Dave Ramsey’s 7 Baby Steps Review: Is This A Debt Management Plan You Should Try?

I‘ve been writing about personal finance for just over 3 years now.   During that time I’ve written about Dave Ramsey and his “Financial Peace University” class,  but I realized that I’ve never written a general review of his 7 baby steps plan to getting your finances in order and on track.  So today I’ll be writing a post about his baby steps plan and what I think of it.

NOTE: This article is only a general overview of the 7 basic principles of Ramsey’s Baby Steps, and is not intended to replace his full look at the  7 steps or his FPU course in part or in full.  I am not affiliated with Dave Ramsey or the Lampo Group in any way.   You can find Ramsey’s free online discussion of the 7 Baby Steps here.

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Who Is Dave Ramsey?

So first of all,  who is Dave Ramsey, and what are the 7 Baby Steps? Dave Ramsey is a personal money management expert, radio talk show host and TV personality who over the years has helped thousands of people become debt free and change their financial lives.   He gives no-nonsense advice to folks who have gotten in over their heads, and helps them to find their way out, in a responsible way.  If you’re afraid of hard work, you may want to look elsewhere for your advice.

In addition to his best selling books and radio and TV shows Ramsey also teaches “Financial Peace University” at huge live events, and the 7 Baby Steps are an offshoot of the FPU class.

So what are the 7 Baby Steps?

Dave Ramsey’s 7 Baby Steps

On his website Dave Ramsey lists what his 7 Baby Steps to financial freedom are:

  • Baby Step 1 – $1,000 to start an Emergency Fund
  • Baby Step 2 – Pay off all debt using the Debt Snowball
  • Baby Step 3 – 3 to 6 months of expenses in savings
  • Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Baby Step 5 – College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give!

For a more in depth discussion of the baby steps, head over to Ramsey’s site.  They basically involve planning ahead for emergencies, paying off debt and then planning for the future in a variety of ways. They also look at the importance of giving.  Even though a lot of these points may seem like common sense to a lot of people,  for some they just don’t think about doing these things if they haven’t actually been  told how to do them.

Before The Baby Steps:  Making A Decision To Change

Before you even decide to head down the road of using or exploring the 7 Baby Steps, I think it’s important to point out just how key it is that you sit down, talk with your significant other (if you have one), and actually make a decision that you want to change.

A lot of people talk about how to change their financial lives, but never touch on the fact that if you or your spouse isn’t ready to change, it isn’t going to happen.  You have to want to change.

I know for my wife and I there wasn’t one moment where we decided that we wanted to change, it was just a gradual realization that we weren’t spending our money as wisely as we should, that we were accepting too much debt as a part of our financial plan, and that we craved the freedom of not carrying any kind of debt.  We wanted to be free!

Getting to the point where you want to change might mean that you’ve hit bottom and declared bankruptcy, or it might just mean that you’re sick of not saving enough towards retirement. It’s a different point for  everyone.   But when you get there you’ll know.

Before The Baby Steps: Make A Decision For No More Debt

Once you’ve made a decision to change, you need to be able to begin the change immediately and make a decision as a family that you aren’t going to incur any more consumer debt. Credit cards and home equity lines of credit are off limits now. No more high interest auto loans! If you want a new TV or a new kitchen counter tops, you’re going to have to save for them.  No more store credit cards to buy clothing at ridiculous interest rates!

Cut up your credit cards, and draw a line in the sand. No more debt!

My wife and I used to use our credit cards in a variety of ways.  We would use them to pay for vacations because we wouldn’t plan ahead and save up for them in advance.   We’d use them as a safety net for our household, instead of saving up a cash emergency fund.    If we needed new furniture we would just finance it at the store, and pay it off over time.   Once we made a decision to change, we realized that we couldn’t do that any more.  We had to make a life change.  Using the 7 Baby Steps we were able to make a change in the way we looked at money, and in the process change our lives for the better.  So let’s do a review of what is involved with Ramsey’s baby steps, and what I think of them (even if the previous sentence clued you in to the fact that I’m a fan!).

Baby Steps: Getting Rid Of Existing Debt

After saving a small emergency fund 0ne of the very first things you’ll be doing in the baby steps plan is working on paying off all of your debt.  Dave Ramsey is a proponent of his plan for paying off debt called the “Debt Snowball“.   Basically you order your debts from smallest to largest, and pay them off in that order.  By doing this you can optimize the effect of getting quick victories by paying off the smaller debts faster.

Some people would say that the Debt Snowball isn’t mathematically the best way to pay off debt, that something like the Debt Avalanche (highest interest first) method would be better.  Personally I’m in favor of using  some sort of a hybrid debt repayment plan where you pay off some of your smaller debts first and then re-arrange your higher dollar debts to pay them off in the order of higher interest first.

Whatever you do to pay off your debt, it’s important to make a plan of some sort, make a budget and stick to it.

Baby Steps: Planning For The Future

In baby steps 3 through 7,  Ramsey explores setting savings, investment and college savings goals, as well as talking about the reasons for why we should be building wealth – to be able to be free from debt burdens, and be able to give more to others.  The general ideas he talks about are all sound in my opinion, even if his reasoning in the details isn’t always something I can agree with 100%.

Saving, Investing, Giving

Baby step 3 looks at saving a 3-6 month emergency fund – in other words saving up enough money to cover just about any emergency that could come up from a broken down car to a job loss.   I’m a big proponent of emergency funds, and as such I think this is a great idea.  At our house, however, we decided to have an even larger emergency fund with 8-12 months in savings.  In this economy we just felt better having more money than Ramsey states you should have.

After you’ve set up a contingency plan for the present Ramsey suggests looking at the future.  He suggests investing 15% of your income into a Roth IRA or pre-tax retirement accounts.  While I can agree that saving 15-20% of income for retirement is definitely sound advice, I’m not always in agreement with Ramsey when it comes to the assumptions he makes about getting a 12% return in the stock market, or about what types of mutual funds to invest in.  I think Ramsey’s advice has been shown to be a bit suspect in this area – and should be taken with a grain of salt.

Next Ramsey suggests saving up for your kid’s education – only after saving for your own retirement.  I think this is sound advice as your child can pay for their education via loans or grants,  but you probably won’t be able to do the same to fund your retirement.  He suggest saving up in an ESA or similar account, while I think some other options like saving for college in a Roth IRA should be considered.

When it comes to homes and real estate Dave Ramsey has some pretty strict rules about what kind of mortgages he thinks you should get, what percentage of your income you should spend on a home, and how you should work to pay it off.  Ramsey suggests trying to pay off your mortgage early if at all possible after saving for retirement, your kids college and other necessary expenditures.   I think having a paid off home is a great idea and it’s a great hedge against uncertainty in today’s environment.   While I don’t agree with his statement that you should only ever get a 15 or fewer year fixed mortgage  – I do think his advice about homes and real estate is pretty sound.  Of course I’m not following it completely with our 30 year mortgage, but we are making extra payments in order to pay it off early.

After doing all those other things – saving, investing, college funding, mortgages – Dave says you move on to the mythical 7th step where you just continue building wealth, and giving a large percentage of what is left over.  For me I think the giving portion should be stressed as it is such an important part of this. We’re all happiest when we’re giving to other people, and building wealth for wealth’s sake is pretty pointless.  I’m glad he points out that giving is so important, and I’m glad that he points out that money and wealth won’t make you happy, but having a personal relationship with Christ – and giving as he did – will.


Dave Ramsey’s 7 Baby Steps are a debt management process that I became familiar with while i was taking Dave Ramsey’s Financial Peace University™ course a couple of  years ago.   I believe the process it lays out is a sound one whereby you plan for the present through emergency funds, you pay off your debts incurred in the past, and then you set about planning for your own and your family’s future.

I do think that there are certain points of the plan where I don’t have 100% agreement with Ramsey, especially when it comes to investing assumptions and methods, as well as college savings plans, but overall when you look at his plan with a 10,000 foot view, I think the ideas behind it are sound.

I would recommend using the 7 Baby Steps if you’re looking for a good debt management course, when used in conjunction with Ramsey’s Financial Peace University™ class (which I’ve found to be well worth the minimal cost).    For a full look at Ramsey’s 7 Baby Steps, head on over to his site:  7 Baby Steps

Last Edited: 10th February 2014

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    Share Your Thoughts:

    • Apollo says

      What is more important retiring with dignity or sending your child to school? I’d rather not eat dog food when I’m retired.

    • Keith Wilson says

      Better to raise a child with good character and a good education, the better to qualify for scholarships. And working to fund your own education builds character.

  1. Hillary says

    I thank you for going over this subject. My fiance and I are starting out on this road before we get married. I think is the one of the best book and ideas I have read in a long time. The best part is that we can start our life out debt free and start saving for a house within a year of being married. This book should be a must for everyone, all high school and college kids should be given this as a class. I really wish I knew these things then and I would be in such a better place now.

  2. says

    i’m halfway between step 2 and 3. i’ve got a 3 month emergency fund built up, but i’m also attempting to pay my debt off. i’ve paid 1100 dollars off on a 7700 dollar debt in the last 3 months and am on my way to becoming debt free. it has not been easy and it won’t be easy but i’m excited and determined.

    unfortunately my job security is in question so i’m currently looking around and brushing up my resume and all of that. hopefully i won’t be laid off but if it happens i feel far better prepared than i was 6 months ago. i’m only 26 but i am going to make it my 2009 resolution to make this year the last year of my life in debt and the first year of my life as a financially and personally resourceful and intelligent person. :-)

    • says

      I think Dave talks about how if you’re expecting a major event like a layoff, it’s ok to start stockpiling cash in preparation for that. He doesn’t want you to go into further debt when the event happens. Here’s another post of mine that might help you in your current “job security situation”. Good luck!

      What to do when you’re laid off

  3. says

    What I love about Dave is that even before I read his book or knew who he was I shared a lot of his principles with my clients. Then I read his book and I was like “Yes!” Somebody out there actually shared my views. That was a nice moment and I’ve been an advocate of his for quite some time.

    • says

      We’ve been a huge proponent of Dave Ramsey ever since we took his class, Financial Peace University. It really changed our lives for the better. Since teaching the class myself this winter I know it can change others lives as well. We’re living proof that his system works!

  4. Blake H says

    Thanks for highlighting Dave’s baby steps, but also mentioning the need for Baby Step 0… It is different for everyone, but God works in each of our lives differently.

    For us, Baby Step 0 came in 2004 as we started thinking about having children. By fall of 2005 we were blessed with a new baby boy, had graduated from Financial Peace University, started our emergency fund, eliminated 42K of our 50K debt snowball, and dropped down to a single-income family.

    Without Step 0, persistence, and God’s help with the other next few baby steps we would not have eliminated the rest of our debt snowball & finished baby step 3 before I was laid off in December 2008.

    We now have two children and no income, but we are still ‘better than we deserve!!!’ We have no debt payments except our mortgage.

    God helped us through the last few chapters in life & I have confidence He will help us in the next.

  5. says

    I love Dave’s plan. It had changed my wife’s and my view of money and our responsibility with the money that is provided to us through work. I just found this site and I have to say that it rocks! I cannot wait to learn more and read the comments!

  6. says

    To obtain financial freedom one has to be serious and forget what others are saying about him/her. It will not be achieved overnight but sticking towards the goals and trying to achieve will eventually be rewarding to the individual.

  7. says

    Good post on Dave’s baby steps. I think the best thing the Baby Steps and the Crown Money Map have done for people is to give them a guide and a set of priorities for financial goals. I know for my wife and I, our efforts were diluted for a long time becasue we were trying to pay off debt, save, invest, etc. Once we found these tools, we were able to have a focus. We could somewhat forget about everything else (which can be overwhelming) and focus on our immediate goal. I look forward to reading the rest of the series.
    Jason @ One Money Design´s last blog ..Making Giving a Priority in Today’s Economy

  8. Sam says

    We started Daves class in Sept ’05..since then have paid off over 150,000. Good thing we did, lost my job this march…been diagnosed with MS. Wife has to support me now.

    House is all we owe for and in 5 years that will be done. Thanks Dave for opening our eyes. It took COMMUNICATION and dedication to do it but IT IS WORTH IT.
    Tithe is the first thing. Then hit the small stuff…7 baby steps..

    God is good, all the time.

  9. says

    My wife and I started out on Dave’s plan and still think its great for anyone trying to get our of debt. My itty nitty bone to pick is his unwillingness to adjust to the current economic conditions.

    For example, my wife and I were on baby step 2 when we both became uneasy with the amount of debt we had to pay off while only having the $1000 EF as a cushion. I understand the principle, but with layoffs and companies folding left and right, we decided to flip steps 2 and 3.

    Some may say that doesn’t make financial sense, but neither does his smallest to largest debt snowball. It’s what makes us feel more secure.
    Torrey´s last blog ..4 Simple Reasons Why He Won’t Marry You

    • says

      Yeah, I was a bit more flexible than some on baby step 1, and we saved $2000 instead of $1000. I think you have to balance the need for security, and the need to get out of debt. Personally I’d rather get out of debt, but I know my wife probably wouldn’t feel the same. If you were looking at a possible layoff I think I might be more inclined to see the need for saving up a bit more in the old emergency fund.

      • says

        See I agree. And that’s the only problem I have with Dave. I personally like how Suze Orman had readily admitted that the economic times may call for different strategies, depending on your situation of course. But I am grateful to Dave, because he gave us the wake-up call to look at our money in the first place.
        Torrey ´s last blog ..4 Simple Reasons Why He Won’t Marry You

        • says

          I certainly see your point. But to some degree I understand Dave’s point about $1000 being enough for most families as well. There aren’t too many emergencies that are going to cost much more than that. If you start building up too large of an emergency fund it’ll kind of short circuit your debt reduction – it’s gonna take a lot longer. Also at that point the gazelle intensity concept starts to wane a bit as well. But as you say, difficult times call for difficult measures.

    • michael v says

      Yes I adjusted the baby steps and kept more emergency cash and still had the car loan a bit longer. Still paid it off but wanted more cash reserves. It is personal preference as long as you keep your eye on the ball.

      • says

        We are doing a 80/20 when it comes to adding money towards our debt and to our emergency fund. After having $1,000 in our emergency fund, 80% of extra income is going toward paying off debt and 20% towards our emergency funds. We know how important it is to have something stash away since in 2010 we had both cars that needed major repairs, we had our first child, and my wife was out of work for about 4 months, along with other family issues which cleaned us out completely. If it wasn’t for our emergency fund we would be much deeper in debt.

  10. says

    Just stumbled on this blog site but it fits me to a tee! I lead FPU at our church each year and have personally met Dave last year in Chicago while attending a conference. He was super nice and talked to me a little bit; and signed my book of course. My wife and i have cut up all credit cards and pay cash for it all. We had step one in cold hard cash in the freezer until SOMEONE threw it away by mistake! Anyway, we are 22 months form being completely debt free but the home.

  11. Katy says

    My husband and I took the FPU class at our church last April, and it has helped so incredibly much to get our finances in order! We were happy to find this class at the beginning of our marriage to start it off right!

  12. says

    Dave Ramsey’s 7 baby steps is a great financial plan. It makes perfect sense. I think a lot of people will have a hard time controlling their spending enough to be able to follow through with the plan. I know I do.

  13. Michael V says

    To the people just starting. This stuff works. A few years ago I started on my financial plan. I was doing “my” baby steps. Well i ran into Dave Ramsey and a few others and refined my steps. By refining I became debt free at 50. Only a small 4.625% mortgage. Built up a 6 month fund and was on my way investing and starting to give some away. Blessed by the Lord greatly and then……………Wham. A major stroke with brain and heart complications. Without following God’s path and sound financial advice like Dave’s I would be crushed and my family homeless. Start the steps. Their are a few good people giving good advice and Dave is one of them

  14. michael v says

    We are never taught to be debt free. I thank Dave for helping me to see it and to give me tools to attack my future with. At 52 i am debt free and only have a small mortgage. Dave is someone to listen to. A true financial counselor. I cannot say enough about this man. He has help me change my life….. Follow his lead and keep at it. You will in time achieve it. I have peace of mind. Money can’t buy you love or happiness or health. But peace of mind while there is a world of storm around you is priceless. Again it is God’s money and we are blessed that he has given it to us to keep us safe. Stay close to God, stay close to your family and stay close to Dave Ramsey. Living like no one else is a dream come true

  15. Nick says

    Its been a long painful journey climbing out of debt for me. i started 32 months ago with 56k+ of debt. now im at 21k…i feel like im never going to dig out.

  16. Keith Wilson says

    It’s important to define terms in this plan, the most important of which is to pin down just WHAT constitutes an “emergency.” Otherwise, the rationalization monster can rear its ugly head pretty easily. Dave is rather vague in his “Seven Baby Steps” plan on this point.

    Car repairs, in my estimate, aren’t “emergencies” because we know that every car is going to break down sooner or later. The same with major appliance breakdowns. We anticipate that by saving a chunk of money monthly for this inevitability. Yeah, that earmarked savings is going to get big and enticing, but it has to comply with the rules. This sounds like a number of “emergency funds” are needed, but you have to define for yourself what these are allocated for.

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