Dave Ramsey's 10 Least Favorite Ways to Reduce Debt (And What To Do Instead)

When it comes to becoming debt-free, personal finance guru Dave Ramsey has no shortage of advice. His approach to debt elimination is widely known, particularly his “debt snowball” method, which encourages tackling smaller debts first to build momentum. 

However, Ramsey also warns against several popular debt reduction strategies that he believes can backfire.

While everyone’s financial journey is unique, here’s a look at 10 strategies Ramsey says to steer clear of — and what he suggests doing instead if you’re looking to get out of debt.

The debt avalanche method prioritizes paying off debts with the highest interest rates first. While this approach may save you money on interest over time, Ramsey argues that it isn’t the best way to tackle your debt.

Instead, he recommends the debt snowball method, which works by paying off those debts in order of smallest balance to largest, without regard to the interest rate. 

This can create a sense of accomplishment and momentum, addressing financial behavior and not just financial figures. According to Ramsey, small victories lead to lasting commitment.

Debt reduction plans that promise to lower your monthly payments may sound appealing, but Ramsey warns that they often don’t help because they don’t address your spending habits which is what’s probably keeping you in debt.

Instead of relying on these plans, Ramsey advises following his “7 Baby Steps” method, which focuses on saving for emergencies and tackling debts systematically to avoid unnecessary financial strain.

Professional debt settlement services often claim to negotiate with creditors on your behalf, but Ramsey cautions against this strategy. These companies can charge hefty fees and may not deliver the promised results, leaving you worse off.

Ramsey recommends negotiating directly with creditors yourself (yes, you can do that) to create manageable repayment plans or using the debt snowball method to take control without incurring extra costs.

Debt consolidation loans group multiple debts into a single payment, but Ramsey views them as a trap. While they simplify payments, they can also lead to more borrowing since the life of your loan may get extended.

Ramsey argues that tackling debt head-on through the debt snowball method is more effective because it addresses the behavior that led to the debt in the first place.

Taking out a personal loan to pay off debt may feel like a solution, but Ramsey warns it’s just shifting your debt from one pocket to another. This approach doesn’t tackle the root issue and can keep you stuck in the cycle of borrowing.

Ramsey suggests that it’s time to stop viewing debt as the solution and focus instead on breaking the borrowing cycle for good — and yes, that includes not borrowing money from family members.

Credit repair companies often promise to clean up your credit report, but Ramsey points out that many of these services are scams. They might charge massive fees to remove accurate negative information, which is illegal and unlikely to work.

Similarly, debt elimination scams offer to wipe out your debt or drastically reduce it for a significant upfront cost. In reality, these services typically rely on fraudulent tactics, leaving you with more financial headaches than before.

Instead, Ramsey encourages taking legitimate steps to improve your credit and reduce debt over time, without falling victim to these risky shortcuts.

While credit counseling agencies may offer help coming up with a personalized debt management plan, Ramsey cautions credit counseling only works with certain types of loans. Additionally, you may incur hidden maintenance fees. Instead, he suggests creating a simple, zero-based budget to ensure your income minus your expenses equals zero.

Transferring credit card debt to a zero-interest balance transfer card might seem like a great way to save on interest, but Ramsey argues that it’s only a short-term fix. Once the promotional period ends, and you haven’t finished paying off the entire debt, you could be left with a higher interest rate on the remaining balance.

Ramsey recommends avoiding credit card debt altogether and focusing on paying down balances as quickly as possible.

Ramsey strongly advises against payday loans, which he considers one of the most dangerous forms of borrowing. With their sky-high interest rates and predatory terms, payday loans often create a cycle of debt that’s hard to escape.

Instead, Ramsey encourages following Step 1 of the “7 Baby Steps” method: Start by saving $1,000 as soon as possible. Building an emergency fund to handle unexpected expenses without resorting to high-cost borrowing is key.

While bankruptcy may seem like the only option for some, Ramsey believes it should be an absolute last resort. He points out that bankruptcy has long-term consequences for your financial future.

Before considering this step, Ramsey advises exhausting all other avenues such as eliminating your debts through the debt snowball method.

Dave Ramsey’s advice on debt reduction is rooted in his belief that financial success comes from changing behaviors, not just fixing numbers. While some of the strategies he discourages may work for certain people, Ramsey emphasizes the importance of avoiding quick fixes that can potentially lead to more debt or financial stress.

Have you evaluated how your current debt strategy aligns with your long-term goals? By following Ramsey’s guidance or adapting his principles to your needs, you can lower your financial stress and work toward becoming debt-free without relying on potentially risky shortcuts.