Updated on 03.14.16

Dave Ramsey vs. Suze Orman: Which Plan For Dealing With Debts Is Best?

Trent Hamm

Recently, AllFinancialMatters posed the following question: which method of getting out of debt works better, Suze Orman‘s or Dave Ramsey‘s? Here are the compared plans:

Here’s Dave Ramsey’s Snowball Method for paying off credit cards:

Step 1 – Make a list of all your credit cards, ranked in order from the highest balance to the smallest balance.

Step 2 – Beginning with the card with the smallest balance, pay as much as you can on that card while paying the minimums on the other cards.

Step 3 – Once the card with the smallest balance is paid off, take the amount you were paying towards that card and apply to the card with the next lowest balance.

Step 4 – Keep on keepin’ on until ALL the cards are paid off.

Now, contrast Dave’s Snowball Method with Suze Orman’s Method found in The Road to Wealth:

Step 1 – Figure out the largest possible amount you can afford to pay each month toward all your credit card balances together.

Step 2 – Add $10 to each minimum payment that your credit card company is asking you to pay.

Step 3 – Add up all your minimum payments plus $10 added for each card.

Step 4 – Hopefully the difference between the figure found in Step 1 is GREATER than the figure in found in Step 3. If so, apply the difference to the card with the HIGHEST interest rate.

Step 5 – Once that card is paid off, you continue the process (Steps 1 – 4) until ALL the cards are paid off.

Unsurprisingly, being a numbers junkie, I had to start doing some calculations. I created a pair of credit cards with different balances and interest rates and ran the numbers time and time again. What did I find? Most of the time, Suze’s method was better, but not always.

Let’s say you have two credit cards. Your first card has a balance of $5,000 on it, has an 18.9% interest rate on it, and has a minimum payment of $79 (which will take more than 25 years to pay off at that rate). Your second card is a bit better: $2,000 balance, a 10.9% interest rate, and a minimum payment of $19 (again, more than 25 years to pay it off). You’ve decided to commit $500 a month to eliminating this sick pile of debt.

If you use Dave’s method, you’ll make the minimum payment on the first card ($79) and then take the rest of the $500 and use that as payments on the second card ($421). In the fifth month, you’ll have a nice moral victory: that first card is paid off! You can then write a check for $500 a month to the first card, which will be paid off in the sixteenth month with a final payment of $361.69.

However, if you use Suze’s method, you’ll make the minimum payment plus $10 on the second card ($29), then pay the rest on the first card ($471). At the twelve month mark, the big card will be paid off, so you can then put the full payment of $500 towards the smaller card, which will also disappear at month sixteen. The only difference is that with Suze’s method, that last payment in the sixteenth month will be only $262.51. Her method saves you about $100 in this case.

However, if you reverse the interest rates (so that the low-balance card has the high rate), Dave’s plan wins, but only by about $75.

If you’re going to subscribe to a plan and don’t want to run a bunch of numbers in a complex Excel spreadsheet, Suze’s plan is better than Dave’s plan. However, there is a better plan than either Suze’s or Dave’s plan: pay off the highest interest credit card first.

In the first case, where the high interest credit card also has the highest balance, this plan is much like Suze’s, except that you only pay $19 towards the low interest card and $481 towards the high interest card at first. Just like with Suze’s plan, you pay off the high interest card in month 12, but in the sixteenth and final month, you only have to pay $257.56. This is just barely more optimal than Suze’s plan (by $5). In the second case, however, this plan was identical to Dave’s plan.

In short, the pay off the highest interest credit card first always beat or tied both Dave and Suze’s plans strictly by the numbers. Suze’s plan was never optimal, but it was close to optimal the majority of the time. Dave’s plan was either exactly optimal or else quite poor compared to both the “highest interest” plan and Suze’s plan.

However, I’m leaving out one important factor: the psychology factor. Dave’s plan is better from a psychological standpont because it enables you to feel a level of success much quicker than Suze’s plan or the “highest interest” plan. Even Suze’s plan is better than the “highest interest” plan because you have the effect of doing “more than the minimum” on all fronts, which creates a sense of real progress.

Which plan is right for you? The truth is that it depends on how you’re wired. 

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  1. bushidozen says:

    Funny, the “pay of the highest interest rate first” plan was in Ric Edelman’s book “The Truth About Money” which first came out around 1998, and has had two updates since. It’s a great, well-written book that introduces the reader to virtually every aspect of personal finance. It would be nice if you could add it to your “52 Books in 52 Weeks” series. The data (charts, graphs, & percentages) is a little dated – the last revision was in 2003 – but the information is timeless.

  2. Bobby says:

    Interesting that you crunched the numbers in that fashion, but one of the concerns I had with Suze’s plan is in step 4. This is the ASSUMPTION that the number in step 1 is greater than the number in step 3.

    What about when numbers 1 and 3 are equal or (yikes) if 3 is greater than 1? What about when there are more than 2 debts to be paid off? Using Suze’s method you may not have an excess to pay towards one debt.

  3. Ben Mathews says:

    Both plans are suboptimal. The debtor should pay off the debt with the highest interest rate first. Then snowball down to the next highest interest rate and so forth.

  4. Chris says:

    Actually, I’m not keen on either plan. I think they leave out some crucial first steps that everyone should do before starting on one of these plans.

    1. Call your lowest APR cards and ask them to increase your credit line. Very often they will if you just ask. This should improve your credit rating since rating agencies look at credit used as a percentage of amount of credit. Raising your limit lowers that percentage.

    2. Call each of your credit card companies and ask them to lower your APR. These companies will compete to continue doing business with you. Tell them the lowest APR you currently get and see if they can do better. See if there are any promotional rates they can offer if they can’t lower your APR permanently.

    3. Transfer balances from your high APR cards to your lowest APR card. Max out your lowest APR card without going over. Continue transferring your highest to lowest.

    4. Pay the minimums on all your cards. Add any extra amount to your highest APR card.

    5. Repeat 4 monthly. Repeat 1-3 every 6 months.

  5. jake says:

    It doesn’t matter what plan you sign up for if you keep the bad spending habits none of them will help.

    Its fine and dandy that you work towards paying down your debt, but if you are still charging high amounts to those cards it gets you no where.

    And calling the credit card companies to ask for reduction or increase doesnt always work. You might have a bad enough history that they will not budge.

  6. VG says:

    I completely agree with Chris’s plan of action. a simply phone call is usually enough for you to start saving yourself some money. Amex right now is dishing out credit line increases like candy. just request $24,900 as your credit line since over $25,000 requires tax returns for the last 2 years. (AMEX cli is a no pull transaction regardless if its approved or denied)

  7. Angela says:

    It all depends on how you define best.

    I think that any plan is “best” if you will actually stick to it. Calculating the least amount money spent to clear the debt is only useful if you go on to clear the debt.

  8. icup says:

    I think Ramsey’s plan is better. Let’s say you have $300 extra beyond your minimums to pay towards your cards each month, and five cards with balances of $300, $1000, $2000, $3000, and $4000. Let’s further assume that the minimum payment on the last 4 are (just pulling numbers out of my ass here) $50, $100, $150, $200. Since we have $300 in month 1, I am ignoring the minimum payment on card 1.

    The first month we pay off the first card. and pay the minimums on the other cards

    The Second month we begin paying the 2nd card with our snowball. It takes roughly 3 months to pay down.

    At the end of month 4, we now have our snowball plus $100 (the minimum payment from card #2, now paid off) to apply to the remaining cards.

    Now, where this plan is different than Suze’s plan is that in the real world, things come up, and those things usually cost money. After month #4, with Dave’s plan, we now have our snowball plus $100. We can either roll that $100 up in the snowball OR if something comes up that month that costs $100, we can use it to pay THAT bill, thus avoiding having to take out extra debt.

    Assuming our balances don’t match their order lowest to highest with their rates lowest to highest, Dave’s plan actually generates a greater cashflow month to month. This might not be important if you have the discipline to not spend more credit while rolling up your snowball, but if something comes up during the early part of Suze’s plan, since your cashflow is more tied up in minimum payments, you may end up having to derail your snowball for a month or two, or even worse, take on more debt. If you do take on more debt, its more than likely going to be on the higher interst cards because those are the ones that will have the most available credit on them.

  9. BillOGoods says:

    Chris, you nailed it. Thanks.

  10. mary says:

    Plus Dave says – “hey! if you could do math, you wouldn’t have been in this mess to start with!” You gotta love the guy’s attitude!

    Chris – we used your method several years ago and it worked very well.

  11. ech says:

    As the article says, Ramsey’s plan is what is better psychologically. It gets you a victory over a debt quicker. Remember that his target audience included many, many people that are in financial trouble – they aren’t going to get better rates from the CC companies, they aren’t smart with money (or they wouldn’t be in trouble) and they need to get the lift that a payoff provides. And Dave admits this on his show.

  12. Another note: If you are prone to be forgetful and occasionally get smacked with a late payment fee, you have lowered your risk considerably with Dave Ramsey’s plan, since you have fewer accounts to keep track of.

  13. chicomono says:

    One thing about moving all this debt around is that you may incure a 3% fee with each transfer some cap the fee more and more do not.

    Increasing credit line to increase scores is GOOD IF YOU DONT USE THE INCREASED LIMIT ( Except for transfers if it makes sense) Some cards may offer a Balance transfer a t a low intrest rate like 3.9% for the life of the debt BUT remember it pays off first so if you do that deal on the 21% creditcard then you will pay off the 3.9% balance first and pay nothing on the 21% until the transfer is paid off in full. SO it becomes very complex in the math so ramsey may be best because of its simplicity and the its stressing eliminating debt, draconian ( almost ) budgeting to QUICKLY remove debts and its militant attitude towards any debt. It probably would be most successful in letting people become debt free which is its stated purpose.

    Suze is partnered with FICO so her method of paying more than minium WILL Increase your FICO better but guess what if your FICO increases you might be tempted to GET MORE DEBT and make the creditors more money and increase your likelihood of defaulting and making them more even more money because you have increased the total of your debt. So buyer beware
    1) balance transfers are not usually free
    2) balance transfers at 0 or even low intrest rates pay off first so calculate that the other balance on that card will just keep accrueing intrest ie no “prinicpal” paid down on the other portion.
    3) psychological vicotry is nice but so is changing HOW you think and USE debt to take the advantage away from the creditors.
    4) Suze is basically an employee of FICO or at least cobranded an makes lots of cash from people trying to fix their debt while partnering with a company tied so closely to granting debt is a basic conflict of interest. SO if increasing your FICO is your goal then go for her method, it can save you money if you can manage your debt responsibly

  14. DoubleB says:

    True to form, I’m ten months late and $310 short…

    I’ve done the math also and I also find situations where either method can work better. Now maybe I’ve way over-complicated this, but things like promotional interest rates, paying transfer fees to move balances, etc. can really hinder a calculation of the truly optimal result.

    And what is optimal? It’s how we define it. Do we just want to be out of debt as soon as possible, regardless of interest cost? Dave’s method, hands down. Is “optimal” keeping total interest paid at a minimum? Most likely Suze’s, though I have created scenarios where a combination of Dave’s and Suze’s is necessary to accomplish it (truth be told, I have not actually been able to completely model the absolute lowest total interest payment over a series of debts, months, and changing snowballs, but I do know that scenarios exist whereby simply targeting the highest interest rate card each month does not result in the lowest total interest paid).

    In short, I still struggle with finding that elusive condition that determines at any point in time which balance to prioritize over others, but what matters most is folks waking up to their financial situation, taking control of it and then keeping control by following systems that minimize their outflows and build wealth. They can either take a simpler approach to debt reduction or be super-geeks like us and squeeze out that last precious dime, but the point is that they ruthlessly pursue their debt elimination goals.

  15. FREEDOM says:

    I have read these comments with great interest. Most everyone has some good ideas. The Ramsey plan is derived from his having lost hundreds of thousands of dollars and recovering from that staggering debt load. He knows DESPERATE! The primary key to getting out and staying out of debt is discipline. Positive reinforcement helps keep the discipline;thereby, the small victories are crucial to success.
    But the Ramsey plan goes further, especially for those who are interested in spiritual growth, whether Christian or humanistic. Being in control of one’s finances allows a peace of mind and sense of security. I have led many FPU classes through my church. Several couples have enrolled to find out how to give more to church/charity.
    So, crunch numbers, engage the psychology, play the game, ro do whatever it takes to put yourself in charge of your own money. Savings and investments are far more comforting that those monthly bills.
    Debt-free for eighteen months, including the mortgages (we have a vacation home too), we truly live like we want to now.

  16. Jeff says:

    What I find most intersting are the limited number of Suze Orman people who are able to declare themselves debt-free. I don’t hear a lot about them while Dave’s approach has it mathematical variances..in the end it works and it gives people the information and direction they need to achieve their goal. Coming from experinece it is nice to be debt free, which I have been for 6 years and while everyone speaks about the little nuances of each others approach I have not made a house, car or any other payment for 6 years and am banking all that money for my benefit. Thanks Dave!!

  17. Keith says:

    As Dave says, 80% of personal finance is phycological. We can sit around and crunch the numbers all day long. In the end, the actual cost savings are irrelevant and insignificant. So what if you save $250 one way vs another? If you were so worried about saving $250, you would never have gotten into debt in the first place. Debt does not work mathematically. Neither does debt reduction. Personal behavior is the key. Any plan will work if you change your behavior, stop spending more than you make, aggresively pay off debt and never borrow again. I think Dave’s plan is the best at addressing human nature, and is therefore the better plan.

  18. Chuck says:

    I like the losing weight analogy.. If you do Suze’s plan, although it being more mathmatically correct, you’ll go much much slower in “seeing” results than Dave’s. Then again, if your so great at this math issue, you wouldn’t be in debt in the first place! Pick off those credit cards one by one and feel better as you declare victory over each bank…. and of course, never use the plastic again!! GO DAVE!!

  19. Straight Shooter says:

    I don’t understand why people who are trying to get out of debt are all of a sudden concerned with math. Had they done the “math” in the first place, they never would have gone into debt.

    While I’m personally not fond of Suze, I must give her credit for attempting to get the public to realize you don’t want to live your life in debt. Any move in that direction is a positive one. I think Dave’s plan has more of a ring of truth to it because he actually had to do it himself. Yes he has lots of money now, but that’s because the common sense he teaches actually changes people’s attitudes towards debt (while Suze still tells people what they want to hear, that credit cards are okay).

    Having walked through Dave’s plan step by step, I can assure you that personal changes you make with his inspiration will not only change you, but the world around you. That’s why people call into his show to scream. I don’t see Suze’s fans doing that…

  20. A Thomas says:

    I am a fan of Dave’s, but that being said, I don’t think it really matters. Use Dave’s method if that’s what you like, use Suzy’s, pay of the highest interest rate, or come up with your own plan that’s different than all of these. Just pay off that debt!! That’s the really important thing here. I love the quote “do what you did, get what you got”

  21. Wizard Prang says:

    Math nerds know that it makes sense to pay off the highest-rate debt first.

    But then… a math nerd who spends more than they make is not much of a math nerd.

    Dave’s plan makes more sense because, as he puts is “Personal finance is about 90% behavior”. The psychological life from getting a quick win is a powerful motivator.

  22. Jaime says:

    The article didn’t mention that as a part of Dave’s plan you must first cut up all your credit cards and never use them again, while Suze wants you to keep as many open cards as possible. Keeping all your credit cards is serious flirting with disaster. The average person will soon be back in debt, possibly worse than before.

  23. Isaac says:

    I don’t know that there is a right or wrong here. I heard Dave say that sometimes his plan does not show the best result with pure calculations, but if you factor in the human element I think he understand the larger problem. It’s not resources it’s human nature. The need for focus, motivation, and encouragement that comes from even small successes can be the difference in success and failure. It would be good to find out which plan has a higher drop out rate. It’s not in just the learning, but the ability to stick with it. There are probably may better plans, but how many people will utilize them. I think Dave’s success and the success of those who have followed his plan speaks volumes.

  24. Trevor says:

    I love how Dave and his followers decide mathematical truths are useless simply based on the idea that “math doesn’t matter”. Nice logic, if you believe that there is no wonder you listen to an unqualified, uneducated, and bankrupt idiot like Dave Ramsey.

  25. Dave says:

    Wow! (previous comment)… Dave Ramsey was smart enough to learn from his mistakes, and not only is educated and wealthy, but is also willing to share his knowledge, encourage and educate others to get out of debt (with a method that works), and, again, is smart enough to caspitalize on his knowledge. Math and psychology work together with Dave’s qualified system. It also teaches people to be responsible and to stay out of debt. Now…you do the math.

  26. Josh Fowler says:

    Well, I see that all of these have some validity to them. Unfortunately, good mathematics will never get you out of debt. Only a change in behavior can get you out of debt. With Dave’s method of paying off the lowest balance first regardless of the interest, you see a small victory which spurs you on to more success. I know this not because I am a financial expert, but I help to put my wife through school, and we paid off about 13,000 dollars in a year and a half, on less than $40,000 combined income, in a bad economy, in one of the most expensive place to live in the country.

  27. sc says:

    We are doing Dave for the simple reason…we want OUT of debt….we don’t want to continue a credit line with the potential for debt. If my husband could control his spending, we wouldn’t have gotten in a financial mess and Dave’s plan deals with people and behavior, not just the math. Credit cards don’t deal with you when you are behind and over the limit. Dave makes us take care of us first. He also deals with when and how to make investments and building wealth once you have paid off your debt. When it came down to it, Dave’s plan fits my lifestyle and put more disposable income in our pocket faster. Plus, Dave makes sure you can take care of emergencies without digging back in the hole and that is crucial.

  28. Brad says:

    The Psycological aspect of Daves plan is the key. It is well worth the insignificant difference between the actual amount saved to havee that first and then subsequent victories. Yes you do save more money going for the high interest first plan but it is not nearly as fun. And when things are fun you are more likely to do them.

    Think of it as going to the casino. You dump in a little extra on some bad odds hoping for a payoff. But this time you actually get the payoff and then another and before you know it your a hell of a lot better off than you were when you started.(this is a lot different than the actual casino)

  29. dave says:

    Trevor, you must be upset that Dave Ramsey is right. Following his plan will work every time if it is followed. It is, as he says, “common sense”. Credit card jugglers are just fooling themselves.

  30. Annie says:

    As a user of the Dave Ramsey program…it rocks! Seeing those small victories every month was a definate motivator to keep going. Thanks to him WE’RE DEBT FREE and I was even able to go part time. Our pantry is always full and we don’t stress about money anymore. So even if it cost me a bit more in the end, it was worth every penny to feel the way I do now, knowing that the only person I owe money to is me!

  31. Annie says:

    As a user of the Dave Ramsey program…it rocks! Seeing those small victories every month was a definate motivator to keep going. We made more than enough money before but we didn’t watch where it was going. It’s a definate change of lifestyle and we are better off because of it. Thanks to Dave Ramsey and his program, WE’RE DEBT FREE and I was able to go part time. Our pantry is always full and we don’t stress about money anymore. So even if it cost me a bit more in the end, it was worth every penny to feel the way I do now!!

  32. Austin says:

    I bet Dave has more money than trevor.

  33. There is quicker method. Go to the website and review the charts I have.

  34. Shannon B says:

    I went through FPU about 15 mos ago and have paid of 3 credit cards, will pay off my 4th on the 1st and will have my 5th paid off by Christmas, and my car paid off by March. I can’t wait to be able to call Dave Ramsey and yell IM DEBT FREE!!! I have learned so much more than the minute amount of money that doing it the interest rate way of paying down debt would have saved me. It is nice to not have 6 payments a month and only 1 or 2. It is a phsycological thing and am thankful for it. Due to his envelope method of budgeting, his debt snowball(selling things, second job, etc), and MVELOPES.com I now have money in savings and am not paying for anything with credit!! I am loving being in control of my money!! I would highly recommend his methods!!

  35. Sean says:

    Dave CLEARLY explains that he isn’t concerned with saving on interest with his “snowball” method. He KNOWS that it COULD cost more. I say COULD because, as Dave points out, paying on the biggest CC bill first makes sense, but it’w what millions of people have been trying to do for many many years and failing to accomplish. He wants to FORM HABITS and CREATE SUCCESSFUL MILESTONES. Thus the plan to pay off the lowest debt CC FIRST. You do it, celebrate, say “I CAN do this!”, and begin working on #2. Pay it off, celebrate again, gain MORE CONFIDENCE and go on up the snowball. My wife and I tried the other way for YEARS and carried debt year after year. When we applied ourselves to the Debt Snowball method, we got them ALL paid off. AND THUS SAVED INTEREST PAYMENTS, since we FINALLY got rid of ALL the payments. It seems that Dave’s plan is just too simple for some people to appreciate how well thought out it really is. Dave didn’t come up with this over a cup of coffee and write it on a napkin. He found the most likely way to succeed through trial and error and study. Trust him 100% with his financial advice. You WILL NOT go wrong. Now Suze Orman on the other hand… don’t get me started!!

  36. Casey says:

    I’m so glad I don’t have to worry about which of these is better anymore. All of them will work but which one will keep you out of debt forevermore. I can’t believe Suze Orman will encourage people to stay out of debt, afterall she’s on FICO’s payroll. Hmmm, do I really need a high credit score Suze?

  37. Julia says:

    When I got serious about paying off my student loans I started with the smallest balance first. I paid off the 2 lowest (about a month apart) and was high on that success feeling when I started second guessing what I should do next.
    That’s when I realized I had 2 credit cards at 18% that were killing me! So I ran a few different scenarios and concluded that paying off the debts highest interest to lowest would get it all paid off faster and would cost me less.
    I think I definitely needed that success high from the 1st two loans to make me serious about paying off everything else. But now that I’ve had it, I’m driven to get the big high when everything is paid off.

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