Living the Dave Ramsey Lifestyle: Baby Step 2

So once you have saved your $1,000 Emergency Fund, you are ready for:

STEP 2: Get rid of ALL debt (except house) using the Debt Snowball

This was a fun step for me. Because there were real wins, I could really see my progress! To get started on the debt snowball, first list all your debts from the smallest balance to the largest balance:

Target Credit Card: $350 - Minimum payment $25

Visa Credit Card: $400 - Minimum payment $25

Knee Surgery Medical Bill: $600 - Minimum payment $35

Old Navy Credit Card: $650 - Minimum payment $40

Master Card: $1200 - Minimum payment $55

Car Loan with Sun Trust: $6100 - Minimum payment $350

(These are totally fake figures, I made them up as an example)

The first month pay the minimum payment on all debts. Any extra money you can find, throw it at the smallest debt. The money you were putting into saving during step 1? Put that towards the smallest debt, until it is paid off. Continue making the minimum payments on all other debts during this time. Once that debt is paid off, move to the next one. With the $25 you were paying towards Target, now put toward the Visa Credit Card, so that each month, you are paying $50 to Visa (and the minimum payments on the rest). Plus any extra money you can throw at this debt.

Let this continue throughout all the debts you have. Once the Visa bill is paid off, put the extra $50 ($25 from Target, $25 from Visa) towards the hospital bill. Each month, pay $85 toward the hospital bill. Once that debt is gone, pay $125 to Old Navy each month. This will keep going so that by the time you get to the Car Loan, you will have $180 extra each month to put towards your car loan. How quickly you pay off the debts depends on how much extra money you put towards each one. My next blog post in this series will talk about how we cut corners and saved extra money each month! Have you gotten out of debt? Or have you just started? I would love to hear how its going for you! :) <3