Debt Snowball

Dave Ramsey is absolutely right in suggesting that more Americans should eliminate debt in their lives…but all debt? Heck No! 

There are two types of debt: ‘Good Debt’ and ‘Bad Debt’ 

One makes you money, while the other can destroy you financially, or at the least hold you back from your full financial potential and enjoying life.

So, I believe we have to enter into some degree of ‘Good Debt’ in order to stay out of ‘Bad debt’. Yes…I know Dave Ramsey would say that I’m wrong, but his word is not the gospel and I say he’s wrong on this one.

The number one reason people get into credit card debt

or justify the insanity, is because of unforeseen emergencies. I’ll give Dave Ramsey credit for bringing this to the forefront for millions of Americans. He talks about building your emergency fund because life happens, and often times, that’s what ends up on those credit cards. You have got to have an emergency fund. 

Start with $1000 or $5000 – something that makes sense for you based on your economic situation. It could be as low as $500, but have something in an emergency fund so when life hits you, you can go to your emergency fund rather than back onto your credit cards.

Make minimum payments to your credit cards while you build an emergency fund so that you have a buffer between you and using those cards again! 

After you have your emergency fund in place, implement the Debt Snowball method. Using the debt snowball method isn’t a program you need to pay for nor is it expensive to implement. It’s something you can easily maintain on your own with an Excel spreadsheet or a debt snowball worksheet, which you can download here for free.


If you’ve never heard of this concept before, a “Debt Snowball” begins by making a list of all your debts, amounts, balances and minimum payments.

Make a commitment of how much extra you’re going to pay toward getting your debts paid off.

Start by focusing on paying off the debt with the lowest balance. Make minimum payments to all of your other debts but make a commitment to pay extra to the debt with the lowest balance until that debt is paid in full.

Once the first debt is paid off, add however much you were paying to the first debt to the next lowest balance and begin working toward paying that balance off.

For example, if your minimum payment to the lowest debt is $45 and you decided to pay an extra $500 each month, add $500 to the minimum payment until the debt is paid in full. Once that balance is zero, add $545 toward the next lowest balance minimum payment. Keep going with that process until all debts are paid in full.

Once your debts are paid off, don’t stop. 

Whatever monthly payments you were paying towards your debt, you are now going to pay to yourself. You will use this additional cash flow from the debt you eliminated to start building more wealth for your future.

Now that you are out of bad debt, all of those credit cards become very helpful. Don’t cut up those credit cards! Keep them and build your credit with those paid off credit cards. Building credit is about keeping open lines of credit and showing the willpower that you don’t run to them every time you have a problem. 

Strategically, it’s important that you use the credit cards for a small purchase every few months, and then immediately pay it off. By doing so, you’ll start to see your credit score climb dramatically.


I advise my clients to set up their utilities, Netflix accounts, phone bills, etc to be charged to their credit card every month and then have the credit card be set up for auto draft out of their bank account. That way you’re building credit, streamlining your time and making sure your bills are paid on time every month.

Now it’s time to go into debt. 

That’s right…but “Good debt”. I want you to use good debt to buy rental real estate, start or expand your business, and build additional cash flow. You may even enter into debt for a modest home if you are renting.

My approach to building wealth is simple.

·       Get out of Bad Debt

·       Build Reserves

·       Increase Your Income

·       Use Good Debt to create additional cash flow.


With all of those monthly credit card payments gone, you’ll have additional revenue to take your financial life to the next level.


Keep saving and stock piling money until an investment opportunity comes along that you feel is right for you.