Does Dave Ramsey’s Debt Snowball Method Work?

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Popular radio talk show host Dave Ramsey harps on debt, and for a good reason.  

Debt destroys our ability to build wealth. So getting out of bad debt should be your top priority. There are several ways to go about that, each with their unique plusses and minuses.

The Debt Snowball Method 

Popularized by Ramsey, it is a debt reduction strategy that prioritizes debts by their size, starting with the smallest. The idea is simple. Make extra payments on your smallest debt to get rid of it, then apply that same payment to the second small debt, and so on.

Suppose you have five debts: – Credit card: $1,500 ($52 payment) – Student loans: $12,200 ($110 payment) – Car loan: $9,500 ($95 payment) – Medical bill: $450 ($75 payment) – Owe a friend: $500 ($50 payment)

How Debt Snowball Operate

– Medical bill: $450 – Owe a friend: $500 – Credit card: $1,500 – Car loan: $9,500 – Student loans: $12,200 You will make minimum payments on all five debts.

Step 1 is to order these debts from smallest to largest: 

Then, make additional payments to eliminate the $450 medical bill first. Then, take that medical payment and apply that to the $500 that you owe your friend. Once your friend’s debt is done, move on to your credit card debt, car loan, and student loans.

For instance, making an extra $50 payment a month on your medical bill eliminates the debt in four months. The math: $75 minimum + $50 extra = $125 a month. You're done with a $450 medical bill in four months and off to your next debt.

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