Emergency fund and debt snowball: Dave Ramsey's method, explained honestly

What does The Total Money Makeover propose?

The Total Money Makeover, published in Spanish as La transformación total de su dinero, is the best-known book by Dave Ramsey, a US personal finance author and radio show host. His publisher, Thomas Nelson, released an updated and expanded 20th anniversary edition in 2024. The plan comes down to seven steps that Ramsey calls Baby Steps.

The first three are the most quoted: save $1,000 as a starter emergency fund, pay off all debt except the mortgage with the debt snowball and, once you're done, save a full fund of 3 to 6 months of expenses. The remaining steps cover retirement, your children's college, paying off your home early and, finally, building wealth and giving.

Sources for this part:Ramsey Solutions, tienda oficial del autor, Ramsey Solutions, tienda oficial del autor, Ramsey Solutions, sitio oficial del autor

How much should a starter emergency fund have?

Ramsey asks you to save $1,000 first, as fast as you can. It isn't meant to cover everything: it's there so a car repair, a medical copay or a broken appliance doesn't end up on a credit card while you pay off debt. Ramsey says the amount hasn't changed since he started teaching the steps 30 years ago.

That figure is in dollars and designed for the United States. Elsewhere, it makes sense to translate the idea, not the number. The CFPB, the US consumer financial protection agency, suggests thinking about the most common unexpected costs you've had and what they cost, and notes that even a small amount gives some financial security.

An example with round numbers: if the most expensive repair you had last year cost 300 and a doctor's visit costs 50, a starter fund of 350 already covers the most likely surprises. What matters is building it fast and keeping it separate.

Sources for this part:Ramsey Solutions, sitio oficial del autor, Ramsey Solutions, sitio oficial del autor, Consumer Financial Protection Bureau (CFPB, Estados Unidos)

How much should a full emergency fund have?

Once you're out of debt, Ramsey suggests a fund of 3 to 6 months of expenses. Public agencies give similar ranges, but not identical ones. In Spain, Finanzas para Todos recommends at least 3 to 6 months of basic expenses, such as housing, food, utilities and transportation. In Brazil, the investor portal of the CVM, the securities regulator, estimates 6 to 12 months of expenses.

The CFPB, in the United States, gives no fixed number: it says it depends on your situation. So rather than copying a figure, work out what a month of essentials costs you and multiply it. If your income varies or your job is less stable, aim higher: the CVM mentions precisely the type of income and job stability as factors.

An example with round numbers: if your essentials cost 800 a month, three months is 2,400 and six months is 4,800. Keep it where you can reach it quickly: Finanzas para Todos mentions a current or savings account, not cash under the mattress.

Sources for this part:Ramsey Solutions, sitio oficial del autor, Finanzas para Todos, Plan de Educación Financiera (CNMV y Banco de España), Portal do Investidor, CVM, Comissão de Valores Mobiliários (Brasil), Consumer Financial Protection Bureau (CFPB, Estados Unidos)

What is the debt snowball method?

You list your debts from smallest to largest by how much you owe, ignoring the interest rate. You pay the minimum on all of them and all your extra money goes to the smallest one. When it's gone, you add what you were paying on it to the next one, so your payment grows like a snowball rolling downhill.

Mexico's consumer protection agency, Profeco, describes it the same way: pay off the smallest debts as fast as possible to create a snowball of payments, because clearing one motivates you to tackle the rest. Ramsey puts it bluntly: his method is built on motivation, not math.

Sources for this part:Ramsey Solutions, sitio oficial del autor, Consumer Financial Protection Bureau (CFPB, Estados Unidos), Profeco, Procuraduría Federal del Consumidor (México)

Debt snowball or avalanche: which costs less?

The avalanche orders your debts differently: highest interest rate first, whatever the size. The CFPB explains that this way you get rid of the most costly debt first and, in the long run, can save money; with the snowball, on the other hand, you may pay more in total, because you don't go after the most expensive one first. Ramsey himself admits that, on paper, the avalanche saves a little more in interest.

An example with round numbers, just to see the difference: interest is the price you pay for borrowing money. Debt A is 300 at 2% a month and debt B is 1,000 at 3% a month. In one month, A generates about 6 in interest and B about 30. The snowball pays A first, because it's smaller; the avalanche pays B first, because each month it costs five times as much.

With the snowball you finish A sooner and feel progress early, but B keeps charging close to 30 a month for longer. With the avalanche you pay less interest overall, although the first win takes longer. The CFPB frames it as a choice: the avalanche can save you money in the long run, and the snowball can give you momentum and motivation, especially if you have many small debts.

Sources for this part:Consumer Financial Protection Bureau (CFPB, Estados Unidos), Ramsey Solutions, sitio oficial del autor, Consumer Financial Protection Bureau (CFPB, Estados Unidos)

Who is each method for?

The snowball suits people with several small debts who need to see results so they don't give up. The avalanche suits people who already have the habit and want to pay as little as possible, especially if their most expensive debt is also a big one. Profeco gives credit cards and personal loans as examples of debts with high interest rates.

Either way, some rules don't change: pay at least the minimum on all your debts, don't take on new debt while you're paying, and keep the emergency fund so a surprise doesn't send you back to square one. If you have to use the fund, the CFPB says not to be afraid to do so and then rebuild it; Ramsey suggests pausing the snowball until it's back.

Sources for this part:Profeco, Procuraduría Federal del Consumidor (México), Consumer Financial Protection Bureau (CFPB, Estados Unidos), Consumer Financial Protection Bureau (CFPB, Estados Unidos), Ramsey Solutions, sitio oficial del autor

How to do it in Oslo

Your fund already exists: in Money, under Accounts, there's the “Emergency fund”, which doesn't take up a slot in your plan. To fill it, tap the + button in the middle, choose “Transfer” and move money into it from your account; Oslo records it and you move the money in your bank. Open it and tap edit: Oslo explains what the fund is for and, once it has enough of your numbers to work it out, tells you what to aim for: one month of what your life really costs. If you'd rather follow your own figure, like Ramsey's starter fund, create a goal with “New goal”.

Your debts go in Money, Debts, “Add a debt or a card”. Enter “How much do you owe today?”, the “Monthly payment” (for a card, the “Cut-off day”), the “Payment day” and the “Interest rate”, monthly or yearly. With a payment day set, Oslo reminds you before each date, each debt's bar shows how much you've paid every time you tap “Log a payment”, and on Today whatever is due before your next payday no longer counts as available.

For the snowball, open “Filters and order” in Money and choose “Lowest balance”: your debts line up from smallest to largest. For the avalanche, compare the “Interest” each debt shows. On the free plan you can track up to three debts. The Personal plan lets you track all of them.