Dave Ramsey’s Baby Step 2: The Debt Snowball

by Joe Plemon on October 5, 2009

Snowball Maker
Creative Commons License photo credit: OakleyOriginals

In order to better understand Dave Ramsey’s passionate hatred of debt, allow me to quote him,

“ Years ago, my wife, Sharon, and I went broke. We lost everything due to my stupidity in handling money, or not handling it, as the case may be. Hitting bottom and hitting it hard was the worst thing that ever happened to me and the best thing that ever happened to me.

“We started with nothing, but by the time I was twenty-six years old, we held real estate worth over $4 million. I was good at real estate, but I was better at borrowing money. Even though I had become a millionaire, I had built a house of cards. The short version of the story is that we went through financial hell and lost everything over a three-year period of time. We were sued, foreclosed on, and, finally, with a brand-new baby and a toddler, we were bankrupt. Scared doesn’t begin to cover it. Crushed comes close, but we held on to each other and decided we needed a change.” (from the Total Money Makeover)

It was this experience that drove Dave to learn how to do it right the next time. He read extensively, interviewed older wealthy people who had made money and kept it, and studied the bible. His conclusion is that debt brings on risk and should be avoided.

Over the ensuing twenty years, Dave has helped millions of people achieve financial peace by emphasizing the debt free theme that he is famous for.

Now: Baby Step Two…The Debt Snowball

More specifically, Baby Step Two is paying off all debt except the house, which will be covered in Baby Step Six. How is this accomplished? By using the Debt Snowball. What does Dave mean by Debt Snowball? List all debts from smallest to largest, then make minimum payments on all but the smallest until it is gone. Then roll that payment to the next smallest until it is gone, still making minimum payments on all others. The payments on the smallest debt continue to increase as each one is paid off, thus the term “snowball”.

Math versus Behavior

I want to stop at this point and address the accusations that “Dave Ramsey doesn’t know math.” People often point out that, mathematically speaking, the debt will disappear faster by starting with the highest interest rate instead of the smallest debt. Dave, who has a degree in economics, does know math and will readily agree that working from highest interest rate to lowest is indeed mathematically advantageous. So why does he teach paying smallest to largest? Because Dave also understands human nature. He preaches that personal finance is 80% behavior and 20% head knowledge, so he developed a simple plan that gives quick victories at the onset to help gain enthusiasm, confidence and momentum. These Baby Steps, by changing behavior, often motivate people to make more sacrifices (selling an expensive car, temporarily working a second job, foregoing a vacation, etc.) as they see their list of debts disappear. Paying month after month on the same debt because it has high interest can become dreary, causing many to give up because they don’t experience those victories.

This being said, the point is not to nit pick about which type of Debt Snowball one uses, but to get through Baby Step Two as quickly as possible. It is just that Dave has been doing this for many years and has helped millions get out of debt. His “behavioral finance” works, so I recommend giving it a try. If you discover that you are more radically motivated to focus on the high interest debt first, then by all means do so!

Thoughts on Debt Snowball

  • This step is simple but difficult. Remember: most people actually gain momentum as they plot their progress.
  • Married couples: make sure you are in total agreement before starting this process. Together you can accomplish amazing results, but it is nearly impossible for only one spouse to make this work.
  • Helpful hint: put your debt snowball list on the refrigerator and draw a huge red line through each debt as it disappears.
  • Work on your budget every month. It is the difference between income and outgo that gives you the cash flow to achieve a really big snowball.
  • Set a challenging time goal. If you know you can be debt free in 24 months, set a goal of 18 months. You will be surprised at how creative you can become once you set a goal.
  • Consider the sacrifices you can make to get the snowball rolling. We sold a $20,000 van and paid cash for a $5,000 station wagon.
  • You will know that you are doing things right when your broke friends and relatives think you are weird. Getting out of debt is indeed weird in today’s world, but this is one kind of weird that you will enjoy.

Next in series: Baby Step Three…Fully Funded Emergency Fund.


{ 5 comments… read them below or add one }

Arthur @ FinancialBondage.org April 24, 2010 at 5:08 pm

I’ve been on this step for 5 years or so? Feels like 15…

$2500 or so to go…. I want to see step 3 so bad believe me. 🙂

This step is rough when you don’t make much money. A slow process indeed.


joeplemon April 25, 2010 at 11:57 am

Stick with it! I know it feels like forever, but you will make it. Does having that truck paid off add much to your snowball? How much longer do you think the $2500 will take?


FinancialBondage May 22, 2010 at 1:13 pm

My truck payment was $190/month. I should be able to send up to $300/month to the credit card. I’d like to wipe it out in 12 months or less.


joeplemon May 22, 2010 at 1:17 pm

You’ve come long way and the end is in sight. My guess is that you will be able to finish Step 2 in less than those 12 months. Hang in there. You will make it!


joeplemon June 1, 2010 at 2:49 pm


Not really. A few on occasion which I trash, but not a big problem.


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