Dave Ramsey is a popular talk show host and financial expert. He has written multiple highly acclaimed books on personal finance. His most popular, Financial Peace, has helped thousands of families to get out of debt.
Ramsey says that:
You should pay off the smallest debt first to create the greatest momentum in your debt snowball.
He says that getting out of debt is a mental issue and paying off the smaller debts first will give you some quick motivation to get out of debt completely. Ramsey says that by getting rid of the easier, smaller debts, you will see results and you will start get closer and closer to being debt free.
Dave Ramsey’s Debt Snowball Plan
The idea is to stop everything except your minimum payments and focus on one task. Don’t try to do everything at once. Otherwise, you will be so spread out that nothing gets done.
First accumulate $1,000 cash as an emergency fund. Dave has been preaching this for years and years. The emergency fund is a must. Then work on getting rid of your debt. Make a list your debts and rank them in order from smallest balance to the largest. If you have similar amounts, the card with the higher interest rate is listed first. Ramsey says to do this each time you pay something off to stay motivated.
To summarize, you pay off the smallest debt first, still maintaining minimum payments on everything else. Then work on the next larger bill. The keep going and going until you are out of debt completely.
I am a big believer in this system. It does work, all you have to do is stay focused, stay motivated and you will be debt free in no time.
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