Baby Step 2: The Debt Snowball

After completing Step 1 {The Starter Emergency Fund}, it is time to get gazelle intense to pay off all your unsecured debts, including your car but not your home loan {if you have one}.

As a child of Sunny South Africa I have no idea what a snow ball looks like in person – I have heard that they can accumulate more snow and grow in size as they roll faster and faster downhill.

This is the premise behind Dave Ramsey’s Baby Step 2: The Debt Snowball.

How does the Debt Snowball work?

  1. Make a list of your total debts, smallest to largest, and start paying them off in that order.
  2. Don’t look at the interest rates when listing your debts, unless two debts are about the same size, then pay the one with the higher interest rate first.
  3. The snowball should include all your debts except your home loan.

This step is all about gaining momentum. The battle to get out of debt is 80% behaviour and 20% head knowledge, so we need to start FEELING the victories as soon as possible.