Carnival #2 was posted over at No Credit Needed. (You’ll be seeing a lot of Flashbacks from his carnivals — he’s done a lot of them!) One article from Five Cent Nickel in this carnival has gained a lot of traction: Dave Ramsey is Bad at Math. Actually, it’s the all-time most-talked-about article on the Five Cent Nickel blog.

Nickel’s beef with Ramsey’s method was that Ramsey advocates knocking out the debt with the smallest balance first with the intent of gaining psychological momentum that will encourage you to knock out the bigger ones. This, Nickel argues, usually ends up costing the borrower more interest than if the highest-rate debt were paid off first. (In fact, it never ends up costing less to pay the lowest balance first.)

If you run through the numbers (and Nickel did for a couple of cases) you can see that this is true. And logically, one would think, if you look at all of your consumer debts as one big debt, the highest-rate method brings “that one big debt” down the fastest.

But getting into consumer debt isn’t logical in the first place. (At least not to me.) So I would be hard-pressed to say that getting out of consumer debt is completely logical either. Lots of habits need to be changed, and the very way that people think about money needs to be changed as well. Knocking out a single credit card balance, even if it’s only $250, is an important and tangible measure of progress, even if that card carried an interest rate of 7.9% while all of the others are thousands of dollars with rates in the high teens or low twenties. This I can see as being much more encouraging than looking at “that one big debt” go down from $25,000 to $24,750. (To be fair, Nickel does see the value as well.)

Doing the math is important, but the math means nothing if you’re discouraged and don’t follow through. Watching the number of debts go down is encouraging in a big way, and both methods will kill the debt if there is follow-through.

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