Personal finance 101 – the debt snowball

by Tsh Oxenreider

Tsh is the founder of this blog and just finished traveling around the world with her husband and 3 kids. Her latest book is Notes From a Blue Bike, and believes a passport is one of the world's greatest textbooks.

This is the third part in my series on Dave Ramsey’s Baby Steps, a proven personal financial plan. My goal is to explain a really solid money management plan in plain ol’ English, for intelligent yet financially “average” home managers.


Baby Step #2 in Dave Ramsey’s Total Money Makeover is really the crux of the plan. It’s the one that stands out as – well, weird. It’s different than most financial plans out there. It goes completely against the grain of what today’s culture feeds us (my favorite line is “there’s good debt, and there’s bad debt”). It’s this – be debt-free.

He’s not kidding. He’s not talking about just credit card debt, or only consumer debt, or just high-interest debt. He’s talking about ALL DEBT. Become totally debt-free. This even includes your house, although that’s not until Baby Step #6. He says that our goal is to not owe a single dime to anyone.

When I first heard this, I found it absolutely overwhelming, and to be honest, it’s what turned me off to him at first. I couldn’t imagine even hoping for a paid-for house, much less being able to do it. We hardly have any debt, but my husband and I never made wealth building a goal in our life – we honestly never thought of ourselves as “average Americans.” We wouldn’t be surprised if our typical income is always below average, seeing as we could be in full-time ministry for most of our lives. And that’s okay with us. We’re fine with it.

So that’s a big reason I brushed off Dave Ramsey’s plan at first – it didn’t seem like it was for us. It was for people who cared about making a lot of money.

I’ll spare you all the details of God changing my heart on the matter, but He did. In short, He reminded me that He does care about how we steward the money He gives us, and that we are no different than the people who work in “regular jobs.” We are to do well with what we have, no matter how much it is. I could go on and on about my change of heart, but in a nutshell – I now see us as people who should and could do well financially. It’s important to our family future.

snowballMoving on – back to Baby Step #2. He recommends paying off all your debts using the Snowball Method – paying the minimums on all debts except one, which you pile on any extra funds you have. When that one is paid off, you take the money you piled on the first debt and put it towards the second. Then you do that with the third, and so on and so on, until all your debt is gone. All except the house, that is. You pay that off a little later. There’s a lot out on the internet about the Snowball Method, so I won’t reinvent the wheel. A few examples are here, here, and here.

One thing that differs with Ramsey’s Snowball Method than other similar methods out there is that he recommends paying off the debt with the lowest balance first, not necessarily the one with the highest interest rate. Even though it mathematically makes sense to pay off your high-interest debt first, he says there’s something psychologically and motivationally charging when you pay off the small balance debts first. You feel like you’re crossing things off your list. You’re shooting down the little guys so you can get to the big kahuna faster. When you pay off several debts within a few months, you feel like you can do this. When you start with a big debt that could take years, you could easily lose steam.

There’s also a relatively new trend out in the blogosphere called snowflaking – gathering all the little funds you find here and there throughout the month and putting it towards the current debt you’re focusing on. The money really adds up, the way a snowball is comprised of lots of tiny snowflakes. There are stories out there of people finding $400 in change in the couch cushions, so to speak. Once you start looking for any and every bit of extra money you have, it pops up out of nowhere. It really does.

So, to reiterate where we are in a Plain Jane way…

Baby Step #1save $1,000 fast, which becomes your Baby Emergency Fund. It will only stay this small while you’re on Step 2.

Baby Step #2 – eliminate all debt except the house using the Snowball Method.

I’ll admit right up front that I am a total Plain Jane. I am learning about personal finance at the moment, and am in no position yet to offer advice. But as I learn more and more, and build up the ability to draw conclusions on my own, I can say that so far, there really is very little I disagree with Dave Ramsey. You can pretty much take his advice and go with it. I highly recommend catching his radio show – I listen almost daily, and I live overseas. The first hour of his show is a podcast on iTunes, which is how I listen.

That said, there are also lots of good personal finance blogs out there. I’ve got a number of them linked in my sidebar, and the Money Blog Network can lead you to more than enough reading material out there.

But on top of it all, I highly recommend buying Dave Ramsey’s The Total Money Makeover and devouring it. It’s very easy reading. I read it in a weekend. And I have two kids under 3, so if I can devote the brain cells to the book, anybody can. (And if you buy it via the link above – hint, hint – the proceeds go to maintaining this blog.)

I’ll move on to Baby Step #3, fully fund the Emergency Fund from Step 1, sometime soon. For now, I’ll leave you with a quote from Ramsey’s book about Baby Step #2:

“If you think this Debt Snowball stuff is cute and you might sort of give it a try, it won’t work. Total, sold-out, focused intensity is required to win. Aiming at the goal and nothing else is the only way to win.”

“Many people find a way to shorten the time [to finish the Debt Snowball] with sheer intensity, and God tends to pour blessings on people going in a direction He wants them to go. It is as if you are walking or running at a fast pace, and a moving sidewalk suddenly appears below you to carry you faster than you own effort would. The Debt Snowball is very possibly the most important step in your Total Money Makeover for two reasons. One, you free up your most powerful wealth-building tool, your income, during this step. Two, you take on the entire American culture by declaring war on debt. By paying off your debt, you make a statement about your stance on the issue of debt.”

Missed other parts of my series?

  1. Dave Ramsey’s Financial Plan
  2. The $1k Baby Emergency Fund
  3. The Debt Snowball
  4. The Fully-Funded Emergency Fund
  5. Save for Retirement
  6. Saving for Your Kids’ Education
  7. Pay Off Your Home Mortgage
  8. Live Like No One Else

art by Jana Christy

photo by redjar

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  1. I just finished this step TODAY!!!! It can be a long hard road but it is SOO WORTH IT. :)

    PS-I thought I was your favorite blog? LOL

  2. Thank you so much for sharing. My husband and I are jumping into finance management, cause we’ve sorta just paid no heed for a couple years. This was very helpful. Thanks for all the links, too.

  3. Great post. I would also considering adding educational debts such as undergrad and graduate school owed to the government and consolidated at fixed rates to the list of loans to be paid off later.

    Robs last blog post..McCain’s Credit Card Debt – $100,000+

  4. That sounds like a good approach. It just seems so hard to get started because I find we get caught up in the same patterns of behavior which are very hard to change. We always find that we are in position to only afford the minimums on all payments leaving us without extra money to pay down any particular one. Our college loan debt seems to be the real kicker. It’s more than our mortgage!

    College Loan Debt’s last blog post…10 Ways I Got My College Loan Debt

  5. I just bought a car CASH following Dave Ramsey’s methods. It feels so good. Next month I begin saving for my next car (many years down the line), but then I will be able to buy it cash too. I’m still putting money toward a car every month, but now I’m EARNING interest on my savings instead of PAYING interest on a loan.

  6. Since most of you already know this (if not ask one of the
    Leaders of the church and we will help you gain a better understanding) let us
    go one step further. s the best way to start reducing your debt till you will be finally debt-free.

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