Dave Ramsey’s Debt Snowball Method came from years of experience. Ramsey was worth millions by the time he was 26, but he lost everything due to poor money management and overwhelming short-term debt. As he started over from scratch, he made a point to learn how money works; now he shares his hard-won knowledge with people facing similar debt problems.

Ramsey’s Debt-Snowball Method motivates users to take concrete steps to get out of debt. He's the first to admit that the method may not be 100 percent mathematically sound (not paying attention to interest rates, for instance), but argues that motivation is critical to reducing debt. He recommends the following principles:

1. List your debts from smallest to largest without worrying about the interest rates or terms.

2. Apply the payment from an eliminated debt to the next debt on the list.

3. Like a snowball that picks up more snow and grows as it rolls, you’ll have an avalanche of funds to apply toward the biggest debt on your list thanks to the Debt Snowball Method.

Action Steps
The best contacts and resources to help you get it done

Make a list of what you owe using the Debt-Snowball Method

Before you begin, it's important that you first establish an emergency fund of at least $1,000. That way, if something happens and you need money fast, you can avoid accumulating more debt to pay for it. Next, list all of your debts from smallest to largest balance due, regardless of the interest rate. This list should exclude your mortgage. Only consider the interest rate if two debts have a similar payoff balance; in that case, list the highest interest rate first.

I recommend: Obtain Debt-Snowball Method information straight from the source on DaveRamsey.com. If you don't already have a spreadsheet program, consider buying one to make tracking and calculations easier; try Microsoft's Excel for a 60-day free trial.

Apply the theory of the Debt Snowball Method

Pay the minimum payment on all of the debts on your list. In addition, add whatever additional funds you can to the minimum payment on the smallest debt on your list. For example, say your smallest debt is a credit card balance of $500, with a minimum payment of $25. After reviewing your budget, maybe you find an extra $30, so you pay $55 on that credit card debt each month. What would have taken you nearly two years to pay off will now take less than a year.

I recommend: Through My Total Money Makeover, you can obtain access to Dave Ramsey’s radio show, archived questions and answers regarding specific money situations and an online forum to obtain Debt-Snowball Method advice from others. Access the Debt Calculator on CNNMoney.com to find out how long it will take to pay off any debt.

Monitor your progress using the Debt-Snowball Method

Once you pay off the debt at the top, redo your list. Apply the payment you were making on the first debt, the $55 on the credit card in this example, to the debt now at the top of the list. Continue this process as you pay off each debt, applying the payment from the most recent paid off debt to the next debt in the list. Seeing each debt fall off the list will motivate you to continue.

I recommend: Dave Ramsey, the original Debt-Snowball Method consultant himself, offers a number of software programs, CDs and DVDs designed to help you plan and monitor your progress. Or download an Excel Debt Reduction Calculator program to keep you on the right track as you reduce your debts.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Some financial experts recommend consolidating as many debts as possible before getting help with Debt Snowball Method.