Dave Ramsey’s #1 Secret to Crushing Your Debt Fast

Millions of Americans aren’t so great with money. Big surprise, right?

In comes the money, out goes the money. And quite often, we’re not even sure what we’ve spent it on. 

Worse, according to the Financial Health Pulse 2024 U.S. Trends Report from the Financial Health Network, 70% of American households are not financially healthy at all, “with day-to-day financial realities worsening for many.”

Not helping, U.S. household debt is only trending higher. At the moment, debt is up to $18.2 trillion, which is up $4.6 trillion over the last six years. That, according to Debt.org, includes $12.8 trillion owed on mortgages, $1.64 trillion in auto loans, $1.63 trillion on student loans, and a ridiculous $1.18 trillion on credit cards.

However, if you find yourself in deep debt, there is a way out

In fact, one of the best ways to crush debt fast is the debt snowball method, says Dave Ramsey.

That includes paying off your debts in order of smallest to largest. In doing so, list out all of your debt, including student loans, car payments, mortgages, credit cards, etc.

Then, as noted by Ramsey Solutions, “Make minimum payments on all debts except the smallest—throwing as much money as you can at that one. Once that debt is gone, take its payment and apply it to the next smallest debt (while continuing to make minimum payments on your other debts).”

Then, repeat that over and over again until you drive down your overall debt.

To successfully use the snowball method, Ramsey Solutions says:

• Step 1:List your debts from smallest to largest (regardless of interest rate).
• Step 2:Make minimum payments on all your debts except the smallest debt.
• Step 3:Throw as much extra money as you can on your smallest debt until it’s gone.
• Step 4: Take what you were paying on your smallest debt and add that to your payment on the next-smallest debt until it’s gone too.
• Step 5:Repeat until each debt is paid in full and you’re completely debt-free!

Rinse and repeat until your debt is gone.

Other Key Steps to Build Wealth, according to Ramsey Solutions 

Aside from the debt snowball method, there are other key tools you may want to consider when building wealth and eliminating debt.

Create a budget that lists your income and your expenses

This is crucial. Without a budget, many of us lose track of what’s coming in financially and what’s going out. In fact, when others have asked me for financial advice, my top question is, What are you spending on? Unfortunately, I’m often met with the deer in the headlights stare and a response of “I don’t know.” Unfortunately, not knowing will destroy you financially.

Create an emergency fund

He suggests setting aside 15% of your income for retirement goals.

Many things in life are unpredictable, especially medical issues. So, you must have emergency funds set aside just in case. Some analysts say you should have at least three to six months’ worth of living expenses set aside with it.

And, if you don’t have one set up, start small with an emergency savings goal of at least $1,000. 

Sure, it’s small, but it’s a safety net, and it’s a start. If you can put away about $85 a month, you’ll reach that goal and have some wiggle room. However, be sure to store this in a separate “don’t touch” account, automatically depositing money every time you’re paid. Plus, if you ever receive another source of income, such as a bonus or a gift, put it directly into that “don’t touch” account instead of spending it immediately.

Be sure to always pay yourself first

Before you pay any other bills, make sure you pay yourself first.

In other words, with the money you have every month, make your first payment to yourself in a savings account, preferably a high-yielding account. If you find that you have nothing to contribute to yourself, look into why. Are you spending money frivolously, going out to eat, gambling, or just goofing off?  If so, can you cut back and redirect your money to savings?

Or, try to live below your means for a bit of time. That means you’re planning for every dollar, sticking with a budget, and choosing needs instead of wants far more often.

As Suze Orman has also said, live below your means to achieve financial freedom. Identify your needs and your wants, eliminating part of the expenses tied to wants. Automate your savings. Figure out your savings goal.