Most People Get Out of Debt in 2 Years With This Method, According to Dave Ramsey

It's a good way to pay off debt, but there may be an even better and faster option available.

When you have several debts to deal with, it can feel overwhelming. You might not be sure about the best way to divvy up your money among your credit card and loan balances. And you could find yourself wondering just how long it's going to take until you're free of debt.

For consumers in this situation, finance guru Dave Ramsey recommends the debt snowball method, which he says is the fastest option. He also recently shared that it takes most people two years to get out of debt with this plan, which is nice to hear if you're dealing with a large amount of debt.

The debt snowball method is effective. However, despite what Ramsey says, it's not the fastest option. Before you decide how to pay off your debt, read on to learn about the debt snowball and some alternatives.

How the debt snowball works

The debt snowball is when you prioritize paying off your smallest debt. Here's exactly how you do it:

• Make minimum payments on every debt except the one with the smallest balance.
• Pay as much as you can on the smallest debt.
• Once that debt is paid off, repeat the process with the new smallest debt.
• Keep doing this until all your debts are paid off.

The other popular way to pay off multiple debts is called the debt avalanche. With that method, you focus on your debt with the highest interest rate.

Ramsey's recommendation is a bit unorthodox, at least from a mathematical standpoint. If you do the math, you'll find that the debt avalanche will save you more money and also normally speed up your repayment timeline. That's the advantage of going after high-interest debt first. By paying more toward the debt that's costing you the most in interest, you save the most money overall, making it the optimal choice for your personal finance.

Ramsey recommends the debt snowball because he believes that debt is a behavioral issue, and what people really need to fix it is motivation. With the debt snowball, you see the plan working when you pay off an account. Each time you do that, it's a sign of progress, and more incentive to keep going.

This doesn't mean the debt snowball is better than the debt avalanche. The debt avalanche works, too. For some people, just seeing account balances decrease is motivation enough. But the debt snowball is definitely great for staying motivated. That being said, if you have a good credit score, there's another option you should consider first.

Debt consolidation beats snowballs and avalanches

The best way to pay off multiple debts is debt consolidation. For this method, you start by getting one of the following:

• Balance transfer credit card: This type of credit card is designed for paying off debt. Most balance transfer cards offer a 0% intro APR on balance transfers. That means during the intro period, you're not charged any interest on debt balances you've transferred over.
• Debt consolidation loan: This is a personal loan you use to pay off debt. Personal loans tend to have lower interest rates than credit cards, which means you could save money on interest this way. You'll also have a fixed payment amount and timeline to pay off your loan.

Then, you use that new account you've opened to pay off all your existing debts. If you got a balance transfer card, you'd transfer all your balances to it. If you got a loan, you'd use those funds to pay off your debt accounts.

There are two big advantages of debt consolidation over any other debt repayment plan:

• You'll only need to make one monthly payment after consolidating your debt.
• You'll most likely save money on interest.

The drawback of debt consolidation is that it normally takes a high credit score to qualify for balance transfer cards and low-interest loans. A FICO® Score of about 670 or higher is recommended.

Ramsey doesn't recommend debt consolidation, saying that it's just a way of shuffling problems around, not fixing them. Although it's true you still need to do the work to pay off your debt, consolidating it can help you get rid of it more efficiently. Just make sure you don't start spending more or paying less toward your debt after consolidating it. The key is to continue paying as much as you can to get debt-free as fast as possible.