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Debt Snowball Plan

Definition: Debt Snowball Plan

Personal finance guru Dave Ramsey developed the debt snowball plan as the debt repayment part of his method for getting finances on track. The plan is based on psychology and relies on determination. The debt snowball plan goes as follows.

  1. Save $1,000 in an emergency fund.
  2. Pay off smallest debt first to create momentum for sticking with the plan. If two debts have similar balances, first pay off the one with the higher interest rate. Continue making minimum payments on all other debts.
  3. Once you have paid off one card, add that payment to what you're currently paying on the card with the next lowest balance.
  4. The plan suggests that the compounding payments and momentum from reducing the number of credit cards with balances should get you out of debt quickly.


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