April 14, 2011

Suze Orman Smacks Down Dave Ramsey

The Money Class: Learn to Create Your New American DreamI recently watched the March 26th episode of the Suze Orman show titled "Don't be Debt Dumb".    You can find the episode online as a free podcast in iTunesI'm late watching it because we record them on our DVR then watch them if/when I have time and get around to doing so.    This episode was notable because Suze opened the program with a little bit of a rant about another popular personal finance guru's debt payment advice.   Suze did not name names but it was pretty clear that she was talking about Dave Ramsey.

Suze refers to having caught a "so called financial pundit" on television.   She then says that their debt repayment strategy was the "dumbest strategy I've ever heard in my life".   Suze declares that there is "one way and one way only to pay down credit card debt".    Which is of course her way.

She said that the "so called financial pundit's" advice was to pay the lowest balance first and forget about the interest rates and that will allow you to pay off a card.  This plans strategy of paying off small debt quickly is meant to "psychologically make you feel good" but Suze scoffed at that idea.   She points out that his strategy means that you'd be paying off a $200 debt at 0% before a $300 debt at 29%.   Suze declares that is "just plain wrong".    The plan that Suze describes is definitely Dave Ramsey's strategy.  While Suze went out of her way not to name him, I think its clear that Ramsey is who she was talking about.

The Total Money Makeover: A Proven Plan for Financial FitnessSuze's strategy is to do the following :Line up cards by interest rate highest to lowest, call card companies to ask them to drop rates (they probably wont), maybe do a balance transfer to a low rate credit union card if your FICO score is good, again look at the cards highest interest to lowest.  Pay the minimum on all cards and put extra money into the highest interest rate card.

I think there are pro's and con's to each method.   Suze is correct that Ramsey's method is not the best mathematically and you'll generally end up paying more interest with his plan.    On the other hand I really do think that there is something to Ramsey's strategy to give people psychological boost by knocking off debts one at a time.   If the psychological boost of having some small successes initially would be beneficial enough to keep you on target towards your goal then it can be worth paying a little extra interest.   As often as not the high balance credit cards will not be lower interest and if they are then it may not be much difference.  Except for promotional offers, people usually have similar interest rates on their credit cards rather than wide differences in the rates.  

I find it a little amusing that Suze would ridicule the psychological benefit of Ramsey's strategy.  It seems that a lot of Suzes advice is based on psycho babble and she seems to enjoy playing amateur psychologist on her show.  Suze and Dave both have pretty arrogant "I'm right and people with contrary views are stupid" attitudes and they can both be abrasive with criticism.   Maybe Dave will fire back by referring to Suze as a "so called" financial expert too?  Childish petty drama is probably good for the ratings.
 
Dave's debt snowball system is not mathematically optimal.  But Suze's disdain for the system is not warranted and the psychological benefits shouldn't be written off.

9 comments:

  1. This comment has been removed by the author.

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  2. Back in 2007, I wrote a book: THE DEBT WHISPERER. It is based on my work as financial coach actually helping ordinary people eliminate credit card debt.

    Dave Ramsey is wrong and Suze used to be wrong but last year see saw the error of her ways and made a special post in which she stated that it is more important to build an emergency fund than it is to pay off CC debt.

    That has been my contention all along! But the primary message of my book is this:

    Credit card debt is only a symptom of the real issue and the real issue, the reason you ended up in debt, is spending more than you earned.

    You do not adequately address the cause by addressing a symptom. Snowball, snowflake, snow whatever, they are the personal financial management equivalent of snake oil!

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    1. Well, actually Dave is correct if you look at his Debt Snowball.

      The 1st thing you do if you follow his plan is to cut up you credit cards and NEVER use them again. (credit card problem solved)

      Dave admits it himself that his plan isn't "Mathematically" correct but he also states that paying off debt is like 5% math and 95% psychological so if you follow this logic his plan of "little wins" phsychologically are much more effective then saving $10 on interest.

      Suzi Orman is an arrogant moron and her advice is ridiculously bad. It so unfortunate that poor women listen to her babble, even the way she speaks irritates me.

      She uses an example or $200 or $300 dollars, those should be gone in week or 2 MAX (so if it took you 2 weeks to pay the $300 credit bill @ 29% you would pay around $3.35 in interest) I'd rather stick to the physchological win then worry about saving a few bucks.

      All I know is that Dave Ramsey's plan works 100% of the time.

      If Suze Orman would bash someone like Dave Ramsey, someone who helps 1,000's of people get out of debt and build wealth every week, then she is a bigger moron then I gave her credit for.

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  3. Debt reduction is like losing weight- a good program that you will follow through with beats a perfect program that you'll discard as being "too tough", any day of the week.

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  4. Orman and Ramsey have different audiences. Ramsey's plan works for his audience because they don't have self-control; they need the gratification of seeing headway right away. They are real beginners.

    Orman's audience is people with an intermediate knowledge of personal finance. A lot of them are already on the right path.

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  5. "Suze is correct that Ramsey's method is not the best mathematically and you'll generally end up paying more interest with his plan"

    No, you'll ALWAYS end up paying more interest with his plan - guaranteed.

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  6. If you do the debt snowball correctly, you might pay a little more in interest, but, over time, it's negligible. This assumes you are making large payments to pay off credit - $500-1000 or more per month. If you can only afford minimum payments for all debts, and it is going to take you years to pay it off, it makes sense to line them up by interest rate. But, it makes no sense to pay off a $20,000 credit card at 13% before you pay off a $600 medical bill at 0%. If you clear out all the smaller bills, you have big chunks of money to go toward the larger bill.

    I believe the characterization of Dave Ramsey's audience as being "real beginners" and effectively unsophisticated is incorrect. The truth is that, after 10+ years of studying both Suze Orman and Dave Ramsey's methods, I find Suze Orman is sounding a lot more like Dave Ramsey, and he hasn't changed his message at all. I just finished watching her Money Class. Her message is so very close to his, even down to removing the word "allowance" from your vocabulary. The only difference is the order in which one saves an emergency fund and the amount. 8 months is more conservative than Dave's $1000 baby emergency fund and even his 3-6 months of living expenses. Otherwise, they coud be the same person.

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  7. Let's all face the facts. Suze and Dave are different but both correct. It's us who are wrong. Otherwise we wouldn't be in debt and googling whose method is actually better. Emergency fund credit card debt.. blah blah.. let's face it.. most of us searching have no fund and are in debt.. so really.. does it matter?

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  8. Actually thedebtWhisperer is right. There wouldn't be debt if more money wasn't spent than earned. Plus, a lot of people can't help sending more as they hardly have anything to work with, and if there are unexpected expenses it takes more than they make so they end up in debt. Mr. Ramsey, although helpful to some, especially if you have a decent income to work with, does not have a helpful plan at all for and seems out of touch with very low income families, which make up a big portion of the population now. It amazes me to listen to his show and hear caller after caller call in and whine about not knowing how much to put in an IRA, or should they refinance their house, or how to diversify their portfolio. Many of them are over spenders, spending more than most people make period, and some seem to have no idea at all how to spend or manage their money. And a majority of the time, they make more than a lot of people. I hate to hear a person call in and moan about their financial troubles when they make $100,000 plus dollars a year and both spouses work. If they are in total financial ruins and don't even have a child's idea if how to manage money, it begs the question how they are competent enough to hold a job where they make that much. That is so out of touch with most people in the world. What about people who instead of blowing money left and right don't have enough to pay their house payment and put food on the table. It's more income that a lot of people need and Mr. Ramsey's show and books (I don't know about other financial counselors) don't take into account how that is or help you wih that. The job market has changed dramatically and it is not easy to get a job these days. Plus, companies are interested in self-preservation and are greedy in these times and are lowering wages, lowering or eliminating benefits, avoiding giving people full time hours, and giving people duh hard times or allowing co-workers to that they want or have to quit.

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