Dave Ramsey - Change Agent

By Scott Franklin
As appeared in IMPACT

Responding to many of his radio show callers with the always cheerful refrain “Better than I deserve,” Dave Ramsey is familiar to many of you as a financial advisor with a syndicated radio show. In addition to his radio show, Dave also runs the Financial Peace University workshops, has a best-selling book titled ‘The Total Money Makeover’ and has helped thousands regain control of their personal finances and their lives.

All of this with a fundamentally flawed financial model.

Don’t get me wrong, I’m a big fan. He is entertaining and gives great advice. In fact, his debt elimination model is brilliant. It is just that from a financial perspective, he is simply wrong. From a financial point of view, to reduce debt, one should focus on paying off the debt with the highest interest rate first.  Since interest is increasing your debt amount every month, it is simply Math 101.

Dave’s model gets this wrong. In fact he totally ignores the interest rate. What he does get right – and the reason his flawed financial model is so effective at helping people get out of debt – is that first and foremost, Dave Ramsey is a first-class change agent. And as such, Dave designed his debt elimination process around the golden rule of change:

“People aren’t always logical, but they are predictable.”
Dave’s model is not based upon math, logic or interest rates; it is based upon predictable human behavior. Labeled the ‘Debt Snowball’, Dave’s process has you list all of your outstanding debts in ascending order from smallest to largest and commit to pay the minimum payment on all the outstanding debts. Determine how much extra can be applied to the smallest debt then apply that extra to the minimum payment until it is paid off. Cut up that credit card, and then focus the same efforts on the next smallest debt. Over time, the amount paid towards the larger debts will increase creating a ‘snowball’ effect.

Reigning in your personal spending and paying down debt is not easy, especially when the debt seems so big. By ignoring the interest rate and focusing efforts on paying off the smallest debt, the debt snowball model creates a quick win. Paying off ONE ENTIRE CREDIT CARD is much more rewarding than paying off $600 against a debt of $33,000. Now it is easier to focus on that $700 credit card, then the next one.

When creating change in organizations, we can use this same approach to increase support for the change. Organizations often focus their change efforts on the biggest opportunity or wait until the change is complete to recognize success. From a behavior perspective, if people don’t see some tangible results of their efforts, they will quickly lose interest.

As a change agent, follow Dave Ramsey’s model of setting aside logic and focus on the people. For example, don’t start your change in the area that has the most opportunity.Focus on the area that has the most chance of success. This success will build pull for more change. Create interim success in large projects. If the project goal is 98% compliance and current compliance is at 56%, watch for 65% and celebrate it as a “20% increase in compliance! Special recognition to Janet’s group for hitting 75%.”

Mathematically, Dave’s model is flawed, but his model isn’t about math or even money. It’s about change and what makes change work. Take a look at your changes. Are they wrong enough to work?


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