How to Pay Off $500,000 in Debt, According to Dave Ramsey

If you want to get out of debt -- and stay out -- there's perhaps no better guru to turn to than Dave Ramsey. The best-selling author and radio host has helped millions of people get out of debt, from those who owe $2,000 on a credit card to those who are paying off their mortgage loans. 

But in 2019, Ramsey received a call from one of his most indebted fans: "Dave," the listener, who went by Will, said. "I need your help. Sadly I can say I'm over $500,000 in debt, and I don't know where to start." 

Will began to list out his debts, which included $393,000 in mortgages and $121,000 in loans and credit cards. The exact debts and their amounts were the following:  

Will earned about $110,000 in household income, which is much more than the real median household income in the U.S ($70,784). But with so much debt -- and from so many sources, too -- Will had no idea where all his money was going. 

In about five minutes of video time, Ramsey laid out a pretty sensible plan to help Will get out of debt. Let's take a look at what Ramsey would do if he was in Will's situation.   

1. Sell off your liabilities 

After asking a few questions, Ramsey learned that Will's rental property earned about $100 per month. Since Will was responsible for paying the water bill, that $100 essentially became nothing. 

So for Ramsey, this was an easy decision: sell the rental property. As Ramsey pointed out, the property could become a liability if a major repair forced Will to dig into his own pockets to fix it. Plus, Will had built up equity in the property -- roughly $40,000 to $50,000 -- which could be used to pay down debt. 

This advice isn't limited to Will's situation. Even if you don't own a rental property, you may have certain assets -- like cars, motorcycles, and boats -- that are costing you more to maintain than they're actually worth. It's okay to have nice things when you can afford them, but if you're trying to pay down debt, these should be the first things you sell off. 

2. Get on a tight budget

Next, Ramsey gave Will a little pep talk: 

"So we're going to sell the rental, then we're going to get you on a tight budget: I'm talking beans and rice and rice and beans. You're not going to go on vacation, you're not going to see the inside of a restaurant, unless you're working there. We're getting you out of debt because it's rough living in New Jersey making $110,000 being this freaking broke."

Ramsey's definition of a tight budget is a zero-based budget. With this kind of budget, you subtract expenses from your monthly income until you reach zero. The idea is that you give "every dollar a name" and exclude purchases that would force you to spend more than you're making. 

If your expenses are greater than your income, Ramsey would recommend cutting out nonessentials and trimming down necessities as much as you can. He would also recommend increasing your income by taking part-time jobs, or by selling assets you don't need. 

3. Snowball your debt 

Finally, Ramsey recommended that Will "snowball" his debt. With a debt snowball, Will would list his debts from smallest to largest, focus on paying down the smallest first, then proceed paying off each debt until he reached the biggest one. 

The reason for a debt snowball is mostly psychological: by paying off small debts first, Will can "build momentum" and work his way to larger, more formidable debt opponents. It can also help Will celebrate small victories early on, which can help him stay motivated when he's paying big debts that take long periods of time.  

Should you listen to Ramsey's advice? 

Ramsey can help you organize a debt repayment strategy, stay focused, and celebrate victories along the way. His community of followers is strong, and they often support "baby steppers" from all walks of life, from those just paying their first dollars to those making the last payment on their mortgages. If you want to pay substantial amounts of debt -- but you lack the motivation to get started -- Ramsey can be a great first step into fixing your personal finances.