Money Management

Got a snowstorm of debts? Try this. 

Being in debt sometimes feels inevitable if you’re a regular person in America. You’ll likely take out a loan to buy a car, buy a home, maybe even to start a business. And one (or possibly several) sources of potential debt could be sitting in your wallet as you read this — your credit cards. Credit cards are extremely convenient and offer both greater security for your money as well as the ability to earn money back (and other rewards) on your spending, so it makes sense that they’re so popular.

Unfortunately, since credit cards can be easy to get and are unsecured (meaning, they’re not tied to a specific asset, the way your mortgage loan is secured via your home), it can also be easy to get in over your head with credit card debt. This is especially true after this last year of rampant inflation forced so many Americans to rely on credit cards to keep their heads above water. And carrying credit card debt is expensive, often coming with interest rates of 20% — or higher.

If you’re staring down some debt to pay off, you have options for tackling it. If you’d rather have just one monthly payment and have pretty strong credit, you could opt for a debt consolidation loan. Or you could pay off your balances one at time, starting with the highest interest rate debt you have. This could get discouraging if you’re not seeing a lot of progress quickly, though. What if there was another way?

The debt snowball method

If you want to get up close and truly personal with your debts, and have many opportunities to celebrate your progress as you pay it off, you should consider the debt snowball method. This doesn’t actually describe the way debts can sometimes creep up and “snowball” on you, the consumer. Rather, the debt snowball method is an easy way of “snowballing” the money you’re putting toward your debt. It’s a great way to deal with a “snowstorm” of debts and corresponding payments — and you get to watch them disappear, one by one.

You create your debt snowball by figuring out how much each debt balance is, and then by making minimum payments on all but the smallest balance. You pay as much as you can on that smallest balance, knocking it out fast. Then you take the money you were spending monthly on that payment and roll it to the next smallest balance, and keep making those minimum payments on the rest. By the time you’ve paid off all but your largest balance, your monthly payments are large indeed, and you can get out of debt faster than you may imagine — with plenty of points along the way where you can crank up Queen’s “Another One Bites the Dust” and celebrate slaying another debt (trust me when I say it feels good).

Is snowballing your debt right for you?

This method worked extremely well for me in 2022, and it’s worked for many other people, but it certainly isn’t a fit for everyone. For one thing, you may be extremely stressed out by having to manage so many monthly payments in the course of paying off debt. In that case, consolidating your debt will make life a lot easier for you. And the debt snowball method will end up costing you more in your debt payoff, because you’re ignoring the interest rates on your debts. If you’d rather save a little money in paying off debt, you should consider the debt avalanche method instead, as in that payoff plan, you’ll focus on your highest-interest-rate debt first.

In paying off debt, as in many aspects of your financial life, you have choices. The debt snowball method of debt payoff is a good way to give yourself opportunities to see progress (and celebrate) while you whip your finances into shape, so if that sounds good to you, give it a try.

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Just because someone says something with confidence does not mean they are right. 

There is no doubt that Dave Ramsey is one of the most popular financial gurus in the U.S. But even with all his experience, Ramsey does not always get it right. Here are two examples of that.

Where he believes he shines

I get the sense that Ramsey believes he invented the notion of a debt-free life. He did not.

I come from a long line of frugal farmers and country folk. You know what they have always avoided like the plague? Debt.

My parents were so allergic to debt that they filled the house with used furniture, drove cars until the wheels fell off, and invested nearly everything they earned.

I’m glad they lived that way because it meant that my mother could lead a comfortable life after my father died.

My point is this: Dave Ramsey did not introduce the idea of becoming debt-free to the world. He has simply used the loudest megaphone to spread the word and create a name for himself.

And herein lies the problem

The problem (as I see it) is that Ramsey — like anyone who works to create a following — starts with a good idea to attract a crowd, and once he has those people believing that his word is gospel, throws in some truly hideous advice.

No one is perfect, and boy howdy, does Ramsey sometimes get it wrong.

Shortsighted advice

Here’s a piece of shortsighted advice recently offered by the owner of Ramsey Solutions: “Want to know how to improve your credit score? It’s simple: Pay off your debt, don’t add any new debt, and let your credit score dwindle until it’s completely extinct.”

Ramsey goes on to tell followers that they don’t need a credit score to buy a home, but more on that in a moment.

What’s wrong with this advice

Ramsey’s advice fails to take the following factors into account.

Life happens

Allowing your credit score to “dwindle until it’s completely extinct” might make sense if you are certain you will never need credit in a hurry.

However, life happens. Spouses leave, taking the financial assets with them. Serious illness hits, bringing with it sky-high medical bills. Businesses close, jobs are lost, houses burn to the ground.

In short, while having the discipline to become debt free is wonderful, it does not insulate you from real life. Even if you have a hefty emergency fund, you can’t be certain that it will be enough to cover everything that comes your way.

Adults should be able to trust themselves to do two things at once: Get rid of debt and maintain a healthy credit score. That way, if they’re ever in a position to need low-interest credit, their score will make it easier to land.

Credit scores are not just for credit card applications

While credit scores are used to qualify for consumer loans and credit cards, they have other uses as well. Let’s say your roommate gets a job in another city and moves out. You need to rent an apartment that you can afford on your own. You’d better believe that the landlord or management company is going to check your credit score as part of the application process.

And what if a job you’re trying to snag involves managing money? It’s a safe bet that the potential employer is going to check your credit to learn how you manage your own finances before trusting you with theirs (employers can see pretty much everything in your credit report besides your actual score and birthdate).

Extremes are rarely healthy

Imagine telling someone on diet that once they’ve lost the weight they can never eat another piece of bread. It’s extreme and it rarely works.

Balance is an important part of life, and it might be healthier to encourage those who’ve become debt-free to take control of their credit score rather than forget it exists.

Another shaky piece of advice

Here’s how Ramsey describes financial success to his followers: “As you build up your own financial security, you might see your credit score start to dwindle. But don’t freak out . . . That’s actually when it’s time to celebrate. And once those numbers vanish completely, that means you’ve made it. The real measure of financial success will be when your score reads undeterminable and you’ve got money in the bank, your retirement accounts are fully funded, and you’re living and giving like no one else.

Oh, and don’t worry about a credit score when it comes time to buy a new home. You don’t need a stinking credit score for that either (despite what people might tell you). There’s a process called manual underwriting that looks at the full picture of your financial stability, rather than just your credit score. See? You can breathe easy.”

How it can hurt you

Ramsey is right to say that it is possible to land a mortgage without a traditional credit profile. An FHA mortgage is normally available to first-time home buyers without a traditional credit score, and conventional mortgages, VA loans, and USDA loans may also be an option.

But (and this is a big but), it can be difficult to find a lender willing to go the non-traditional route. The fewer lenders you have available to work with, the less competition there is for your business. In other words, lenders are not falling all over themselves trying to win your business.

Can you blame them? They may be able to look at your bank account and investment portfolio, but they have no idea how well you’ve managed debt in the past. How are they supposed to know if you’re the kind of borrower who pays their debts as promised?

The moral of the story is that no one gets it right 100% of the time. It’s up to you to weigh advice before following a charismatic leader down a rocky path.

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It’s a particularly dangerous financial move for women. 

Former Wall Street trader and financial content creator Vivian Tu (who goes by the handle Your Rich BFF) recently shared her opinion about joint bank accounts in a YouTube short. Many people combine finances with their spouse when they get married, and some end up with only one bank account between them, meaning all the money they each earn (and spend) flows in and out of that account.

While this certainly sounds convenient, especially when it comes to paying joint bills that may cost more than each person can afford on their own (like a mortgage payment), Vivian Tu isn’t a fan — and she has good reasons.

Joint bank accounts can create shame around spending

The first point that Tu makes in her video (which is in response to a Wall Street Journal article that summarized a study that found that couples with just one joint account were happier) is one regarding emotions and money. Namely, the couples in the study were more mindful of avoiding “frivolous” purchases because both partners had access to the account and could see what was spent and where.

Tu points out that money shouldn’t be tied up with shame and guilt. You deserve to be able to spend your money in any way you want or need to. If you’re in a relationship with someone who has a very different attitude toward money (maybe you’re more of a natural saver, while they like to spend more freely), having just one bank account between you could end up being a source of conflict. Many couples fight about money (a 2021 Fidelity study found that 1 in 5 rated money as their greatest relationship challenge), so it pays to avoid this opportunity for marital strife.

Giving up financial independence can be dangerous

The other reason Tu gives for disliking joint accounts is one I very much agree with. If both members of a couple are keeping their money together, it’s much easier for one person to cut off the other’s access, by way of, say, physically taking away their debit card or changing the login information for the account. A loved one depriving you of access to money is a major sign of financial abuse, and women are particularly susceptible. We are already paid less than men, and far too often, financial advice for women amounts to “stop spending money on shoes and purses,” rather than “here is how to invest for retirement, buy a home, and live comfortably.”

A loss of financial independence is dangerous for anyone, but it’s a sad fact that a higher proportion of women have experienced this. If you’re a woman and you’ve given up your job to raise children, don’t have a bank account of your own, and find yourself being abused (physically, emotionally, or otherwise), you are often stuck. Tu notes that she receives many messages from women in abusive relationships who can’t escape because they have no access to money.

Is there another way?

Thankfully, if you get married, no one will automatically issue you and your spouse a single bank account to share. You have options, and it’s extremely important for couples to discuss finances and make a plan together.

Tu recommends that each person has their own bank account, and you share a third account with the other person. You can pay your own personal bills and buy whatever you want using your personal account, and each deposit money for your shared bills into the joint account. This way, the bills are covered, and if the relationship sours, each person is protected financially by still having sole access to their own money. Along the way, you should also communicate about spending and saving, and about your shared (and individual) goals. That’s what a financially healthy partnership looks like — both people have agency and can work together toward common goals.

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Tips matter a lot, as does the type of car you drive. 

Car? Check. Phone? Check. I hunch over my phone, setting up a DoorDash delivery account on a Tuesday afternoon. I’ve read about side hustles like food delivery. Transporting goods seems like a flexible, low-commitment way to make extra cash.

To my surprise, it takes me less than an hour to set up a working account through the Dasher app. After nervously exploring the interface, I poke the red “Dash Now” button and wait. Not thirty seconds later, my phone buzzes with a customer order.

I’m not prepared.

As I race to my car, fumbling my keys, I can’t help but wonder. How much will I get paid, anyway? How does gas reimbursement work, and what benefits does DoorDash offer?

Two weeks later, I can definitively answer these questions, and more. Here’s how much I earned after a trial run of delivering food for DoorDash.

How much does DoorDash pay?

In two weeks of dashing, I earned $475 (rounded down). I spent 14 hours making deliveries and another six hours on standby, for a total of 20 hours spent doing DoorDash tasks.

Your earnings include base pay and tips. It does not include taxes. Note that you are responsible for calculating your own taxes, and DoorDash only sends you a 1099-NEC tax form when you make over $600 in a given year.

Including hours spent idling in my car, I earned about $23.75 per hour. Slightly less, when I account for gas costs (which are low, since I drive a Toyota Corolla hybrid). That’s 33% more than the $15 minimum wage in California.

A good gig, especially for a side hustle. However, there are caveats. For one thing, the average American tips better at in-person restaurants. Don’t expect a consistent 15%-20% on orders.

For another, new Dashers get priority status for two to four weeks after signing up, giving them the freedom to dash whenever they want. Others have to schedule their dashes ahead of time. Depending on location, it can be challenging to deliver during low-order hours.

How does gas reimbursement work?

You cover your own fuel costs. However, some states (like California) require DoorDash to pay contractors a minimum of $0.35/mile and the local minimum hourly wage. Should your base pay not meet this minimum, DoorDash retroactively credits the money to your account.

Base pay does not include tips. Dashers keep 100% of all tips.

What benefits does DoorDash offer contractors?

A week or so after creating a Dasher account, you’ll receive a hot bag and a Red Card. The hot bag helps you keep food toasty, which is a neat feature that probably boosts your overall Dasher rating.

The Red Card is like a prepaid debit card. You can use it to pay for stuff at checkout. I’ve never had to use it yet, but supposedly, it qualifies you to dash for a broader range of orders — things like bulk grocery orders, which pay more.

Some states, like California, require DoorDash to offer eligible Dashers health insurance rebates. To qualify, you need to dash a lot. Don’t expect a stipend unless you’re committed to delivering at least 15 hours per week.

Is delivering for DoorDash worth it?

Yes. Delivering food is more fun and profitable than I thought it would be. I put my earnings toward my emergency fund and stock brokerage account, which keeps me motivated. As a full-time contractor, I love being able to work 100% on my time.

However, delivering for DoorDash may not be worth your time if any of the following are true:

Your car guzzles gas like there’s no tomorrow.You want the benefits offered to full-time employees, like covered health insurance.You’re entirely unwilling to meet customers face to face, even briefly.

You’ll drive a lot, insurance coverage is limited, and around 1 in 5 customers want Dashers to hand them orders personally. Which, yes, means interacting with folks you’ve never met before. If that’s a deal breaker, consider other side hustles, like reselling clothes.

The best part of delivering food is people are genuinely happy to see you. If you want to make extra money and serve the larger community, try DoorDash. Getting started is both fast and free.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash. The Motley Fool has a disclosure policy.

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