I 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 iTunes. I'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.
Suze'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.