Wrong!!
For somebody who is deeply in debt to several cards & loans, this is the exact right advice.
Doing it this way gives these people a visible sign of progress, which is exactly what they need. People who are overwhelmed by the scads of monthly bills give a sigh of relief when one of them goes away. Paying down the highest bill doesn't give them the concrete evidence that they are making progress. Remember, if they intellectually knew what they were doing (with the debt) they'd not be in that situation in the first place.
Your last sentence is that "lowest common denominator" thing here, and in that you may be right. People of this mindset may need the gratification of a quick payoff to get motivated.
In reality, for the rest of us I think there are several moving parts here.
One moving part is psychology. Some people need the quick high of a payoff to stay motivated. Even if that means paying off a $1000 debt at 5% before a $10,000 debt at 12%, if that keeps people motivated because they *see* progress, it's not a bad thing even if financially suboptimal. It's certainly better than giving up amidst the feeling of futility.
Another moving part is the math. Paying off a $1000 debt at 5% before a $10,000 debt at 12% is not optimal from the standpoint of interest paid. In that sense Dave's usual advice falls short. But I think he knows that and accepts that based on the first point above (and the third point below).
The third (and arguably the most important one IMO) is the cash flow implications. The sooner you pay off a loan, the sooner you get rid of a payment and have that many more dollars per month to throw at the next loan. This, to me, is where the "snowball" has power. If you had five loans to pay off, by the time you paid off the fourth loan you may no longer be paying the $100 minimum monthly payment on the largest loan, but instead paying $1000 per month by channeling the extra cash flow from fewer payments toward larger payments on the last loan.
One last consideration is secured versus unsecured debt. If I have a loan secured by my house or my car, I lose it if I default. If I default on my credit cards, I lose credit rating but I still have a roof over my head and a way to get around. So all else being close to equal I would tend to put a bias toward paying down secured debt.
On balance, I personally prefer a hybrid approach. I might pay off a $2000 loan at 5% before a $10000 loan at 7% for the cash flow reasons I stated above, but I would absolutely attack a $10000 loan at 15% before a $2000 loan at 5%. The snowball works pretty well in most cases, but in the case of extreme differences in interest rate (or repercussions if one defaults), some deviance may be in order.
