Getting out of Debt

Someone is struggling with money. They keep digging themselves into a deeper and deeper hole. They want to pay of their debts, but the payments are to high. Not to mention there are too many of them. What is this person supposed to do? Turn to Dave Ramsey's seven baby step plan.

Dave Ramsey is a financial author, radio host, and motivational speaker. Dave Ramsey has helped thousands upon thousands of people get and stay out of debt. And not just that, but build wealth and a legacy. The debt snowball method that he teaches has been proven by the Kellogg School of Management to be the most effective way to go about getting out of debt.

Here are the seven baby steps

1. $1000 in an emergency fund
2. pay off all debt with the debt snowball
3. 3 to 6 months of expenses in savings
4. Invest 15% of income into roth IRA's and pre-tax retirement plans
5. College funding
6. Pay off your home
7. Build your wealth and GIVE

Step 1

Step one is simple, set aside $1000 to pay for any type of emergency that might arise. Examples of this would be a car problem, emergency doctors visit, house repairs, etc.. When you have the $1000 you don't have to worry as much about something happening during the month, and then not having enough to make your payments. It gives you peace of mind.

Step 2

Step 2 is paying off all of your debts. You're supposed to do this using the debt snowball approach. This is where you pay the smallest debts off first. Ending finally with the largest debt. This approach is used for two reasons. First, by paying off a debt you feel like you've accomplished something so it gives you motivation to continue. Second, in the end you'll end up paying less money in interest. The proof of this second reason is shown in the Kellogg School of Management's study. They took a look at 6,000 unique cases and found that using the debt snowball approach you don't spend as much money as if you would do the opposite.

Step 3

Step 3 is setting aside 3 to 6 months of expenses. This is to give you extra peace of mind, and a way to deal with most life crisis that might arise. Such as losing your job, a family member, or suffering an injury that stops your flow of income. By this point in the program you should have a monthly budget worked out. So figuring out what 3 to 6 months worth of expenses should be easy.

Step 4

Step 4 is investing 15% of your income into roth IRA's and pre-tax retirement plans. This is basically just your beginning to setting aside money for your future.

Step 5

Step 5 is starting a college fund. Depending on your age this could be for you, or for you child(ren). The amount you can put in the college fund will depend on your situation.

Step 6

Step 6 is paying off your home. This should be the last debt that you pay off. After you complete step 6 you should be completely debt free for the rest of your life (or until you buy a different home). This is the big tipping point. Once you pay off your house you can really start building your personal wealth and giving to charities that you believe in.

Step 7

Step 7 is building wealth and giving. Once you reach step 7 you can start really building your wealth. By building wealth you can give your children a better future, and depending on how well you could even give their children a better future. This is the step that you can also give away more money to charities that you believe in and make a difference.


This is in no way an in depth look into Dave Ramsey's Seven Baby Step plan. It is just an overview, so you can decide if it is something that you might be interested in. I know that it has helped me to know where to put my money. It definitely helped my parents, as they are now debt free. In this day and age it is important to be debt free, and know what and how to handle your money. This is a good way to accomplish those goals. Best of wishes to you in your financial endeavors. Leave a comment if you know of a different, or better program!