Once you’ve built your $1,000 starter emergency fund in Baby Step 1, it’s time to take on the next major milestone: paying off all debt, except your mortgage, using the debt snowball method.
Learn about Baby Step 1 here: Baby Step 1: Save $1,000 for Your Starter Emergency Fund.
Why Baby Step 2 Matters
Debt is one of the biggest obstacles to financial freedom. It drains your income, limits your options, and keeps you tied to monthly payments. From credit cards to car loans to student loans, it’s time to clean the slate.
“Buy now, pay later” might sound convenient, but it’s a trap that keeps you broke. Baby Step 2 is all about breaking that cycle for good.
How the Debt Snowball Method Works
List your debts in order from smallest balance to largest balance (regardless of interest rate).
Make minimum payments on all your debts (except the smallest one).
Attack the smallest debt with everything you’ve got: extra income, side gigs, budget cuts, etc.
Once it’s paid off, roll that payment into the next smallest debt.
Keep going until you're completely debt-free (except for your home).
This method builds momentum, motivation, and quick wins, which are all key ingredients to staying on track.
Learn about the Debt Snowball Method here: How the Debt Snowball Method Works.
What About Investing?
Pause investing for now. You’ll pick it back up in Baby Step 4 once your debt is behind you and your financial foundation is stronger.
Learn about Baby Step 4 here: Baby Step 4: Invest 15% of Your Household Income in Retirement.
You’re Not Alone
No matter what kind of debt you’re facing, EveryDollar has the tools to help you pay it off faster and with confidence. From custom budgets to helpful insights and support, we’re with you at every step.
Ready to start your debt-free journey? Start Budgeting Using EveryDollar.
Next Steps
Want to learn more about the Baby Steps process? Learn more about the 7 Baby Steps here: The 7 Baby Steps.