Dave Ramsey baby steps: the 7 steps explained

The short answer: the Dave Ramsey baby steps are a seven-step plan for getting out of debt and building wealth, done in a set order.

• Step 1: save a $1,000 starter emergency fund
• Step 2: pay off all debt except the house with the debt snowball
• Step 3: save 3 to 6 months of expenses
• Steps 4 to 7: invest 15% for retirement, college, pay off the house, build wealth and give
• Next step: Plan it with the Debt Payoff Planner ($6.99).

The Dave Ramsey baby steps are a seven-step plan for getting out of debt and building wealth, done in a set order. Investopedia's summary of Ramsey's plan lists them as a $1,000 emergency fund, paying off non-mortgage debt with the debt snowball, three to six months of expenses, 15% of gross income to retirement, college savings, paying off the mortgage early and building wealth. Below we explain each step, what it looks like with real numbers, where many planners disagree and the tools that make each step easier. HomeBase is not affiliated with Ramsey Solutions.

For baby step 2, our Debt Payoff Planner has a snowball or avalanche switch, an extra payment roll-over and a debt-free date for up to 10 debts.

The 7 baby steps at a glance

Steps 1 to 3 are done one at a time. Steps 4, 5 and 6 run together, in that priority order.

Baby step 1: $1,000 starter emergency fund

The first step is a small cash cushion so a car repair or urgent bill does not go on a credit card. The goal is speed: sell things you do not use, pick up overtime and cut spending hard until you have $1,000.

The Consumer Financial Protection Bureau's guide to building an emergency fund gives practical ways to get there: set a savings goal, make saving automatic, save tax refunds and other windfalls, and track your progress. Keep the money in a separate savings account so it is not mixed with spending money.

Baby step 2: pay off all debt with the debt snowball

List every debt except the mortgage from the smallest balance to the largest. Pay the minimum on all of them and put every extra dollar toward the smallest. When it is paid off, add its payment to the next one. NerdWallet's explainer on the debt snowball notes the quick early wins keep people motivated, though paying the highest rate first (the avalanche) usually costs less interest.

With $300 extra a month, the store card is gone in under two months. Then $325 goes at the medical bill, and the payment keeps growing.

The Debt Payoff Planner ($6.99, Excel and Google Sheets) handles up to 10 debts and switches between snowball and avalanche. Add any extra monthly payment and it rolls each paid-off payment forward, shows a month-by-month schedule and updates your debt-free date and the interest saved right away. For a step-by-step look at the method, read our debt snowball vs. avalanche guide.

Baby step 3: 3 to 6 months of expenses

Once the debt is gone, the money you were sending to creditors builds a full emergency fund. Count essential expenses, not income: housing, utilities, groceries, insurance, transportation and any remaining minimums. A household spending $3,500 a month on essentials needs $10,500 to $21,000. Ramsey suggests aiming toward six months with one income and three with two incomes. Our emergency fund tracker page has ways to chart the progress.

Baby steps 4, 5 and 6: invest, save for college, pay off the house

• Step 4: invest 15% of gross household income in retirement accounts such as a 401(k) and IRA.
• Step 5: save for children's college, for example in a 529 plan or education savings account.
• Step 6: put anything left toward extra mortgage payments.

Retirement comes before college in this plan because students can borrow or get aid for school, but nobody lends you money to retire.

Baby step 7: build wealth and give

With no debt and no mortgage, your income is freed up for investing, generosity and leaving an inheritance. This step lasts the rest of your life.

A worked example: steps 1 to 3 for one household

Here is how the first three steps might play out for a household taking home $5,000 a month with $3,500 of essential expenses and the four debts in the table above (total balance $17,950, total minimums $505).

The numbers are illustrations, not a promise. A raise, a tax refund or a side job shortens every stage, while a job loss or a big repair can pause it. The Debt Payoff Planner recalculates the debt-free date as soon as you change the extra payment, which makes it easy to see what an extra $100 a month does.

What counts as debt in baby step 2

Adapting the steps to your situation

• Irregular income: budget on your lowest typical month and send the extra from good months straight to the current step.
• Couples: agree on the step you are on and budget together. Ramsey's three-months guideline for two-income households assumes both incomes are reasonably steady.
• Renters: step 6 does not apply yet, so many renters use that stage to save toward a down payment.
• Very high-interest debt: if one card has a much higher rate, some people pay it first and then return to the snowball. That is the avalanche, and it is a reasonable change to make on purpose.

Where planners disagree

The baby steps are popular because they are simple. Common criticisms are worth knowing so you can adapt them:

• Pausing the 401(k) match in step 2 gives up an employer contribution that many planners consider too valuable to skip.
• The snowball over the avalanche can cost more interest when a high-rate card has a large balance.
• $1,000 is the same for everyone, which is a lot for some households and very little for others.
• Paying off a low-rate mortgage early may matter less than investing more, depending on rates.

None of these make the plan wrong. They are choices to make on purpose.

The budget behind every step

Every step depends on knowing where your money goes. Ramsey teaches a zero-based budget: before the month starts, give every dollar a job until income minus planned spending equals zero. The Zero-Based Budget Spreadsheet ($6.99) has 12 monthly tabs, each with a "Left to budget" counter that turns green when every dollar has a job. It works in Excel and Google Sheets, so you and a partner can plan in the same file and see how much is free for the current baby step.

Tips for sticking with it

• Write the current step on your budget. One goal at a time is the whole point.
• Celebrate each paid-off debt with something small and free.
• Get your partner on board before you start. Budget together once a month.
• Use windfalls. Tax refunds, bonuses and gifts can finish a step months early.
• Expect setbacks. If an emergency drains the $1,000, pause step 2 and refill it.

If you want to compare plans, our page on the financial order of operations shows a different priority list, and how to get out of debt covers other payoff strategies.