Personal Loan vs. Debt Snowball - Dave Ramsey is Wrong

Taking out a personal loan is the best way for some people to pay down debt.

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  • 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.

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  • R
    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!

    • 35x35
      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.

  • ,
    Aug, 2020

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

  • J
    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.

    • 35x35
      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.

  • S
    Sam Mikelic,
    Jan, 2020

    Says the LOAN OFFICER! Your math is correct, but the reason Dave Ramsey is CORRECT is what you easily dismissed in the first paragraph; the psychology. People (like me, formerly) who use debt to pay off other debt will permanently stay in debt. Period. I ask you this: how many of us have used debt consolidation to temporarily wipe out credit card balances only to end up opening new lines of credit within months? Most of us have fallen into that hole!! If you profess that number "is in the minority", or "only a select few people", you're kidding yourself.

    • 35x35
      Jan, 2020

      Sam, thank you for your passionate answer informed by your personal experience. I wouldn't presume to make a decision for you or for everyone. That is where I think Dave errs; he makes a nuanced issue overly simple. 

      I am not a loan officer and I did not dismiss Dave Ramsey's approach. Even if I think he errs in areas, I know  it has worked for many people.

      I say that people should look at the numbers as part of the decision. Some people will choose to pay off the debt at the lowest cost and NOT run up debt. They can use the saved money to put into an Emergency Fund, having a well-stocked fund by the time a person who did not consolidate debt is not even out of debt.

      EVERY debt solution requires not repeating the same behavior that got a person into debt. 

      • J
        Apr, 2020

        Thank you for the inspiring and informative article, Daniel. I was on the fence on whether or not to take out a personal loan to pay off my last (and largest) of three credit card debts. Thanks to the convenience of Internet shopping, I found a personal loan that offered me 5.99% interest provided I paid it monthly installments over 24 months. That's MUCH better than the 19.99% interest on my credit card. Of course, finding the loan is the easy part. As you hinted in your article, discipline ultimately determines success or failure. As soon as I receive the loan, I will click the "pay it" icon on my online credit card statement with one hand and cut my credit card with scissors in the other. Before I get blasted for getting "suckered in" into this tactic, let me say this: I have the utmost respect for Dave Ramsey. Thanks to his strategy, I successfully paid off my credit cards and car loan, then accumulated a 3-month emergency fund. Unfortunately, a year-long stint of underemployment in 2016 (I was making less than $1,000/month) drained my emergency fund and forced me to use my credit cards. A forced car purchase did not help matters, either. In 2018, I finally got a steady flow of income. I established a $1,500 emergency fund and paid off two credit cards in 2020. Since I proved I had the mental discipline to follow Dave's strategy with high-interest credit cards, I see no reason why I should not take advantage of a lower-interest personal loan.

        • 35x35
          Apr, 2020

          Thank you, John, for sharing that my article was helpful to you. You brigthened my day. 

          You have the necessary ingredients for succes. You made a thoughtful decsion, have a clear plan of action, and have the discipline to see it through to completion.

          Please come back and comment when you pay off the loan!

          • D
            Jun, 2020

            Daniel, thanks for your article. I've taken Dave's financial peace course and followed it to a "T" to get out of debt in 2014. I totally get your point and think it will help my situation. Unfortunately due to buying a large home and acumulating more expenses, I ended up getting divorced, kept all the debt and my son, but I no longer had that extra income. Fast forward to today, my credit cards are maxed. With the covid-19 virus going around and hardships everywhere my mortgage company offered me deferred payments for 6 months no questions asked. After the 6 months those payments would convert into an interest free 2nd mortage OR a deferment added to the end of the loan as non interest both payable upon maturity of loan, refinance, transfer, or sell of the property. My 3 credit cards total $12,000 at $747 monthly with interest rate at 19, 24, and 24%. My thought is to take the 6 month deferrment and payoff the credit cards and free up $747 montly that I can apply towards the non-interest deferrment and no longer pay interest to those credit cards. Since I'm currently paying the minimum amount that would save me about 19k in interest over the next 10+ years.

            • 35x35
              Jun, 2020

              David, I am glad you found the article useful.

              I agree with the choice you explained. It makes sense to find a way out of the comibination of high interest costs on your cards and the fact that you are making minimum payments. 

              I trust you read the mortgage paperwork carefully and there are no costs that are not accounted for.

              If, for some reason, you wish to dig any deeper into andy aspect of this, you are welcome to email me at