Step 2: Become Debt-Free


It’s important to move forward only if you’ve completed the prerequisites stated above.

Dave Ramsey’s 7 Baby Steps Plan

Step 2: Become Debt-Free

Welcome to Step 2 of Dave’s 7 Baby Steps Plan where you’ll work your way into becoming debt-free!

This is an exciting step that requires a lot of patience, discipline, and belief that you can and will become debt-free.

The ‘Debt Snowball’ Approach

In this step, you’ll be paying off your debt using the debt snowball approach.

The debt snowball approach is a popular debt-reduction strategy that people use to pay off their debt. It’s called a debt snowball because, like a snowball, you’ll have to start working with something small before making something big.

Here’s how the debt snowball approach works:

  1. List out all of your debts (i.e. credit card) 
  2. Place them in order from smallest to largest
  3. Begin paying down as much as you can on the smallest debt first while only paying minimums on the others
  4. Once the smallest debt is paid off, continue to the next smallest debt and only pay minimums on the other larger debts
  5. Repeat

You can use this free debt snowball calculator from FinancialMentor to figure out when you can plan on being debt-free.

This approach helped me pay off my $10,000 debt.

Looking back, I feel that this approach was so effective because every time I got rid of a debt, I felt proud of myself. It was one less thing to worry about. It also gave me confidence and momentum to keep my head down (living a frugal lifestyle).

Remind Yourself Why You Started This Journey

The key in this step is to stay focused on your goal of becoming debt-free. A good way to stay focused is to keep reminding yourself why you’re doing it in the first place.

Are you tired of owing interest?
Do you want to save money for a house?
What about your family – do you want to be able to provide for them as best as you can?

Or are you just flat out sick of being in debt?

Whatever your reasons, stay focused on them. Write them down every day.

This is what will keep you in check when you have an urge to buy something you don’t even need.

What to Do If/When You Get Bored

If you’re anything like I was in my debt-free journey, you’d have never had cable and cancelled your subscriptions and memberships. That includes iTunes, Netflix, and a $20 a month gym membership.

For most people, this will take some time to get acclimated to. But after a month, you won’t feel like you’re missing anything. The internet (YouTube) has a huge library of music and media to keep you entertained. And it’s free so take advantage of that.

In fact, if you find yourself getting bored, go on YouTube and learn something or pick up a free or low-cost hobby.

One of the hobbies I picked up when I was going through my debt-free journey was growing basil.

I had planted some basil seeds in a medium-sized pot on my apartment balcony. After a week or two of watering them I watched them sprout. Some time after consistent watering, I was able to harvest a few fully grown basil leaves and add them to my homemade spaghetti.

It was a peaceful hobby that helped keep me sane. And the amount of basil I harvested was more than what I’d have to pay for them at the grocery store.

In addition to small-time balcony gardening, I read books.

Reading is a great way to exercise your imagination and educate yourself. And price-wise, it’s pretty cheap, or free if you have a library card.

Two books that helped me stay focused on my debt-free journey were Dave Ramsey’s Total Money Makeover book and the book The Millionaire Next Door. They really helped me keep things in perspective and kept me company.

What to Do When You Become Debt-Free

Hooray! This is a HUGE milestone.

You should be proud of yourself for being consistent with budgeting and maintaining new lifestyle changes. By now, you’ve mastered your budget and are well aware of your income and monthly expenses. This is a valuable skill that will be with you for the rest of your life.

And on top of that, you may have found better, more productive ways to spend your time and money than Netflixing.

Congratulations, you earned it.

Take some time to reflect and process everything you’ve accomplished.

Now that you’re officially debt-free, you can move on to Step 3: Build an Emergency Fund.