Dave Ramsey: How to Pay Off Debt and Stay Debt-Free

This article is an excerpt from the Shortform book guide to "The Total Money Makeover" by Dave Ramsey. Shortform has the world's best summaries and analyses of books you should be reading.

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Do you want to know how to become debt free? What is the advice of Dave Ramsey on how to pay off debt?

The Debt Snowball Method is, for Dave Ramsey, how to pay off debt. You tackle your debts one at a time to snowball into big results.

Read more about Dave Ramsey, how to pay off debt, and how to become debt free.

Dave Ramsey: How to Pay Off Debt With the Debt Snowball

You need to get rid of debt to get control of your income and put it to work for you. The debt snowball method is the way to pay off debt. There are two steps:

1) List your debts in order, from the one with the smallest balance to largest. Exclude only your mortgage, which will be addressed in another step.

2) Each month, apply every extra dollar you have after basic expenses toward paying the smallest debt until it’s paid off. Make the minimum payments to stay current on the other debts on the list. 

After the smallest debt is paid, apply the payment you had been making on it, plus any additional money you have, toward paying off the next smallest debt. When the second debt is paid off, apply the payment amounts from the first two debts, plus any other money you can find, to the third debt on your list, and so on.

Each time you pay off a debt, you increase the amount you can pay on the next one—your payments continue to snowball until your debts are paid off. For Dave Ramsey, this is how to pay off debt.

How to Become Debt Free (and Stay That Way)

The biggest myth about debt is that it’s a tool or leverage you can use to build wealth—for instance, to get a car, home, or start a business that will be a foundation for building your wealth, that is, an investment in your future. It’s smart to use other people’s money, we’re told.

However, debt doesn’t usually make you more prosperous. It creates risk that, over time, builds and erases any initial advantage. 

If you want to be wealthy, you should do what wealthy people do instead of believing myths pushed by lenders. Three-quarters of the Forbes 400 wealthiest people in America told pollsters that the best way to build wealth is to stay out of debt. Millionaires live below their means and pay cash.

Three of the biggest lenders at the time this book was written—Sears, JCPenney, and Ford—were founded by people who actually opposed debt. For example, Henry Ford thought debt was a lazy way to get things; his view was so strongly held that his company didn’t offer financing until a decade after GM did. Today, credit is one of Ford’s (and any car company’s) biggest profit generators.

Dave Ramsey: How to Pay Off Debt and Stay Debt-Free

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Here's what you'll find in our full The Total Money Makeover summary:

  • The 7 steps to achieving financial stability (you'll love #7)
  • A fool-proof plan for becoming debt-free
  • How myths about debt and money are crippling your financial health

Rina Shah

An avid reader for as long as she can remember, Rina’s love for books began with The Boxcar Children. Her penchant for always having a book nearby has never faded, though her reading tastes have since evolved. Rina reads around 100 books every year, with a fairly even split between fiction and non-fiction. Her favorite genres are memoirs, public health, and locked room mysteries. As an attorney, Rina can’t help analyzing and deconstructing arguments in any book she reads.

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