1. Debt snowball, while their methods are slightly different, the concept is basically the same. Focus on one debt, pay minimum payments on the other debts, once one debt is paid off move what you where paying on the next debt. So if you were paying $100 a month on the debt you paid off add that $100 to the next debt, and keep going so your snowball grows each time. Here is where their methods vary:.
Orman's method is to start paying off the debt that has the highest interest rate to lowest interest rate.
Ramsey would tell you to start with the smallest debt to largest debt.
So which is better? I ran some numbers, let's say you had $10,000 worth of debt and it was broke down like this:
$4,000 Minimum payment $45 @11.99%
$2,500 Minimum payment $50 @21.99%
$1,000 Minimum payment $15 @12.99%
$2,000 Minimum payment $20 @7.99%
$500 Minimum payment $15 @9.99%
Let's say you only had $50 extra (Not exactly Gazelle speed) to put on your debt each month, with either plan it takes 7.25 years to pay off the $10,000. I am giving Ramsey this one though here is why with Orman's plan it would take almost three years before you see your first bill paid off in full, Ramsey's plan you'd see your first debt paid in full in 8 months. Seeing how the key to paying down debt is to stay motivated and focused you are going to be more apt to stay motivated if you see progress at a fairly good rate. (I might add a note when repaying your debt if you can squeak ANY extra towards debt repayment, by cutting your spending back, picking up more hours at work do so, this was just a simplified example. :) )
2.Both agree that you have to have an emergency fund, Ramsey's first baby step is to save up a thousand dollars BEFORE your debt is repaid, then AFTER your debt is paid off save up a three to six months emergency fund. Orman's advice used to be 3-6 months however after the stock market crashed in 2008 she upped it to 6-8 months.
3. They tell their listeners that it's important to teach kids at a young age the importance of handling money well, not by simply giving them an allowance, but a chore chart and paying them per chore.
4. Both agree that it's important to have life insurance, and that you should buy term life insurance.
Neither one have anything good to say about whole life insurance.
5. Both HATE co-signing. Orman and Ramsey would both tell you NEVER to co-sign, even if it's for your kid, or your sibling, JUST DON'T DO IT!
Orman's method is to start paying off the debt that has the highest interest rate to lowest interest rate.
Ramsey would tell you to start with the smallest debt to largest debt.
So which is better? I ran some numbers, let's say you had $10,000 worth of debt and it was broke down like this:
$4,000 Minimum payment $45 @11.99%
$2,500 Minimum payment $50 @21.99%
$1,000 Minimum payment $15 @12.99%
$2,000 Minimum payment $20 @7.99%
$500 Minimum payment $15 @9.99%
Let's say you only had $50 extra (Not exactly Gazelle speed) to put on your debt each month, with either plan it takes 7.25 years to pay off the $10,000. I am giving Ramsey this one though here is why with Orman's plan it would take almost three years before you see your first bill paid off in full, Ramsey's plan you'd see your first debt paid in full in 8 months. Seeing how the key to paying down debt is to stay motivated and focused you are going to be more apt to stay motivated if you see progress at a fairly good rate. (I might add a note when repaying your debt if you can squeak ANY extra towards debt repayment, by cutting your spending back, picking up more hours at work do so, this was just a simplified example. :) )
2.Both agree that you have to have an emergency fund, Ramsey's first baby step is to save up a thousand dollars BEFORE your debt is repaid, then AFTER your debt is paid off save up a three to six months emergency fund. Orman's advice used to be 3-6 months however after the stock market crashed in 2008 she upped it to 6-8 months.
3. They tell their listeners that it's important to teach kids at a young age the importance of handling money well, not by simply giving them an allowance, but a chore chart and paying them per chore.
4. Both agree that it's important to have life insurance, and that you should buy term life insurance.
Neither one have anything good to say about whole life insurance.
5. Both HATE co-signing. Orman and Ramsey would both tell you NEVER to co-sign, even if it's for your kid, or your sibling, JUST DON'T DO IT!
