You’ve Decided You Want to Get Out of Debt… Now What?
Dave Ramsey has become an icon in our household. An icon of hope. He is a very well-known financial advisor that has helped guide millions of people to become debt free. While he has books and courses you can take, you can choose to never buy any of his products and still learn about his wisdom and follow his plan. As a quick refresher, he has a plan called The Baby Steps, which I have outlined below.
- Save $1000. This is your starter emergency fund. It is meant to be able to cover an emergency, but make you nervous and anxious to get through step #2 as quickly as possible so that you can get to step #3 where you will have a bigger emergency fund. Check out this article here from CNBC. “According to Bankrate’s financial security index survey, 34 percent of American households experienced a major unexpected expense over the past year. However, only 39 percent survey respondents said they would be able to cover a $1,000 setback using their savings.”
- Snowball your debt. Below I am going to give you a task where you will write down all of your debt. Once you have everything written out, you will list it all smallest to lowest. This is your debt snowball. The goal of step #2 is to pay the minimums on each debt, and throw all of your extra money on the smallest debt. Once that first and smallest debt is paid off, then you will take the minimum payment from that now paid off debt #1 along with all extra money and put it on debt #2. Repeat this over and over again until all of your debts are eliminated. Dustin and I started with 33 debts. As of June 30, 2019, we have paid off 17!
- Save 3-6 months of expenses. This is your fully funded emergency fund (or FFEF).
- Save 15% in retirement. Married or single, 15% of your household income, pre-tax, goes into retirement.
- Save for your kids college. The point of this is to change your family tree. Give your kids a life that you did not have. One that is free from student loan debt. This is where youy set aside money to send your kids to school!
- Pay off your house. At this point, your mortgage is your only debt. Step 2 is full of consumer debt. Step 6 is strictly your house. This is the last and final step to complete debt freedom!
- Live & give like no one else. Once your house is paid off, the real fun begins. This is where you live and give like no one else!
How can you get started on his plan for free? There are three ways.
Check out one of his books – start with The Total Money Makeover – at the library. Start with TTMM, become obsessed with Dave Ramsey and keep going back to the library to check out other Dave Ramsey books. Zero dollars spent, and you are still learning about his plan. The Total Money Makeover is the best starting point since it walks you through each of the baby steps while sprinkling in real-life success stories of people, like you and me, that were able to dig their way out of a hole.
Download the podcast app to listen to his daily radio show. This is the number one reason why my husband and I are on the same exact page money + budget-wise. Towards the end of 2018 we started listening to Dave Ramsey’s podcast. Each weekday there are three episodes. During these calls, Dave takes questions from every day people like you and I. People that are on their debt free journey. Almost every trip we make to Oklahoma to visit my parents, we listen to one or more episodes. We always pause to interject with comments, talk about how our life, budget and journey align with the callers, what we would do differently and more. It has, hands-down, been the best thing for my husband and I.
The Facebook Group
The official Facebook group is called “THE Ramsey Baby Steps Community” and has a Dave Ramsey employee that is the groups administrator. My personal Facebook is made up of two things – all things Mark (mainly pictures) and Dave Ramsey. I read almost every post that the 200,000+ members of the group submit. And, I find myself a frequent commenter. The people that post are like you and I – on a quest to debt freedom. Or, better yet, they have already gotten out of debt and are in one of the later baby steps. Those ones are great to read too! They give us Baby Step #2’ers the hope that there is a light at the end of the tunnel. If you are feeling iffy about this plan, I challenge you to join this group and just be a silent observer. I promise you will find someone in your exact situation.
You know you want to get out of debt. But now what do you do? This can be a bit of a difficult part, but it absolutely has to be done. I want you to get out a sheet of paper or open up a blank Word document or Excel sheet. You need to list all of your debt. And, I mean all of it.
Where do you start? Download a free credit report here. You are eligible to download a free credit report from each of the three credit reporting agencies once every 12 months. What debts might you have?
- Student Loans
- Credit Cards
- Personal Loans
- Anything in Collections
- Miscellaneous (like your phone payment…yes, that monthly dollar amount that you pay on your phone bill is considered debt)
If you want to kill two birds with one stone, then add to your list of debt these following columns.
Debt Name | Amount | Due Date | Minimum Payment Due
Check out my sample debt snowball tracker that you can download below. You can have it in Word or PDF, or if you’re like me, you will download both. I have multiple versions of my debt snowball tracker – Word, PDF that I printed off and a good ol’ notebook where I have it all hand-written.
This is a hard part, and not particularly fun. I want you to write down every single debt that you have. And I mean e.v.e.r.y.t.h.i.n.g!! Now that you have it all written out and tallied up, what is your total? And let me first tell you that you will get ZERO judgment from me on your number, big or small. My husband and I were stupid to debt, or “normal” as Dave Ramsey so often says. Our tallied up number was $158,900.23.
Let me repeat that. We had one-hundred and fifty-eight thousand nine-hundred dollars and twenty-three cents. AND WE DON’T EVEN OWN A HOUSE!!!!
Shocked. Sick to my stomach. Overwhelmed.
Those were some of my initial feelings after seeing the debt so high. But then I realized, we can do this. We can setup a plan and begin. We have to. Any more time delaying this will just be us delaying the ability to live our lives the way we want to live and not as slaves to our debt.
Now that you have your debts listed, sort them from smallest to largest. This will become your debt snowball. Next up? You need to create a budget.
I will give you a sample budget of mine that you can use, but for now, go sit down… take a deep breath… and know that you are on the right path. A path that I am on with you right now!