Dave Ramsey’s Debt Snowball: Paying Off Debt (Credit Cards, Student Loans, & Other Non-Mortgage)

Dave Ramsey’s Debt Snowball: Paying Off Debt (Credit Cards, Student Loans, & Other Non-Mortgage)


– Hi. I’m Kelli from FreebieFindingMom.com and today we’re gonna talk
about the debt snowball method. It’s basically a debt reduction approach that’s become popular thanks
to finance guru Dave Ramsey. Now he calls it the debt snowball method because like when you were a kid and you were building a snowball. You pack the snow as tight as you could, roll it across the yard, and then it would gain momentum and get larger and larger. In relationship to debt, as you pay off your
non-mortgage related debts you should be gaining momentum as you go which is why he recommends paying off your smaller debts first
and then proceeding towards your larger debts. Now you might be thinking
shouldn’t I pay off my higher interest rate debts first? Technically yes you
should if you wanna spend least amount of money. But what Dave Ramsey found is
that people don’t typically do that. He found that personal
finances are driven 80% by behavior and only about 20% by the math which is why he recommends starting with your smallest debts
first and then proceeding towards your larger debts because once you seen that
you’ve been able to pay off your smallest debts and
have been successful you’re more inclined to
stick to his approach. To use the debt snowball method you’re going to start by
listing all of your debts from smallest to largest
and paying the minimum monthly payment on these debts, except for your smallest debt. For that debt you’re gonna pay
as much as you possibly can. So you’re gonna try to
raise some additional funds to pay off that debt as soon as possible. So somehow, some way you’re gonna come up with some additional funds to
pay off that smallest debt. Whether that means taking out another job. Whether that means reducing
your expenses or both. But you’re gonna wanna
get that smallest debt paid off as fast as possible. Then you’re gonna repeat the process until you’ve paid off all
of your debts in full. Now let me show you the debt
snowball method in action. But first if you will, give this video a thumbs up. Be sure to click subscribe
to my YouTube channel and follow me on Instagram. As you can see I have
listed all of your debts from smallest to largest along with the interest
rate, the minimum payment, and the total owed. Now let’s say you’ve been able to raise an additional $250 that you
can put towards your debts every single month above
your minimum payment. We’re gonna use those funds to pay off your smallest debt first. Let’s look at the new payment column. As you can see for the Kohl’s credit card you’ve been paying your
minimum payment of $30. Now you have an additional
$250 that you can put towards that balance. So now you can make a
monthly payment of $280. By making a $280 payment you’ll
have your Kohl’s credit card paid off in just two months. You’ll then proceed to going
to your Lowe’s credit card once your Kohl’s has been paid off. You’re gonna continue making that monthly $50 minimum payment but now you have that
$280 that you were putting towards your Kohl’s credit card that now you can put
towards your Lowe’s balance. So now you can make a
total payment of $330 on your Lowe’s credit card. With a $330 monthly payment you can have your Lowe’s credit card paid off in just two months as well. You’ll then proceed with paying
off the rest of your debts just like you did your
Kohl’s and your Lowe’s. For instance with Target
you’ll continue with that $50 minimum monthly payment. You’ll add that $330
that you were using on your Lowe’s credit card. You’ll add that together
for a total of $380 monthly payment towards
paying off your Target balance and you’ll have that
Target balance paid off in just three months. Then proceed with paying off
all the rest of your debts exactly the same way until
you made your final payment on your student loan debt. In total you’ll be able to pay off all of these debts in about 26 months or a little bit over two years. It’s important to note this
was just an approximation because we didn’t include the fact that you will be incurring
interest on your balances every single month. But this example was
just to give you an idea of how the debt snowball method works. Now you can see with
hard work and commitment you can become debt free. And once you are debt free
you can start building wealth. Let’s say for instance
you took that $1,100 that you were using to pay
off your debts every month and you invested that. You invested that money
for say seven years at an average rate of
return of say seven percent. How much money would you
have after seven years? You would have $114,159. That’s a pretty sweet number, right? I bet you you could come
up with a lot of fun things to do with that money. So what are you waiting for? Use the debt snowball
method to get out of debt fast and forever. If this video has been helpful please make sure to give it a thumbs up, click subscribe to my YouTube channel, and follow me on Instagram. Thanks for watching.

2 thoughts on “Dave Ramsey’s Debt Snowball: Paying Off Debt (Credit Cards, Student Loans, & Other Non-Mortgage)

  1. What fantastic advice! I never thought of paying off debt in that way. You always here pay off your most expensive and largest at first but that would become discouraging. But paying off the smaller one first would really give you the incentive to continue. Amazing how much you can earn by investing a small amount over
    few years.

  2. My favorite part of the debt snowball is the small wins! It is so encouraging in your debt free journey to have small wins and pay off debts as you go!

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