Guides to Dave Ramsey’s Student Loan Refinancing Plan

Despite being one of the most divisive individuals in the personal finance world, Dave Ramsey is perhaps the guy who has motivated the most people to pay off their debt. 

His followers become “gazelle focused” as they concentrate on debt repayment thanks to his utter loathing of debt. 

Although you may not agree with his method, you cannot discount its efficacy. 

What you need to know about Dave Ramsey’s “baby step” method of debt relief if you have student loans.

The Budget and Gazelle Intensity

To get out of debt, the average American must have two sides (at least according to Dave Ramsey). They need budgets and emotions that work for them.   

Baby Steps’ approach is to focus on one mission. Ramsey asks the listener to harden the gazelle with his two small steps at the beginning. 

“Gazelle-focused” refers to working at sprint pace instead of marathon pace. 

Most of those who follow the program are debt free in just 2-3 years and mortgage free within 7 years. 

  If you take the Baby Steps approach, we recommend combining it with Ramsay’s suggested intensity. 

Taking more than a few years to pay off debt is a recipe for not paying it off. Ramsey suggests a zero-sum budget to stay on track.

 I accept. No debt service plan works without a spending plan. The College Investor has several budgeting resources. 

MOver time it will probably evolve into a less time-consuming budget tracking method, but it’s important to create a budget when you start.

Baby Step One: Get a $1,000 Emergency Fund

Dave Ramsey’s strategy starts with putting together a $1,000 emergency fund. 

All you need is a $1,000 reserve in your bank account to cover this. 

In a single month, the majority of people making the median wage ought to be able to accumulate a $1,000 emergency fund.


 Selling some expensive goods and eliminating simple expenses like daily lattes and eating out are the quickest ways to put this into action.

Is $1,000 Enough?

The $1,000 emergency fund is criticized by many as not being sufficient. 

The truth is that without selling anything or using credit cards, half of all Americans are unable to raise $400. 

You could fix your automobile or take care of a small health issue with $1,000. 

Additionally, the number is manageable and may be implemented in a matter of weeks. It’s beneficial to start off with a swift victory.

What If I Expect a Big Bill in the Future?

The one exception to the $1,000 emergency fund rule is if you anticipate receiving a sizable expense soon. 

For instance, you’ll likely spend several thousand dollars on medical expenses if you’re having a baby. 

You don’t want to be caught without money if a layoff is expected. 

Do what you can to avoid taking on extra debt by making sure you have enough money to handle anticipated expenses.

Step Two: Pay Off Your Debts in Order of Smallest to Largest

Once you have $1,000 in your bank, start your debt repayment plan. 

Ramsey recommends using the Debt Snowball to pay off your debt, from the smallest balance to the largest.  

 Debt Snowball allows you to make minimal payments on all but the least outstanding debt. 

Every extra dollar in your budget goes towards your smallest debt. When you pay off your smallest debt, take the smallest payment from that debt and put it on top of the next debt. 

This continues until all debts (except mortgage) are paid off.   This method does not take into account interest rate, bankruptcy or credit consolidation options, but in most cases they do not matter. 

The goal is to get out of debt quickly so that interest rates are less of an issue. This plan may not work if your debt to income ratio is very high.

Should I Get on an Income-Driven Repayment Plan?

Whether to enroll in an income-driven repayment plan is one of the often asked topics regarding student loan repayment. 

Dave Ramsey dislikes the schemes in general because they cause people to earn less money. 

You should enroll in an income-driven repayment plan, in my opinion, but only use it as a crutch for as long as you actually need it.

 Increasing your income so you have more money to pay off debt should be your primary priority before paying any other debt. 

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While you concentrate on the income side of the equation, you can manage your cash flow with the aid of income-driven repayment programs.

What About Student Loan Forgiveness?

Forgiving public service loans is one of Ramsey’s constant punching bags. He hates it and advises listeners not to resort to it, even if they’ve been in it for a few years

Personally, several friends use his PSLF and other loan relief programs. 

I’ve seen you get out of debt.  He can’t say with 100% certainty that the  program will still be around 10 years from now, but if it is being phased out, I think there will be a phase out period. 

If you want to qualify for the PSLF, enroll in the program and don’t actively pay off your student loan debt. Instead, bet as little as possible on debt and as much as possible for investments. 

Hopefully I can liquidate my investment and pay off my loan if the PSLF doesn’t work. If it works you did the right thing.

Should I Consolidate?

For those who want to simplify their lives or extend the payments period for their student loans, consolidating their debt can be a helpful choice. 

Sadly, combining student loans prevents you from having loans with the smallest and greatest balances. You forfeit the joy of small victories along the path as a result.

I would advise against consolidating student loans for the majority of individuals unless you can refinance to a lower interest rate (with no origination fees).

What If I’m Facing Bankruptcy?

The baby step strategy is probably not working for you if you are close to filing for bankruptcy. 

Making the minimum payments on your student loans is still advisable because they will likely be discharged in bankruptcy.

 All unsecured debts, such as credit cards and personal loans, should no longer be paid.

Remaining Steps

It’s time to continue with Dave Ramsey’s next steps once you have paid off all of your bills. In this sequence are they.

Step Three: Build an Emergency Fund of Three to Six Months of Expenses

Use your money to create cash reserves once you are debt-free. 

Dave Ramsey continues to suggest avoiding investing at this time (even up to your employer match). 

I tend to modify this suggestion a little bit because it can take up to a year to save up three to six months’ worth of spending in an emergency fund.

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 invest up to your employer’s match and put the remainder of your money toward a cash reserve.

Step Three (Part B): Buy a House with a 20% Down Payment

After beginning Dave Ramsey’s strategy, many participants already have homes of their own. 

However, Ramsey advises putting 20% down on the home if you don’t already own one. 

Additionally, he advises delaying home purchases until you have a sizeable emergency fund in place.

Step Four: Put 15% Toward Retirement

Ramsey eventually advises beginning to invest once you have your emergency money set up. 

His starting point is 15% of his retirement savings in a balanced mutual fund portfolio. 

Ramsey suggests allocating extra dollars to steps five and six if you can contribute more than 15% to a savings goal.

Step Five: Save for Kids’ College

It’s time to start saving for your children’s college costs if you have children and are already allocating at least 15% of your income toward retirement. 

Ideally, you may use your kids’ middle and high school years to assist them financially prepare for college so they won’t need to take out loans.

Step Six: Pay Off House Early

It’s time to finish paying off the house if you have any spare funds left over after paying 15% toward the mortgage and money for college. 

Amazingly, most people who adhere to Dave Ramsey’s strategy succeed in paying off their home in seven years, even while pursuing other objectives. 

Using this strategy, my sister and her husband are on target to pay off their mortgage before their sons graduate from high school.

Step Seven: Build Wealth and Give Generously

The final baby step essentially says, “Do whatever you want.” 

Once you’ve completed the first six baby stages, you’ll likely be in a wonderful position to begin some more exciting types of investing, like buying real estate or launching a small business. 

It serves as a reminder to help others whenever you can.


How long does Dave Ramsey Baby Steps take to finish? 

To complete all steps in Dave Ramsey’s guide to student loan refinancing it takes seven to eight 

What are Dave Ramsey’s five pillars? 

The First Foundation: Set aside $500 in case of emergencies. The second pillar is to pay off your debt. The third tenet is to buy an automobile with cash. The fourth pillar is to pay cash for your education.


For typical student loan borrowers, the baby steps make a lot of sense. 

The tiny steps are emotionally enticing, even while they aren’t the most sensible financial moves (foregoing a 401(k) match while paying off debt, for instance, makes little sense). 

Start with Dave Ramsey’s baby steps if you don’t already have a strategy for paying off your debt. 

The Dave Ramsey plan will get you pumped up and moving in the right direction, even if you find something better.


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