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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.


Join The Conversation
pwest99 pwest99 8 years
Yes, that is a crazy amount! I just thank God that it's a comfortable amount. When my pay increase kicks in I'll be able to put $2,100 per month toward my debt. Then it will be all paid off even sooner. I will never borrow for ANYTHING ever again. This was a hard, hard lesson.
hithatsmybike hithatsmybike 8 years
pwest, $1500 - $1800 is an incredible amount to put towards debt every month! While it sucks seeing that money go, getting in the habit of letting go of it is priceless! Once you're debt is paid off, imagine how much you can save without feeling the sting because you'll be used to it.
sundrops sundrops 8 years
We're down to $10,000 in credit card debt and $8,000 in car debt from $43,000 last year thanks to Dave's debt snowball! That's with an income that grosses the same as the original total. Somehow starting with the smallest debt instead of the largest interest is SO incredibly motivating. In such a short time we were able to pay off so much and now we're only down to one card (and the car) from four cards. By the way, that $1000 emergency fund is the first savings we've ever had so $1000 was way more than sufficient seeing as how we'd NEVER had savings before. Once we get the debt gone we'll be saving up our 3-6 months.
pwest99 pwest99 8 years
I am currently working on paying off ALL my debt (CC, small student loan, IRS, car) using the debt snowball method. I checked Dave's book out at the library and it's wonderful. It has given me so much hope. Using this method, I will be completely out of debt in 12 to 18 months! That's incredible! I am very blessed in that I have $1500 to $1800 per month to pay towards my debt every month. But just imagine if I could save that instead of paying off all that debt? Lesson learned the hard way.
Daisie Daisie 8 years
ilanac, the debt snowball is merely the first of Dave's "baby steps". First, you put $1000 away for emergencies, like your car breaking down, etc. Then you work on your debt snowball. Then you work on setting aside 3-6 months of pay, to sustain you should anything happen. Then you work on investments like Roth IRAs (and others). Then you work on a college fund for your kids. Then pay off your house. Then mutual fund investing, etc. It's all on his website. But basically, you are correct. The emergency fund is for little things; car, RXs, home repairs, etc. It's 3-6 months after the debt snowball to sustain you in a long-term emergency. =)
ilanac13 ilanac13 8 years
i have to say that i really like #3 there - once you've paid off a card - add that payment to one of the next that you're paying and you'll pay it off faster. i think that i'm from the school of thought where once i've paid off a bill that's one less that i have to pay when in reality i would probably make my debt go away much faster. as for the emergency fund - i know that we've talked about this one a lot here. i'm not sure what the magic number is but sometimes i have to think that $1000 makes sense on paper but not in real life. for myself, $1000 won't pay my rent even for a month -so i'm not sure what cushion i should really be considering. how long are we assuming that the fund will last to support us? i think that i read somewhere that we should have 6 months of $$ to carry us through in case of anything that should happen
msdyanelk msdyanelk 8 years
I can definitely put this plan to use. After being off work for close to one year it will be challenging. I have to get rid of the 2 credit cards I have but I want to show at least a timely payment history, once it's over.
estrella05 estrella05 8 years
The 'debt snowball' has been a huge help to me. It's so easy to do, since it involves setting a habit (only this time it's a good one). Once I'm debt free, I think I'm going to change the debt snowball into a savings snowball!
bluepuppybites bluepuppybites 8 years
I love this guy. I'm 24 and have no debt. That and I have only had one credit card in my life. But that's all going to change b/c my husband and I are buying our first house.
hithatsmybike hithatsmybike 8 years
what if you only have one BIG balance? =( haha
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