Day 4: The Debt Snowball

Now we are back on track. Dave Ramsey’s first class of FPU discussed the importance of having an emergency savings of $1000, what he calls Baby Step 1. Before moving onto Baby Step 2, he takes a detour to talking about Relationships and Money and then Budgeting to build a foundation. Now he turns back to his Baby Steps.

Baby Step 2: The Debt Snowball

Ramsey’s Debt Snowball has received some criticism because it is not the fastest way to get out of debt. A foundational principle that Ramsey holds to is that behavior, rather than know-how, is the biggest part of handling personal finances. This is why the Debt Snowball is set up the way it is. Here’s how it works:

  • You compile a list of all your debts – from car loans to student loans to friends to credit cards
  • Put them in order from lowest balance first, to highest balance last
  • Funnel every extra dollar you have to the debt at the top of the list (the smallest one in terms of amount) while making all the minimum payments on all the others
  • When you pay off and eliminate that first one, you work on the next, again funneling all money, including what you used to spend on the first debt, towards the next largest debt
  • As you pay them off one by one, the debt elimination accelerates, much like a snowball growing as it rolls down a hill

That second point is where Ramsey catches some flack – by ordering them by balance, rather than by interest rate, you’re actually not paying them off as fast as you could. Ramsey does say elsewhere that if two balances are about the same, you would want to pay off the higher interest rate first. Ramsey is not concerned with efficiency here, but rather success. He knows that emotions play a large role in this – the better you feel about your situation, the more likely you are to keep going with the debt snowball. You need momentum. Most people’s smallest debt is under $1000. If you can pay that off quickly, you feel like its working and get excited to pay off the next one. By the time you’re ready to tackle the biggest debts, you have motivation, momentum, and confidence, as well as extra cash flow.

Gazelle Intensity

Ramsey pulls imagery from Proverbs 6:1-5 to communicate the way out of debt – you have to run from debt like a gazelle running from a cheetah. You work at getting out of debt like your life depends on it. This includes finding a part-time job, working extra hours, selling things you don’t use, and doing everything you can to save money and pay off debt. He’s that serious. Again, you have to give yourself some momentum, or you’ll slip back into your old patterns.

Correcting Myths

In this class session, Ramsey spends almost the entire time “Debunking Myths” about credit and debt. Sometimes he makes valid points, but many of his “truths” about debt don’t directly respond to the “myth” that he is debunking. For example, he cites the following myth and truth:

  • MYTH: “I’ll make sure my teenager gets a credit card so he/she can learn to be responsible with money.”
  • TRUTH: “Teens are a huge target of credit card companies today.”

The truth given, while it is true, doesn’t really answer the myth. Shouldn’t a teenager learn how to be a target to marketers without giving in to buying everything they see? A credit card with a small credit limit can help them do that, can’t it? It seems like Ramsey is more concerned with addressing common practices than truly correcting myths about credit and debt.

A Little Sloppy

In the process of debunking myths, Ramsey throws out a lot of statistics, such as referencing a Forbes 400 survey where 75% say that getting and staying out of debt is the key to building wealth. From reading his book, Complete Guide to Money, that came with the class materials, I know that Ramsey can get a little sloppy with statistics and facts. For example, in the “Dumping Debt” chapter of the book, Ramsey says that “the average cardholder has more than 7 cards.” This seemed high, so I checked his reference and looked up the report he’s pulling from. It turns out he just divided the total number of cards out there (which includes business cards and canceled cards) by the total number of cardholders. According to Gallup, only 8% of Americans have 7 or more cards and the average is 3.7 cards per person. says the average is 3.5 per person. So when he says that 75% of the Forbes 400 are against debt, I’m skeptical. I scoured the internet for the source of this survey, but could only find either instances of Ramsey repeating the statistic or other people citing him. In addition, the stat is only mentioned online. Its not in his book, where there would be higher standards of statistical integrity. If anyone could find the original source for this, I would really appreciate it.

The Final Word

In conclusion, I think Ramsey’s method for getting people out of debt is both clever and effective. He is smart to put stock (no pun intended) in people’s behavior and leverage that to help motivate their debt reduction. However, it seems that he is so convinced and so passionate about being debt free, that he goes overboard in trying to convince people to agree with him. In a way, it almost makes him less credible. Personally, I’m still trying to figure out whether one should pursue debt reduction in the first place, especially as aggressively as Ramsey calls for.


14 thoughts on “Day 4: The Debt Snowball

  1. Pingback: Day 9: Finishing Strong | Numbers And Sense

  2. I’ve read through a few of your posts. I enjoy your open curiosity to the topic and balanced critical questions of some approaches to teaching personal finance. I’m intrigued by your statement, ” Personally, I’m still trying to figure out whether one should pursue debt reduction in the first place”. It’s an honest statement showing a genuine interest in the topic. I wonder what could be some disadvantages of debt reduction? Conversely, advantages of keeping a debt balance or growing debt?


    • Adam,

      Thanks for reading and liking! I think there can be advantages to having certain kinds of debt. Consumer debt (credit cards) is obviously not anywhere close to beneficial because the interest rates are working against you so much. However, a 4.5% mortgage seems to have some advantages, such as giving you liquidity, allowing you to invest more, and creating a tax deduction.

      For example, if you have a $50,000 mortgage or student loan and come across $50,000 (or have it in the bank), you have two options. If you pay off the debt, you’d break even. If you don’t, you might be able to invest it and earn ~8% while the debt is costing you ~6%. Then you lose your job. In the first case, you have no debt, but you also have no money. In the second, you have debt, but you also have $50,000 to live on while you look for work. In a case like this, it seems that it is actually less risky to carry the debt, even though it doesn’t feel like it.

      But I think you also have to look at it from a philosophical/Biblical perspective. It doesn’t matter how many benefits there are to debt if the Bible describes it as wrong. This is what I’m still working through. Is it permissible and morally neutral to willingly carry debt longer than you really have to? If so, then there seems to be situations where it should be preferable. If not, then we should work to get out of debt as fast as possible.



      • Agreed on credit card debt. Nothing good comes of it. For the rare few that are incredibly disciplined and never have life surprises it can be a way to accumulate free travel rewards, etc., but that’s dangerous for the vast majority of us. The remaining analysis on debt seems to point to a risk tolerance and financial math acumen. Anyone in finance will tell you returns skyrocket when you leverage an asset. Less equity tied up in an asset means it can be put to use elsewhere. Many businesses and many wealthy people were made this way. But, for the everyday joe, myself included, it’s a dangerous game. Do I really want to take out a loan just to deduct taxes on loan’s interest? I guess, for some, owing a bank may feel better than owing the government, but seems odd.

        Leveraging personal assets does free one up to have extra cash on hand to invest more, but it becomes a race against a fixed amount. Whether it’s a student loan at 6.7% or a mortgage at 4.5% you’d have to invest so the spread is worthwhile, much less have to invest in something that would be truly stable and liquid to ensure you come out ahead and have access to the funds. From my experience the more stable, or low risk, the investment the lower the potential interest rate tends to be and the more limited liquidity options you have. For a short term investment, a tax deferred option wouldn’t quite work as you’d be penalized for accessing those funds, correct? To your example, if you invested $50,000 at 8% instead of paying off a 6% debt, wouldn’t you have to pay a tax on that 8% when you liquify those funds? You’re correct that you’d still have access to the original $50,000 and be able to manage a season of unemployment but wouldn’t a decent portion of that growth would be eaten up by taxes?

        Are there some highly liquid low risk investment options available that would make a reasonable return enough to bear the tax burden of the increase they’d make? I’ve not done the research. So, I’m genuinely asking.

        Or would I need to get very comfortable with higher risk investments like individual stocks, understand the market well enough to know when to buy, hold and sell in order to generate a yield that works?

        Personal finance is a tricky world. Conservative models like FPU/Dave Ramsey are frustrating as they’re limiting, but they’re very clear which makes them easier to follow. Smarter models make me feel good, like I’m doing something others can’t do. I’m managing my portfolio and outsmarting the math, but I tend to get a little lost in weeds of those and spinning the plates of paying debt, watching investments, etc. That’s just me. I have a lot more to learn in all areas of it. Hoping to continue to be challenged by what you share here.


      • Adam,

        You raise some good points. While you would have to pay taxes on investment gains, you would also save taxes on the loan, so it might be close to a wash depending on your situation. I don’t think there are investments that offer decent returns, safety, and liquidity all at the same time, so you have to be in it for the long haul – such as 30 years for a mortgage or 10 for a student loan. I think inside those time frames, you are dealing with a high level of risk, but over a long period of time, I don’t really see the markets as that risky. Historically, 10 year intervals in the US stock market make money 95% of the time (and 100% of the time in 15 year intervals). So I’m not saying that we should all go borrow a ton of money and invest it, but rather that if you’re going to be paying on a loan for 10-30 years, it may be better to not accelerate the repayment, but instead invest a little extra during that time.


      • Your perspective is intriguing. I appreciate that you are well thought out. Looking forward to continuing to read the insight you post on your blog.


  3. Steve-O,
    Apparently we both need to be a bit faster! I just saw what you said after I posted a link to a post you have now already read. “It is more a matter of who do you want to be in control of your life and your family’s well being?” is a very interesting thought. I haven’t really thought of it from a “control” perspective. I think I’ll have to unpack that more down the road.


  4. Steve-O,

    Thanks for your explanation. In case you haven’t seen them yet, I do have a few posts already relating to what you have mentioned, one on Debt=Slavery ( and one on Defining Debt ( As of now, I tend to think that there are good uses of credit, such as mortgages, student loans, and the responsible use of credit cards. However, as you’re communicating, credit card debt can become overwhelming quickly and can end up costing you way more than any potential benefits it offered in the first place. I understand wanting to use absolutes, but that doesn’t really seem reflective of real life. There are too many nuances and absolutes can quickly become limiting. I wish we could deal with issues in life in a more black and white way, but the older I get, the more I realize that “it depends” is more often the best answer.


  5. There are some good thoughts outlined here, and I have had some of the same questions. We are currently on our first full month of baby step 2 (which is the debt snowball) in Dave’s plan.

    If the goal is to teach a child to be responsible with money, then there are other methods that carry less risk to establishing bad habits. Even if a child were to pay off the balance in full at the end of the month, they are still being taught to spend money on credit, which is bad. It is too easy to get started down the path of buying something before you truly have the money to pay for it. For example, a new game console is released and a child has already saved up $500. But what if they also want to purchase a couple games, a controller etc. Now the total is up to $600+. It is all too tempting to put the balance on the credit card and promise to pay it off later. Thus the cycle begins. If habits like these are started young, then they will continue through college, and early adulthood.

    Yes, a child should learn how to not give into buying everything they see, but why give them access to a tool that could also potentially start bad habits? I would rather teach a teenager about money by showing them the power of compounding interest through investments.


    • Steve-O,
      Thanks for your comment! You’re right, it can be very tempting to buy with money that you don’t have, after all, “its only $100 more…” I think the difference in our perspectives is when you say that buying on credit is bad. I don’t know that it necessarily is all the time. This is what I’m trying to wrestle with in this blog and by going through Ramsey’s class. Can you explain why you think it is bad? I would like to hear more of your perspective on that.


      • Full disclosure: I have a balance on my credit card that I am in the process of paying off, as well as student loan debt. Hence, I am trying to follow the baby steps in order to become debt free.

        In Dave Ramsey’s books and classes (and in our discussion), it is easier to deal in absolutes. It’s easier to say that “debt is bad” than to deal with all of the corner cases. If you read the blog, he has a similar goal of living within ones means, but he also advocates using credit credits cards with a good rewards program. There seem to be a number of people that use this method and have quite a bit of success. In this case, you could argue that buying on credit is good.

        For someone trying to get out of debt though, why worry about the few situations where potentially it could be beneficial? Dave Ramsey also equates debt to slavery. I tend to agree. If I lose my job and am unable to pay my debts, the banks will come and take what is theirs. If I don’t pay pack my credit card, the bank is able to garnish my wages.

        Are there specific situations where you think that buying on credit is necessary or beneficial?

        Keep up the good work! I will bookmark your site and I look forward to reading about your progress.


      • I just noticed that you have previously written an article around debt and slavery as well. You went into a lot detail and have already put put in a great deal of thought into this topic. Sorry if I am bringing up subjects that you have already addressed.

        I don’t believe that being in debt or being a lender is sinful. It is more a matter of who do you want to be in control of your life and your family’s well being?


  6. “I’ll make sure my teenager gets a credit card so he/she can learn to be responsible with money.” I think the myth he is addressing there is how some say the “only” way a teen can becoming responsible with money is to have a credit card…since they are so ingrained in our society they have to learn how to use them. I’ve have seen that promoted in some circles. Teens surely can become responsible with money without getting a card.

    On a side note, welcome to blogging! I see you’ve recently started. It’s great to see another PF blog pop up with a Christian foundation. If you ever have any questions don’t hesitate to ask. I’ve been at this for over two years now and know just enough to be dangerous. 🙂


    • Thanks Brian! I see your point, and I agree – teens can be financially responsible without a card. I think credit cards can be one of many ways for teens to learn the risks (and benefits) of credit while still under close supervision. Do you know of other Christian PF blogs? I’m still trying to find a variety of them to follow.


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