7 Steps to Kicking Debt in the Teeth-Dave Ramsey Style

7 Steps to Kicking Debt in the Teeth


People are starting to realize that their monthly payments are eating them alive. Many people are getting that sick feeling that if something bad happens (and it will) that all will be lost. They are starting to decide that their lives need to change but they just don’t know where to start. This post is for you who want to start. I want to give you some motivation and some direction.


First of all, we need to talk about mindset. In an earlier post I made a declaration to you that my common sense partner and I were going to kick our debt in the teeth. We have made valiant strides! But we had to get mad first. Well I think we were more scared than mad. Then we were mad, and now we are determined.

You need to get to a place in your head that you are determined as well. Everyone is on a different journey and you might be overwhelmed for a long time before you finally hit determination, but if you keep up with it, you will get there. Trust me. It’s contagious.

7 Baby Steps

Step One

Set up an Emergency Fund of $1000.

Murphy will come calling and when he does, you need a fall back plan that is not a credit card. Emergencies happen in life and if we are not prepared for them, we will crash and burn. It’s like being on a diet; if you get hungry, you need an apple as your back up plan and avoid the bag of chips.

What is an emergency?

Well, it’s not Christmas presents. It’s not your car registration. And it’s not a bottle of water at the gas station. Those are all things you will plan for in your budget. Christmas is not a surprise, it happens once a year! On the same day every year too, by the way. 😉

An emergency is the brakes going out on your car, a broken arm, or the water heater breaking down. These are things that you can’t plan for-though later on you will be prepared for much better. If you have to use this while doing your debt snowball, just press pause on paying the debts and build the emergency fund back up.

So first things first; Set up a separate savings account as your Emergency Fund and don’t touch it!

Step Tw0

Pay Off All Debts but the House

  • List all your debts in order from smallest to largest.
  • Pay the minimum payment on all except the smallest. Throw all extra money at the smallest debt.
  • Don’t worry about interest rates unless two debts have similar payoffs.
  • Once you pay off the first debt, you throw everything you have at the second in line.
  • As each debt is paid, your cash flow increases and you will have more momentum.

This is the debt free part. You will be on step 2 the longest than most of the other steps. So I’m going to park it here and talk about this more in depth.

Your debt snowball might look something like this:

Car 5000
Credit Card 6000
Student loans 15000
Mortgage 160000
Total 186000

To make this step work, you need a written budget. You cannot get in control of your money unless you know where it’s going. This is a plight of most Americans-we don’t know where our money is actually going. Each dollar needs to be accounted for.

Your budget may look something like this:

Rent/Mortgage 1000
Gas 200
Groceries 300
Car Insurance 120
House Ins. 140
Health Ins. 400
Utilities 200
Phone/internet 200
Car payment 400
CC payment 100
Student loan 500
Total 3560

*This model has nice rounded numbers, but it should give you an idea of where to start.

Your first month of budgeting will be rough, I promise you that. Especially if you are married and with kids, everyone has an opinion! Don’t give up. Just give yourself a little wiggle room and you’ll see in time that it will get better. It takes people an average of 3-4 months to really start to understand their spending habits and how to whittle away at the budget.

I will go into depth about how to set up a budget in a later post. For now, I want to keep this simple and get the information to you.

You also need to figure out your total income. If one of you makes $4000 a month and the other makes $2000, you have $6000 to work with. Using my example above, you would have $2440 extra to throw at your debt a month. It would take you 2 months to pay off the car in the table above. Once your car is paid, you will take the $120 car payment + the $2440 and apply it to the $6000 credit card. That will take you 3 months to pay off completely. Then you do the same to the next debt.

If you are contributing to a retirement plan, press pause. I know that sounds ridiculous to many of you, but trust me, you need all the cash you can get. The faster you go, the faster you can get back to retirement. If your company matches a percentage, meet their match. Don’t throw free money away. If they don’t offer a match, just press pause.

Step Three

Save 3-6 months worth of EXPENSES

Now you can build a full emergency fund! I know many of you were freaking out while having only $1000 to fall back on. it scared me too. Matthew had a hard time because he had quite the emergency fund built up. I believe that by the time we were married, he had $5000 in there. And yet he was paying massive amounts on his student loans. It didn’t make sense-so we had to throw $4000 at the loans and bite the bullet! Needless to say, 5 months in, we haven’t needed to use the emergency fund *knock on wood* and you might not have to either.

So, what are your expenses?

If you, or someone in your family, loses their job, the mortgage and utilities still need to be paid. You still need to eat and pay your health insurance. So let’s say your expenses are $3000 a month. You need to have $9000-18000 in your Emergency Fund.

Once again, if you have an emergency fund, you will not be in debt again. You won’t reach for those credit cards-which you should close the accounts as soon as they’re paid-and you won’t panic.  You set yourself up to succeed!

Step Four

Invest 15% of Household Income into Retirement

Now you can stop fretting! Get serious about your retirement. You need to build long term wealth so that you can actually retire at 65! You can enjoy the fruits of your labors.

Dave Ramsey suggests that you don’t save all your retirement in one place. If the market crashes in whatever area you’ve invested, you will be ruined. So when you get to this step, start doing some research and learning what the market is like. I highly suggest you visit Dave Ramsey’s page and look up his Endorsed Local Providers for more information in investments.

Ramsey’s suggestions are 4 types of mutual funds:

  • Growth
  • Aggressive growth
  • Growth and Income
  • International

You can also consider real estate as an investment as well. Buy with cash though! Don’t go back into debt or it’s really not an investment.

Step Five

College Funding for Children

If you don’t have kids, you can skip this step. If you are thinking about having kids, skip this step until you have them.

Tuition is increasing like crazy and some of you might have a child that is about to start college or will in a few years. I always suggest that kids apply for as many scholarships as humanly possible. Their brains should be fried and their hands tired of writing essays. Apply for a crazy amount of scholarships! But, you will still need to help them or they will be in the same place as you are-debt slaves.

Two different ways you can save are, a 529 College Savings Fund, or Coverdell Education Savings Accounts (ESAs). There are tax advantages with these options and you can spread them across the same mutual funds as your retirement.

Step Six

Pay Off Your Home

Yay! Now you can finally pay off your house! No, we didn’t forget about this one. You are debt free except the house, you have a fully funded emergency account, 15% going to retirement, a college fund set up for the kids, now lets attack that mortgage!

You will save thousands of dollars in interest by paying this monster off. If you decide to move in the near future, the equity will guarantee you better options than if you had to throw money onto your current mortgage.

You may need to consider refinancing to a 15 year fixed-rate mortgage. Again, do the research and reach out to the Ramsey Endorsed Local Providers on his site.

Step Seven

Build Wealth and Give

Now you can live like no one else. Now you can give to those charities that you always wished you could. You can take trips, you can save like crazy, you can give like crazy. This is the most rewarding step, rivaling step 2!

Max out your retirement plans and enjoy life.


I hope this helps! They are listed as “Baby Steps” and I often smirk because there isn’t anything baby about this. Especially the debt snowball. It’s a BIG FOOT step. But in the end, its simple; not easy, but simple. You take small steps at a time and slowly but surely, you will be debt free and the freedom will be breathtaking.

What do you think? What does your journey look like? Are you motivated and determined to kick debt in the teeth?


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  1. Some great information! It’s terrific that you’re picking this up early in your life!

    The only thing I’d disagree with is about closing credit card accounts. Unless you have a problem with them, it’s better to use them for purchases and pay them off each month. The larger amount of credit you have available, the better your credit rating. Your credit rating can affect the cost of many things like insurance, mortgage interest rates, etc. and can even affect getting a job these days, so doing whatever you can to keep that high is always good.

    I’d probably also focus on paying the higher interest rate debt off first, depending on what the difference is. If it’s just a point or so and the debt isn’t huge, I can see where paying the smaller ones off first would provide more incentive. However, it could make a difference of thousands of dollars in the long term to pay off a higher interest rate debt, such as credit card or student loans, instead of lower rate debt such as a car.

    But whichever of those two options are followed, following this program will be sooo much better than doing nothing.

    1. Hey Lovely! Thank you for my very first comment!
      I do agree with you on both points, but what we have come to find with money and debt repayment, is it’s more about behavior than it is about logic. So for someone who falls back on their credit card for any emergency, it’s far better for them to get rid of it and use cash or a debit card. Matthew and I still have our card open and will use it for bigger purchases like my doctor appointments and then promptly pay it off out of the budget we choose. It gives us more control that way. But for most people, the card makes them go out of control.
      On the interest rate- when you have a mountain of debt and payments to think about, it’s better to ignore interest and just get those buggers out of your life as fast as you can. The psychology is to achieve a goal rather than think about interest rate. I will admit that we have been paying our loans off backwards. We focused on interest rather than the base amount. So we had a loan at 12% interest and it was costing us a good $500 a month alone. That sucker was the first to go! We have had the snowball effect but more in interest rates than totals. The last loan we will pay off is $15,000 @ 2%. It’s so low that we are ignoring it for now.

      So yes, I agree with you, but I will also encourage newbies to focus on the steps: get rid of the card and don’t worry about the interest. Once they have a few things paid off, then make the decision to deviate 😉

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