When it comes to reducing debt, no one does it better than Dave Ramsey. Never heard of him? Ramsey is an author, radio host, and television host with goal in mind: helping families become free of debt.

Having learned about debt the hard way in his younger years, Ramsey now makes it his full-time job to help families avoid the trappings of debt.

His overall Total Money Makeover system consists of seven «baby steps,» which Ramsey recommends doing in a specific order:

1. Starting an emergency fund of $1,000 (to help cover emergency situations).

2. Paying off debt using the «debt snowball» method.

3. Saving three to six months of income as a long-term emergency fund.

4. Investing into Roth IRAs and pre-tax retirement.

5. Funding college for children.

6. Paying off the home mortgage (early!).

7. Building wealth and giving.

While all the steps to financial security are important, this how-to guide will concentrate on showing you how to pay off your debt using the «debt snowball» method.

Will it be easy? Not necessarily. Will it be painful? Possibly. Will it help you eliminate debt super fast? Most definitely.

Ready? Let’s get started.


Step 1

List all your debts.

Using a piece of paper (or the computer, if you wish), list the balance of all the debts you currently owe and the interest rate you are paying. Don’t guess at this. Use the last month’s statement or call the creditor if you need an exact balance. Be completely honest with yourself. List everything from the loan from your mother-in-law to your past due cell phone bill. Do not include your home mortgage in your list in this step.

Step 2

List your debts from smallest balance to largest balance.

Reorganize your list from the smallest bill to the largest. If you have any bills that are past due, list those first before your other debts. (Don’t worry about the interest rate at this point. However, if two bills have the same balance, and one has a higher interest rate, list the higher-rate bill first).

Step 3

Develop a plan of action.

Once you have listed all your debts, develop a plan for paying them off.

In his book, The Total Money Makeover, Dave Ramsey suggests spending your money on paper before actually spending it for real. The word «budget» can sometimes be a bad word, but really this is a «spending plan» — a plan for how you will spend your money.

Write down your income for the next month and «spend» that money on paper first to see how much money you can apply toward paying down your debt.

Step 4

Find a way to pay off the debt with the lowest balance.

Taking money from your «spending plan» that you have budgeted and any other money you can find, pay as much as you can on the debt with the lowest balance.

Get intense. Think outside the box. Sell stuff on Ebay. Hold a garage sale. Pick up a part-time job. Do anything possible for that little bit of extra money you can apply toward that smallest debt.

Step 5

Once the first debt is paid off, use the payment from that debt and apply it toward your second debt.

Hopefully, your smallest debt was a small balance, and you were able to achieve some quick success.

Once that first debt is paid off, take the amount you were paying on the first debt —- combine it with the minimum balance you’re paying on your second debt — and begin paying down the second debt.

Again, use some creativity and out-of-the-box thinking to see what extra money you might be able to use toward debt reduction.

You’re now full-force into the «debt snowball.» See how it works? The minimum balance for your first debt snowballs into your second, which then snowballs into your third, etc.

Your debt «snow ball» gains momentum with each bill that you pay off.

Step 6

Complete the debt snowball.

After the first few months, hopefully your debt snowball is becoming a debt avalanche, and you’re making significant progress toward paying down your debts.

The amount of time it may take you to complete the debt snowball varies from person to person, depending upon how much debt you may have and your disposable income. If you have a few small bills, you may be able to become debt-free in just a few months. If you have a significant amount of debt, it might take a few years.

The important factors in completing the debt snowball include focus and diligence. Even when things get tough (the car breaks down, your furnace needs repaired, or there’s a medical emergency), keep your eye on being debt-free. You can do it.

You will Need
• Current credit card and loan statements
• Paper
• Pen/Pencil
• Calculator
• The book, The Total Money Makeover by Dave Ramsey (optional, but recommended)

Tips & Warnings
• If you have overdue utility bills, work on catching up on those bills before starting the debt snowball. What good is paying extra on your credit card bill, if your electricity is turned off?
• If finding extra money in your budget to pay down debt is difficult at first, sell some items to «kick-start» your debt snowball plan.
• While working your debt snowball, go into debt for NOTHING. Use your $1000 savings or sell unwanted items to cover unexpected emergencies.
• Cut back on as many non-essential items as possible while working on becoming debt-free. Do you really need that magazine? candy bar? fountain drink? As Dave Ramsey says, «Live like no one else today, so that later you can live like no one else.»
See what Dave is saying today:
  • Dave Says — January 10, 2012
    I have old credit card debt that goes back a few years …
    Tue, 10 Jan 2012 10:01:17 CST
  • Changing our Financial Destiny Forever!
    My husband and I came to our marriage with student loan debt, and one of us 29 and the other 30. We started FPU while we were dating, as a kind of pre-marital boot camp to get us on the same page living apart so we’d be on the same page being married together. What I didn’t want to tell my husband is that I had private school loan debt. Like, A LOT of it. He didn’t pass out, which is testimony to his awesomeness, but the belt was tightened and we became supernerds that still had a lot of fun. That’s when he told me he wanted to go to grad school, and not take out any loans. I didn’t pass out either, which is a testimony to my awesomeness! :) We paid off over $90,000 in student loan debt in less than 5 years, sent my husband to grad school (paid for in cash with no scholarships), almost never skipped a date night (two-for-one deals, coupons), a plated/seated formal wedding (under $6K paid for in cash — this includes the dress!), a honeymoon in Mexico, and we just put a debt-free downpayment on a home 3 weeks before our first child was born. We’ve upped our giving and have a savings account for our baby. And our combined total income is not over $90K. You can see me smiling on the 2008 edition of FPU — and then we were just excited to be in the process of getting out of debt. Now, outside of our home, we are completely debt free and are proud of it! Thank you God, and thank you Dave!!
    Tue, 03 Jan 2012 02:37:49 CST
  • Dave Says — January 2, 2012
    My wife and I have gone from having almost nothing to making about $90,000 in the last few years …
    Mon, 02 Jan 2012 14:01:56 CST
  • Starting 2012 Debt Free! You Can Do It Too!!
    I still remember the feelings – gripping fear, dread, shame. A Friday night, on my way home from work, the “tank empty” light came on in my truck. I stopped at a gas station where my two credit cards and my debit card were all rejected. I had no cash. How on Earth did I let myself get to this point? That was in March 2007 and I was over $40,000 in debt, which included a $20,000 loan I’d taken against my 401K a year earlier (to pay off debt!), and $18,000 in other loans. I was 38, divorced, no kids, had a very manageable mortgage payment, a ridiculously high car payment, and made over $50,000 a year. Over the next few months I read some budgeting books, including Financial Peace University, and in January 2008 I signed up for Dave’s Financial Peace University. I started the baby steps, made a few changes, then stopped (I clearly wasn’t ready!). I finally got serious in January 2009 and last week (December 2011) I made the final payment in my debt snowball. I am now debt free other than my mortgage! My biggest “lessons learned”? 1) Follow the baby steps of Dave’s plan exactly as they’re laid out. It might seem crazy to save $1,000 before starting to pay off debt, but it isn’t!! I dipped into that emergency fund many times the first year, and I’m glad it was there! 2) Don’t give up! Like so many people I know, in the beginning I wondered, “How can I do this when, each month, I continue to owe more than I make?” But somehow I did. For the first several months it was often painful and shameful, but I just kept doing the best that I could and then, one day, I had a little (VERY little) left to start putting toward my debt! 3) A huge «a-ha» moment for me was to learn that a budget is meant to be flexible. I get paid twice a month and the amount can vary up to $300 dollars each check, and I’d failed with every monthly budget I’d ever tried. When I was given the choice to do what was best for ME, I realized I could do a separate budget for each paycheck and I continue to do that today. I also changed the due date on a few bills to fit better with my budget. 4) Stop spending money. Crazy, I know, but it works!! For me, that meant staying out of book stores, craft stores, and home good stores, and after 2 years I’ve found that “stuff” no longer has a hold on me! This summer when I desperately wanted a new car, I worked the numbers and realized that spending $1,500 cash on maintenance for my 2003 SUV made a lot more sense than buying a new (used) car, and I don’t regret that decision at all, even though it set me back a few months on my debt snowball. And now that I’ve paid off my debt, “New Car Fund” has been added to my budget! If you’re just starting out, do yourself a huge favor and stick with it! Get excited about it. For me, I’m now looking forward to saving my 6 months of expenses, then building up my retirement account. It’s an honor each month to donate $50 to a local food bank, and it was an enormous gift this Christmas to “adopt” 2 small local families and, using cash only, helping to give them a bigger and better Christmas. It was so much fun I’ve even added $60 to my monthly budget so I can do again next year! It’s fantastic to be in control of my money and I’m so grateful to Dave and FPU for making this a growing experience that, amazingly enough, has also been a lot of fun!
    Mon, 02 Jan 2012 09:42:15 CST

Enter your comment below:

If you are a registered Helium member, you may login and then leave your own comment.
Flag Inappropriate Content

Starla Ross
Helium member since Nov 07, 07
Number of Guides: 3
+ Post your Question|> See All Q&A
Enter your question here:
Before you submit your question Log-in or Register.


Add a comment



Text commentary: