IRS debt of $24,000 takes priority ahead of a $26,000 car loan and $44,000 in student loans because the IRS can garnish wages without a court order, levy bank accounts, and file tax liens that damage credit, while monthly penalties of 0.5% plus accruing interest make delay expensive on a household earning $135,000 that could eliminate the IRS balance in 6 months through aggressive snowballing.

This advice works for households with stable income above $100,000 and primarily consumer or tax-related debt, but requires modification for families earning below $60,000, where an IRS installment agreement becomes the realistic path instead of attempting rapid full payoff.

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A former kindergarten teacher called The Ramsey Show March 31, 2026 with a question that carries real financial weight: when you owe the IRS money and have other debt piling up, which do you pay first? Dave Ramsey gave her a clear answer, and the IRS's enforcement powers explain why.

The caller left teaching for contract tutoring work and skipped quarterly estimated tax payments. The result: $13,000 owed for 2024 and $11,000 for the current year, totaling $24,000 to the IRS. Her household also carries $26,000 on a car loan and $44,000 in student loans, bringing total debt to $94,000, with only $1,500 in savings against a combined household income of roughly $135,000.

She asked Ramsey directly: "Am I just working to pay that unpaid tax? Like, did I screw my family over?"

Read: Data Shows One Habit Doubles American’s Savings And Boosts Retirement

Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.

Ramsey told her: "Basically we're gonna work a debt snowball, which means you have $94,000 in debt, but anytime you're working the debt snowball, the IRS is first."

The debt snowball method typically orders debts from smallest balance to largest, ignoring interest rates. Ramsey breaks from that rule for IRS debt because the IRS holds collection powers no other creditor does.

The IRS can garnish wages without a court order, levy bank accounts, file federal tax liens that damage credit and complicate real estate transactions, and in extreme cases pursue criminal charges for willful non-payment. No credit card company or student loan servicer has that toolkit.

The IRS also charges a failure-to-pay penalty of 0.5% of unpaid taxes per month, up to 25% of the total balance. Interest accrues on top at the federal short-term rate plus 3 percentage points, adjusted quarterly. On a $24,000 balance, every month of delay adds meaningful cost.

Ramsey captured the urgency plainly: "Every day that sits out there is just killing you. Matter of fact, if you can go borrow on a credit card and pay them off, I would." That last suggestion carries its own risk if the credit card rate is high, but the underlying point is sound: IRS penalties and enforcement exposure often exceed the cost of other borrowing.

With $135,000 in combined income and disciplined budgeting, this family can move fast. Freeing up $4,000 to $5,000 per month for debt payoff, the $24,000 IRS balance clears in a matter of months, cutting off the penalty clock and eliminating lien risk entirely.

Ramsey also suggested selling the $26,000 car, which would either eliminate that debt line or generate cash to accelerate the IRS payoff. He acknowledged the childcare logistics but framed the sacrifice as temporary: "You can do anything for 90 days. You can do anything for 180 days if it changes the whole rest of your life. It's not a death sentence for 10 years, but the next 10 weeks are gonna really suck."

This approach works well for households with steady income and debt that is primarily consumer or tax-related rather than secured obligations with immediate default risk. A family earning $135,000 can absorb a six-month sprint. The math changes for someone earning $45,000 with the same debt load, where an IRS installment agreement may be the more realistic path.

The credit card suggestion warrants scrutiny. If the card carries a rate above what the IRS charges in combined penalties and interest, the swap makes the situation worse. Before moving IRS debt to a credit card, compare the IRS's current interest rate plus the 0.5% monthly penalty against the card's APR. An IRS installment agreement, which the agency routinely approves for taxpayers who file and engage proactively, often carries lower effective costs than revolving credit.

File any unfiled returns immediately. Penalties for failure to file are steeper than failure to pay. Then contact the IRS directly or through a tax professional to establish a payment plan if full payment is not immediately possible. This stops the penalty clock from compounding at the higher rate and demonstrates good faith, which matters in lien decisions.

After that, Ramsey's sequencing is correct: concentrate income on the IRS balance, eliminate it, then turn the same payment intensity toward the car and student loans in order. The 4.4% unemployment rate means the labor market for additional tutoring or contract work remains accessible, strengthening the case for the income-acceleration strategy Ramsey recommended.

Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.

And no, it’s got nothing to do with increasing your income, savings, clipping coupons, or even cutting back on your lifestyle. It’s much more straightforward (and powerful) than any of that. Frankly, it’s shocking more people don’t adopt the habit given how easy it is.