So you’ve heard about the debt snowball method—you know, where you pay your debts from the smallest to largest balance regardless of interest rate—and now you’re ready to dive right in.
The debt snowball is Baby Step 2 of Dave Ramsey’s 7 Baby Steps. If you’re on this step, it means you already have $1,000 saved for your starter emergency fund, so you are ready to tackle your debt.
While we’ve set up guardrails to clarify how the debt snowball works, we know that everyone’s journey to financial peace is unique.
So let’s address the top questions you've ask about the debt snowball method.
1. Why do I list my debt in order of payoff balance instead of interest rate?
The point of the debt snowball is behavior change. If you try to pay off your student loan first because it's the largest debt, you won't see results for a long time.
Without results, you’ll lose motivation. And without motivation, you’ll likely lose steam and stop paying extra on that loan. Meanwhile, all of your smaller debts are still hanging around.
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But when you ditch the small debt first, you’ll see progress. And progress fuels motivation, because you’ll feel like you accomplished something.
No matter how small that first debt is, it’ll be out of your life forever. Soon the second debt will follow and then the next. These little wins will give you a confidence boost. Not only that, you’ll see the plan is working, and you’ll stick to it.
2. How do I know when to sell something or pay it off?
This question usually comes up with cars, so let’s start there. When we’re talking about vehicles, there are two basic rules to remember. First, if you need more than 24 months to pay off your car, it’s time to sell. Set a two-year deadline and use that—rather than your loan schedule—to decide what you should do.
Second, look at how much of your net worth is wrapped up in the car. If it’s more than 50%, you’re investing too much into something that goes down in value, and it’s time to let it go.
For other stuff—like boats, rental properties or anything besides your home—you can use the same general rules. If you can’t pay it off quickly, or if it cuts too deeply into your income, sell it!
Breaking free from those payments will drastically change your mindset and your wallet as you move toward becoming debt-free. But if you own an item that will be paid off in a few months, it's all right to keep it. Just get rid of the debt!
3. Should I keep saving for retirement while on Baby Step 2?
No. While on Baby Step 2, commit all your energy and resources to getting out of debt. If you’re setting aside money for retirement, you'll stay in debt longer. Concentrate on one goal at a time. When you do this, you’re more likely to knock out your debt.
Even if you get a company match, don't take it while you're eliminating your debts. Remember, this is only temporary.
If you cut your lifestyle, take a second job, and stay laser-focused, you will get out of debt. Once you’re debt-free (and have your full emergency fund in place), you’ll more than make up for taking a year or two off from investing.
4. What if a baby is on the way?
First off, congratulations! A baby is always cause for celebration. If you're going to have a baby, stop the debt snowball and pile up cash. Keep making your minimum payments, but put the remaining money in savings. If an emergency happens and you have medical bills, you’ll have the money to pay them.
Once your new bundle of joy is home from the hospital and everyone is healthy, take your saved money and apply it to the debt snowball.
5. What if I get laid off from my job while paying off debt?
If you lose your job, go into survival mode. Make sure your lifestyle is slashed to the basics. Keep making your minimum payments without putting anything extra toward debt. Stop the snowball until you find work again.
If you get severance pay, don't kick back and live off of that. Try not to touch it. Instead, get a temporary side job, live bare bones, and hunt like crazy for work.
The sooner you get a new job (and maybe find your dream job), the sooner that severance looks like a huge bonus you can apply toward your debt snowball.
6. What do you do with two payments that have the same interest rates?
If you have two payments that have same interest rates, just pay off the two bills in order of smallest to largest. Bottom line: Pay off the smallest debt first.
7. Why can’t we continue on with the debt snowball to attack the mortgage immediately?
The Baby Steps need to be done in order—no skipping around—for them to work right. After you finish the debt snowball, start using the extra money to build your full emergency fund. You’ve got to build that buffer between you and Murphy, or you’ll fall right back into debt.
Then you can start doing Baby Steps 4, 5 and 6 at the same time, but even those are done in order of priority. Start with saving 15% of your income for retirement. Next, start pouring into the kids’ college, if you have kids. Now, while you’re doing each of these, you can absolutely start putting extra money toward the mortgage.
Don’t misquote us though! Paying off your mortgage is important, but retirement and college planning take priority. If you start skipping steps to get to Baby Step 6, you’ll get derailed before you can even reach Baby Step 7.
8. How do I stay motivated during Baby Step 2?
We understand that paying off debt isn’t easy, especially if you’ve been at it for a while. Maybe you haven’t seen a win in a hot minute because you’re at the end of the snowball and focusing on the largest debts. Or maybe the grind of working multiple jobs is wearing you out, and you’re starting to wonder if it’s all really worth it.
We get it. So here are a few things you can do to stay motivated while paying off debt:
- Create a visual reminder of your money goal.
- Revisit your why. Why do you want to pay off your debt?
- Find people who can keep you motivated and accountable.
- Stop comparing your story to other people’s stories.
- Remember how far you’ve come.
- Take Financial Peace University to dive deep into the Baby Steps and get super motivated to pay off your debt through each of the nine lessons in this course!
9. Do I pause the debt snowball if I have to use my emergency fund?
Yes. You should temporarily pause the debt snowball if you use your emergency fund. Just make your minimum payments and rebuild your emergency fund as fast as you can. Once your emergency fund is back to $1,000, restart your debt snowball.
10. If I already have money saved, should I put that toward my debt snowball?
If you have non-retirement money saved up, keep $1,000 of that for a starter emergency fund—Baby Step 1. Then use the rest to pay off non-mortgage debt. Never use retirement funds, because those come with a huge tax hit and early withdrawal penalty.
As soon as your snowball is complete, start piling up cash to build the full emergency fund as quickly as possible.
11. Should I pause the debt snowball to pay for a wedding?
It’s okay to temporarily pause the debt snowball to pay for a modest wedding with cash. The key to planning a wedding without overspending is to set a budget and stick to it!
12. Should I include my second mortgage in the debt snowball?
If your second mortgage is less than half of your annual income, put it in your debt snowball. Knock it out so you don’t have to worry about it anymore.
13. Where does an IRS bill fit into the debt snowball?
You should get the government off your back pronto. Pause your debt snowball to clean up your IRS bill, since the government can take money without actually suing you.
14. I’m a Christian, so should I tithe while getting out of debt?
You should always tithe if you’re a Christian. Tithing is giving off the top. It’s the first thing you do when you get paid, so don’t stop just because you’re doing the debt snowball. If you’re not a Christian, then you're not obligated to tithe, but giving should be part of your budget. Remember, no matter what Baby Step you’re on, your budget priorities are to give, save and then spend.
Ready to get serious about paying off debt using the debt snowball method? Well, it honestly starts with that word we just used a couple times: budget. And we happen to have a free budgeting tool called EveryDollar!
Get on a budget that reflects your goal to become debt-free. With that plan in place—plus your hard work—you will make it happen!