put your credit card on ice.”
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This article originally appeared on GOBankingRates.com: I’m a CFP: Why Dave Ramsey’s Advice on Paying Down Debt Isn’t My Favorite (And What Is)
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