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Personal Loan vs. Debt Snowball - Dave Ramsey is Wrong

Personal Loan vs. Debt Snowball - Dave Ramsey is Wrong
Daniel Cohen
UpdatedApr 23, 2024
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    6 min read
Key Takeaways:
  • Dave Ramsey advises you to never take out a personal loan to pay off debt.
  • Run the numbers to see if a debt consolidation loan saves you more money than Debt Snowball.
  • Do you want to send money to your creditors that you can put in your own account?

Dave Ramsey is Wrong About Personal Loans

There are people who advise you to never take on debt to pay off debt. Yes, Dave Ramsey and his followers, I am speaking of you! Their black and white point of view is not based on the numbers, but on their view of human psychology.

Dave Ramsey will say that even if you can save a lot of money through a debt consolidation loan, don't do it. I am not going to dismiss the advice Dave gives. I understand that he bases his view on the behavior patterns of people he has observed. He has seen that too many people who pay off debt with a loan run debt up again. He says never to take on debt to pay off debt, emphasizing that people need to undergo a mind-shift so they view debt as toxic.

People often behave irresponsibly and don't act in their own interests. I saw this type of behavior when I was a mortgage loan officer. Too many people who paid off debt with their home equity only ran up new debt in only a few years.

I admire Dave Ramsey for getting people to address their spending, taking control of their cash flow, and committing to a disciplined program of paying down debt and saving money, starting with building an Emergency Fund that protects you in case there is an unexpected expense or loss of income.

What I disagree with is telling people that they should not save thousands of dollars that they could use to fund the very emergency fund Dave values so highly. Instead, Dave Ramsey tells you, as part of your "Baby Steps," you should accelerate payments to your credit card companies to get out of debt. His advice is to take money you could put in your own pocket and pay it in interest to your creditors.

Keep Your Money, Even if Dave Ramsey Wants Your Creditors to Get It

It is easy to prove that you can get out of debt faster and at a lower cost by taking on a new debt if the terms are right. Depending on the interest rates on your credit cards and the rate you qualify for on a debt consolidation loan, a personal loan is the best choice.

Here is a comparison of options to pay off $22,000 in debt:

Let’s say that you have one credit card with a $10,000 balance @ 22% and one with a $12,000 balance @ 19%.

You could pay off using two Do-it-Yourself strategies or with a personal loan:

  • Pay the required minimum payment each month (an amount that decreases each month as your balances drop).
  • Pay fixed amount each month using avalanche or snowball method, targeting the highest interest card or smallest balance.
  • Take out a personal loan.

Dave Ramsey advocates the Debt Snowball, targeting the smallest credit card balance first. Again, his point is psychological. Dave acknowledges that it is cheaper to pay off via the Debt Avalanche, where you target the highest interest card, but you are better off with the boost of seeing one card go to $0. Given the fact that the dollar savings are not often huge with Snowball vs Avalanche, Dave's point has greater weight than the huge savings you will see below when you compare a personal loan to Debt Avalanche.

The example below takes realistic credit card interest rates and uses an 11% personal loan rate that is also realistic, not using the best loan rates available, which only few borrowers get.

Assuming that your minimum payments are 3% of your balance (and at least $20) here are the total costs and the time frame to pay off the $22,000 debt:

  1. Minimum payment: $49,995 and more than 23.5 years
  2. Avalanche payment, using $660 as a fixed payment: $32,765 and just under 50 months (about 4 years and two months).
  3. Personal loan at 11% also with a payment of about $660: $26,374 and you will finish the loan just under 40 months (just under 3 years and 4 months).

That means you save more than $6,300 if you choose a personal loan instead of following Dave Ramsey's advice! If a lender charges a fee for the loan, subtract it from the $6,300 savings.

Do You Agree With Dave and Pass on the $6,300?

$6,300 is not chump change. That is a few months of living expense for your emergency fund right there.

$6,300 is a huge boost to you, psychologically, too. It also provides solid protection from the financial shock of a surprise expense or loss in income. The $6,300 reinforces the benefit of analyzing your overall financial picture and making a smart decision. Following this advice also instills the habit of saving, as you finish repaying the loan and take that money and, each month, deposit it into your Emergency Fund savings.

Given all the benefits of the personal loan in this scenario, and how it dovetails with his advice to build Emergency Fund savings and pay down debt as a priority, it is difficult for me to understand why Dave Ramsey insists this is a bad choice. He could advise to be extra cautious, to cease using your credit cards, or even close them, to protect against using them and getting into debt again.

No matter how you get out of debt, it is up to you to avoid falling into debt again. You can do it! If you need to, cut up your cards or lock them away where you don’t have access to them.

Don't make any decision without doing the math. See what rate you qualify for by shopping for a debt consolidation loan. Take the monthly Snowball payment Dave recommends and see what would happen if you repaid the debt in Snowball and in paying the loan. If your savings are huge, what will you do?

Which Line Do You Choose?

If you were the person with $22,000 in credit card debt and there were two lines, one for people who choose to pay back $32,765 and one for people to choose to pay back $26,374, which line would you get in? Remember, you are making the same size monthly payment in each line. I know which line I would be in- the long line!!!

If you answer that, knowing yourself, you are better off following Dave's advice to the letter, even if it costs you thousands of dollars more, at least you are making a thoughtful decision. I don't doubt that some people want the security of following Dave's system to the letter for it to work.

You may choose, however, to take the savings and do something smart with them. Why not do something Dave also holds dear, fund your Emergency Savings account? You can find a good use for that much money, using it responsibly, in a way that promotes your overall financial health, not in a way that sucks you back into debt.

Debt statistics

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Collection and delinquency rates vary by state. For example, in New Jersey, 16% have student loan debt. Of those holding student loan debt, 7% are in default. Auto/retail loan delinquency rate is 3%.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.



LLC, Jun, 2022
Very informative article about taking a debt consolidation loan. I am in a situation where I ran up credit card debt to to medical issues. The interest rate is around 24%. I think that I can get a personal loan at about 12%. However, I am afraid that I will run up my credit card debt again. Who knows if I will have more emergency expenses? What do you think? Should I take the risk and start saving money now? Thanks.
RRod, Aug, 2020

Can you recommend a debt consolidation provider? When I've searched, its always turned out to be a bait and switch- advertise debt consolidation but offer negotiated settlements. When I reached out to my local bank, my debt to income was to high. It seems like only those they don't need the loan can qualify for an approval. Thanks!

DDaniel Cohen, Aug, 2020

Rod, thank you for your question.

No one likes bait and switch (well, outside of those waving the bait). When it comes to options for paying off debt, there are a limited number of choices. Credit score and debt to income ratio are important factors, because, as in your case, the DTI blocked you from qualifying for a debt consolidation loan. Before you scratch a loan off the list of options, do you know if the bank was looking at what your DTI would be after the debts you are consolidatig would be paid off? If the lender wasn't going to pay off your debts directly, but sending you the funds to pay them off, it is possible that the DTI counted both your current debt required payments and the new loan payment. Check with a lender that offers direct payoff and that offers a quote with only a soft credit pull. This step makes the most sense if your credit score is 700 or above. A score in the high 600s and and having debts at very high interest, 20% or higher, may be strong enough to get a loan that saves you money.

Outside of a loan, you could look at a home equity loan or home equity line of credit, a balance transfer, paying the debts more efficiently on your own, or professional debt help (credit counseling program's Debt Management Plan or a debt settlement firm- though I understand you were not inclined with that option when you were shopping for a loan).

If you want a sounding board, I am happy to discuss the details of your situation. I won't ask for your Social Security number, private personal information,  or any account numbers. You can reach me at, if you want to set a time to speak.

AAnonymous, Aug, 2020

I am a big fan of Dave Ramsey, but like the points you made and the repsectful way you did so.

JJake, Jun, 2020

I agree 100% with you. Dave Ramsey has a lot of sound advice; however, some people can benefit from a debt consolidation loan. I took a loan, paid off my debt quickly, and improved my credit score.

DDaniel Cohen, Jun, 2020

Jake, thank you for sharing. I am glad you found my article useful and understood that it was not slamming Dave Ramsey, but taking issue with his black and white view of a debt consolidation loan.