Baby Step Two – Pay-Off Debt with the Debt Snowball

Welcome back to my continuing break down of Dave Ramsey’s Baby Steps.  These are the steps he teaches in his books, and radio and TV shows to millions willing to listen and follow his advice.

I personally find these steps simple and easy to follow but also elegant and effective.

In previous installments I covered:

Baby Step 1 – $1000 Emergency Fund

Today, we’ll examine Baby Step Two.

Baby Step 2 – Pay-Off Debt Smallest Balance to Largest Using the Debt Snowball

 I find that there is a psychology behind calling these steps “baby” steps.  Why not “Financial Steps”, “Budget Steps”, “Money Steps”, or “Road to Wealth”?  All of those names are accurate and they sound much more sophisticated. 

Baby Steps just seems… basic.

And there it is.  These steps are obvious but not easy.  They are gradual and educational.  As you matriculate through these steps you learn and grow and become more empowered, just as a young child learning to explore their surroundings.

But the Baby Step convention is also a little humbling.  Face it, everyone has a financial plan – good or bad – and subverting that plan to a set of “baby steps” may seem like a covering ground already traveled.

I felt that way when I first heard of the concept.

“Baby Steps to Financial Freedom… ha, I bet I’m already half way up the curve”… and that’s when Step Two kicks you square in the forehead – Pay off all your non-mortgage debt.  What?  That’s the dream and you’re telling me that it’s only the second step?  Wow, this plan is serious.

For too many years the idea of getting completely out of debt was a pipe dream.  Debt is just what we do.  But the more I listened and heard stories of others doing it – it is possible – the more I began to buy in.  The more I wanted in!

But how?

Again, Ramsey’s plan is simple, which makes it an easy target.

Assuming all your debt is current or easily made to be current, Baby Step Two calls for:

  • All your non-mortgage debt to be prioritized smallest balance to largest
  • Minimum payments are made against all debts
  • All extra dollars are plowed into the lowest balance
  • As that debt is paid off, those payments are rolled forward into the next smallest balance

And so the debt snowball is born.  Like a rolling snowball picking up more and more snow, the debt snowball picks up more and more dollars as it advances.

The most vocal criticism to this approach is – I think – largely semantic and mostly missing the point. 

For starters, assuming you agree that shedding non-mortgage debt is a good thing, then barking at Step Two is like shunning a super model because of a pimple on her bum.  There’s just too much goodness involved to trip over a minor detail.

But people do what people do and the best I can add to the mix is my opinion, so I will.

The semantic is simple, debts should really be arranged by interest rate and not by balance.  This way you will save more interest over the life of the process.  The snowball still rolls, but from high to low interest rate rather than low to high balance.

OK, on paper that makes sense but it kinda misses the point.  If logic and math are the guides, then why do you have debt in the first place?  Credit cards and car payments and student loans defy logic but define the norm.

Personal finance is personal.  It is not about jockeying a calculator but rather about wrangling the dude in your mirror.  If I could control the guy I shave with, I’d be skinny and rich… so goes the saying.

That’s where starting with the smallest balance make sense because it allows you to experience an early win.  An early diet of low hanging fruit fortifies you for the long haul.  New Presidents don’t take office with a 1200 day plan, but rather a 100 day plan.  It’s an emotional game and we’re emotional beings.  Having an early success nourishes our soul.  It’s primal.

But in the end – smallest to largest, highest to lowest, inside out, sideways, backwards, and upside down – the name of the game is eliminating debt and changing your spending habits.  If you fudge an edge in Step Two that’s mostly ok so long as you don’t lose your way to Step Three.


Stay tuned for upcoming installments in this series:

Baby Step 3 – Boost the Emergency Fund to 3-6 Months of Household Expenses

Baby Step 4 – 15% Earnings Invested for Retirement

Baby Step 5 – Start Savings for Your Child’s College Education (as applicable)

Baby Step 6 – Pay-Off the House

Baby Step 7 – Save, Invest, and Get Rich


Many other skilled and talented writers have dedicated time to dissecting Dave Ramsey’s Baby Steps and I want to share their work for your review as well.  While I certainly hope you’ve enjoyed my treatment of the material, I’m confident you’ll expand your understanding and insights by spending time with the interpretations of others.

Read, Enjoy, Comment, Subscribe!

Bible Money Matters – step 2 

Enemy of Debt – step 2

I’ve Paid For This Twice Already – step 2

 Dave Ramsey – step 2


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