Hello Sensible is supported by its readers. If you click on a link and make a purchase, I may earn a commission at no additional cost to you. For more info, see my Affiliate Disclosure Policy.
Understanding how to get out of debt always seemed overwhelming and complicated until I read about the debt snowball in Dave Ramsey’s book, The Total Money Makeover.
In the book, Dave outlines seven “baby steps” to manage debt and build wealth. Even if you’ve never read it or don’t intend to implement all 7 steps, you can still use the second baby step to start crushing your debt for good.
If you’re tired of watching your money come into your bank account and roll right back out with your creditors’ name on it, you should seriously consider implementing Dave Ramsey’s Debt Snowball Concept.
What is the Debt Snowball Concept?
The debt snowball method, created by financial expert Dave Ramsey, is a debt reduction strategy where you pay off debts from the smallest balance to largest, gaining momentum as each balance is paid off.
It’s called a debt snowball because it works the same way you’d build a giant snowball. With snow, you start with a small ball of tightly packed snow and roll it around the yard until it turns into a snow boulder.
With debt, you start paying off your lowest debt. Once that’s eliminated, you apply the amount you were paying on your smalled debt into the next smallest balance.
Let’s say the balance due on your smallest debt is a $50 vet bill.
Previously, you made arrangements to pay the vet $5.00 per month until it’s paid off. You’re ready to kickstart the debt snowball though, so you cut back on your spending and find $45 extra in your budget to apply towards the bill.
$5 minimum payment + $45 extra payment = $50! Congratulations! Your smallest debt is paid in full in the first month.
Your second smallest debt balance is a $100 balance from a credit card.
Last month you made the standard minimum payment of $25 which brought the balance down to $75. In the second month, you’ll pay the minimum payment ($25) and also apply that same amount you paid towards the 1st debt ($50) leaving you with a zero dollar balance.
Just like that, you’ve crushed two debts.
To keep the snowball rolling, you’d apply $50 from the vet +$25 from the credit card minimum payment giving you an extra $75 per month towards your third debt.
You repeat this process month-in and month-out until all of your debts are paid in full.
Why Dave Ramsey’s Debt Snowball Works
Many people discredit Dave’s debt snowball concept because they think it’s smarter to start paying off the balance with a high-interest rate rather than the lowest balance.
But as Dave always says, “debt is a behavior problem, not a math problem.”
Let’s say you have a balance on a credit card of $10,000 which has a high-interest rate at 25% APR. If you pay the minimum amount of $100 per month and throw an extra $250 per month at this monstrous debt, it would take you 42 months (or 3 and a half years) to pay it in full.
Very few people will have the discipline to stay focused that long, especially if you’ve been living in a pattern of poor money management. (Old habits die hard.)
The debt snowball, on the other hand, gives you a burst of quick wins.
You get a hit of dopamine (your brain’s favorite reward) everytime you pay off a debt. That satisfaction you get from crossing off a debt from your list will keep you motivated because you can see that your plan is working!
Intrigued yet? Here’s how to start using it yourself..
How to Get Started
Step 1. Make a List of All Your Debts
Open a spreadsheet on your computer and start listing out all of your debts (except for your mortgage) from smallest to largest balance. That includes…
- Friends or family members you need to pay back
- Credit cards
- Student loans
- Auto loans
- Medical bills
- Personal or payday loans
- Your cell phone device
- And any other miscellaneous bills in collections
The reason I recommend creating your initial list of debts in an excel spreadsheet or Google Sheet is so that you can add all of your debts in no particular order and then sort the list from the smallest to largest balance once you have them all written down.
If you’d like to download the Google Sheet template I used to list out all of my debts, you can get instant access inside when you sign up for the free Resource Library.
Step 2. Continue Making All Minimum Payments
Before you start tackling debt, remember that you have to maintain all of your existing minimum payments. We can’t rob Peter to pay Paul here.
Step 3. Find Extra Cash
You’ll need to find any extra money to throw at your debt snowball. Now is the time to get creative and be scrappy.
Here are a few ways to earn extra money:
- Ask for a raise at your current job
- Host a garage sale
- Sell individual items on Facebook Marketplace or Craigslist
- Sell old or unused electronics at Gazelle
- Sell old books to a store like Half-Price Books
- Sell gently used clothing and shoes at consignment shops
- Pick up a part-time job — referee, deliver pizzas, wait tables, or drive for Uber
- Provide a service — mow lawns, sell your artwork, tutor a student, walk dogs, or babysit
- Check to see if you have unclaimed money (watch out for scams)
- Return unused or unopened items with receipts
Here are a few ways to cut expenses and save:
- Cut back on food expenses – significantly reduce your spending at restaurants, coffee shops, and bars
- Clip coupons, or better yet learn how to use the Ibotta app to earn cash back on groceries
- Cancel unnecessary subscriptions like music and entertainment apps
- Renegotiate rates or switch to a cheaper service/product with existing providers
- Shop around for competitive rates on utility bills and recurring expenses. Switch providers if it will save you money!
- Cut back on luxuries — dying your hair, manicures, expensive date nights, etc.
Step 4. Get Laser Focused
Dave calls it getting “gazelle intense”.
Put all of the extra cash towards your smallest debts first and knock them out as quickly as possible. When you kill one debt, snowball that dollar amount and apply it to the next until you’re completely debt free.
Wait! 2 More Things Before You Start Your Snowball…
1. Make sure you have a $1,000 emergency fund
You need to save $1,000 in an emergency fund before paying off any debt. This is actually baby step #1 in Dave’s 7-step plan.
You need a little cushion between you and life’s wonderful surprises it intends to throw your way the moment you decide to get take control of your life and get ahead.
This emergency fund will help eliminate the need to rack up even more debt in the event of, well, an emergency. If you want all of the details about baby step #1, read Dave’s book, The Total Money Makeover.
2. Start a zero-balanced budget
If you’re going to get a hold of your finances you have to give every dollar a job. In order to be in control of your money, you need a zero-based budget.
Zero-Based Budgeting means you allocate 100% of your income down to the penny. If you receive $150, with a zero-based budget, you’d give every one of those dollars a job:
- $50 – Food
- $25 – Clothing
- $25 – Medical Bill
- $50 – Credit Card Payment
If you overspend by $10 in food, you’d need to move $10 from another category, like clothing. Budgeting using the zero-based method ensures no penny slips through the cracks.
I am not a big fan of the cash envelope system Dave recommends so I personally use a budgeting software called YNAB. (That’s short for You Need a Budget.) It isn’t a free budgeting tool, but it’s worth it and pretty affordable (just $7/mo). You can get a free 34-day trial to see if YNAB works for you.
Dave created a free budgeting tool called Every Dollar but I haven’t tried it yet and from the reviews, I’ve read the features are limited unless you upgrade to their paid software, Every Dollar Plus.
Now that you have all of the details to crush your debt snowball-style, sign up for our free resource library and access my free Google Sheet template to start tracking your debts.