“....Assume a credit card balance of $20,000 at 28% interest. A $10,000 student loan at 4%. Assuming you pay $500/mo to pay off loans, your cash flow doesn’t change until you pay off all the debts. The total amount you pay off is far less by paying off the high interest rate loan first. It would actually make sense to secure a $20,000 loan at 15% to pay off the 28% credit card.”
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Ramsey wouldn’t argue your math. He will tell you right from the start that from a math perspective you are right but that the problem is one of behavior. I’m not a genius but on my own decided to attack out debt and started lowest balance first to give us an early victory. As he would say 80% mental 20% math.
Many callers to his show have tell him they took out consolidation loans, paid off CC balances then rack up new CC debt so they were in worse shape than before. Not everyone has financial discipline in fact most do not.
You are very correct - financial discipline is something we all need, especially our congress critters.
Back in the Carter high inflation days, a financial services company, I believe it was Fidelity, had an interesting series of commercials. They would take the cost of things like your daily cup of coffee, and take it out 20 years at high interest rates, and show you the FV, if you invested it or, in this case, paid down debt. Really powerful stuff.
“Ramsey wouldn’t argue your math. He will tell you right from the start that from a math perspective you are right but that the problem is one of behavior. I’m not a genius but on my own decided to attack out debt and started lowest balance first to give us an early victory. As he would say 80% mental 20% math.”
^THIS^
If you don’t change the behavior, you’ll go right back to the same old results.