Fivecentnickel on bad math

November 3, 2006 at 4:05 pm 4 comments

Back in May of 2005, fivecentnickel posted his thoughts on the debt snowball, specifically, Dave Ramsey’s debt snowball. In the post, titled Dave Ramsey is Bad Math, nickel points out, correctly, the mathematical reasons why the snowball should be based on interest rates and not the balance of the loan, like Ramsey suggests. Being a Ramsey fanatic, I took to heart what nickel’s arguments were, but his arguments are legitimate.

Ramsey suggests you list your debts from smallest to largest according to the balance. The interest rate is not taken into consideration. The plan is to make minimum payments on all of the debts, except the smallest one. With the smallest debt, you sell what you can, work as hard as you can to make as much money as you can to attack it. That means you’re not just making minimum payments. Like most snowballs, once the smallest debt is paid off, you roll over to the next debt, and the next, and the next. Until all of your debt is gone.

Regardles of your plan, whether it’s based on interest rates or total balance, there are two keys to getting out of debt: making a plan and intensity.

There was some great feedback to nickel’s post so I invite you to take a gander at what people had to say.

I did want to respond to one comment in particular from that post, because I believe it’s important to clear up. The comment came from John on October 16th, 2006 and it reads like this:

“I’ve listened to a handful of Dave’s podcasts. He must be motivating for those who continue to listen, but I personally find his “strong father-figure” demeanor boring.

I can see how the psychological effect of dropping payments can be enticing, but I worry that he’s only partially educating his audience.

I’m not too excited that he manages to bind money and his religion. It must appeal to his audience. But for me it only brings back bad memories of the 1980s. Besides, I vaguely remember some story about throwing the coin counters out?”

Let’s break this down briefly.

“…I personally find his “strong father-figure” demeanor boring.”
I agree that Ramsey comes across like a “father knows best” personality. To some people, like John, this is a bad thing. But I’ll be honest with you, there are a lot of adults running around acting like 3 year olds with their money. I was one of them. And there are times that we need to be reminded that discipline and delaying pleasure are characteristics of a mature adult. Ramsey is that guy that’ll kick you in the butt if you’re acting like a spoiled bratt.

“…I worry that he’s only partially educating his audience”
I think that Ramsey’s radio show, at times, does a disservice to his purpose. There’s only so far he can get into details on the radio. When we started with his program, we just heard him on the radio and signed up for FPU shortly after. We were neck-deep in debt and needed to try something different. FPU covered almost everything we needed to know to not only get out debt, but know about saving, insurance, mortgages, investing, college planning, and so much more.

“I’m not too excited that he manages to bind money and his religion.”
Now John, this is something that most people outside of the Christian faith might not understand. I will speak for myself in hopes of removing generalization that occurs when talking about religion. Like Ramsey, I’m a Christian, and believe that God offers insight to how we should handle our money. With that said, Americans, in general, have this idea of compartimentalizing almost every aspect of their lives. We like to separate things into it’s own category and don’t like to mix them up. Remember the whole Clinton-Monica fiasco? Some Americans felt that his behavior had nothing to do with his leadership capabilities and that it was a separate matter.

For me, my beliefs and values are represented by the way I handle my finances, my attitude, my work ethic, my family life, etc. There is no separation. There can’t be distinct areas in my life because they all revolve aroung my belief in God.

Well, I said I’d be brief and I wasn’t…oh well.


Entry filed under: Blogs.

Book: How to Get Out of Debt, Stay Out of Debt & Live Prosperously Do you need a game plan for your finances?

4 Comments Add your own

  • 1.  |  November 3, 2006 at 4:10 pm

    “nickel dealt only with the numbers.”

    To be fair, I did explicitly recognize the value of the psychological boost that comes from knocking out smaller debts first. For people that need the boost, then the extra savings from doing the math isn’t going to be worth it.

  • 2. chaka42  |  November 3, 2006 at 4:29 pm

    I made the correction. Looking at it now, it wasn’t a fair comment. Thanks for correcting me.

    And thanks for responding.

  • 3. DEBTective  |  December 11, 2006 at 11:05 pm

    Just wanted to drop a quick line and say thanks for spreading the word about Dave Ramsey and debt freedom. Good luck on deep-sixing your own debt, and thanks for working for The Man Upstairs. Here’s looking at you, kid.

  • 4. directory poker  |  October 10, 2008 at 6:33 pm

    Hi I thank you for a wonderful site. You have done very good job.


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