“In a new CreditCards.com survey, 21% of people said they expect to be outlived by their debt.” – Forbes Magazine
Continuing with the financial posts I have shared, here is Baby Step # 2. This step was a life changer for me. For those who haven’t read my earlier posts, I am an avid Dave Ramsey fan and am following his 7 step financial program.
Baby Step # 2 is to “Pay Off Debt”. This step means that you focus on paying off all of your debt, except your house mortgage. I wish I could tell you that I went from Baby Step #1 directly to Baby Step #2 with enthusiasm and joy but I’d be lying.
I enjoyed saving so much that I kept saving and failed to progress to the next step. I had “normal” debt – a car payment, and a student loan. Luckily, I didn’t have any credit card debt, since I’d already had a run in with credit cards and had a policy to never carry a balance.
I listed all of my debt from smallest to largest. It was a bit scary to see how much I owed. It was about ½ of what I made in a year, which was shocking. I thought I was responsible with money and doing the right things but the numbers told another story.
I was making the monthly payments but I was just one car accident away from being in financial trouble and it turns out most of us are in the same position. According to a survey found on Nerdwallet:
“The average household has $129,579 in debt – $15,355 of it on credit cards.”
That should terrify you! That’s a lot of money to owe someone and it can feel overwhelming if you’re just starting on this journey but it’s also freeing to see your numbers in black and white and to have a plan for how you’re going to break free.
Here is an example of how I listed my debts and related information – please note the amounts provided do not reflect my actual situation.
|Monthly Payment||Total Balance||Interest Rate||Due Date||Target Pay off Date|
The process Dave Ramsey recommends for paying off debt is the Debt Snowball. The thought process is that any extra money goes towards your first debt and then once the debt is paid off, all the money that was going toward Debt A is applied to Debt B. This shows you making progress and increases the likelihood of maintaining motivation in what is one of the toughest parts.
I mentioned earlier that I had continued saving with Baby Step #1 and was almost at my “magic” safety number, but “Evil Dave” feels so strongly about the importance of getting out of debt that he stresses pulling all savings (unless there are extenuating circumstances like a job layoff, etc.), except the mandatory $1000 emergency fund, out to pay off debt.
I didn’t like this idea one bit. I remember thinking that Dave was stupid and my plan to repay debt would be fine, etc. I hate it when God gets in my way. Everywhere I looked there was something about the dangers of debt, or tips on being financially responsible. It was in my face, so I made a deal. I’d take half of the money out of savings, pay off a debt and see how I felt.
It became addicting and I am pretty sure everyone began to get tired of my discussing becoming debt free. Since I’m single I stayed motivated by plugging into Dave Ramsey’s show on YouTube and discussing it with family and friends who I knew would keep me accountable. I took out the rest of my savings, keeping only the emergency fund in place, and began paying off debt. Every time I reached a new milestone or paid off a debt, I celebrated. My friends and coworkers teased me about my envelopes but I could feel myself breaking free of the burden.
There were setbacks along the way but I finally paid off ALL of my debt in March 2015! Being debt free changed my life in ways I couldn’t imagine. I was able to make decisions without finances being the motivator. I quit my job and moved across the world. I’m planning trips and enjoying the fact that the money I have isn’t going to bills. According to Forbes I wasn’t the only one: “Some 22% of Americans say they have zero debt, up from 14% last year.”
Is anyone else getting out of debt or have gotten out of debt? Did you follow Dave Ramsey’s principles or another plan? Are you interested in the next financial post focusing on Baby Step # 3, budgeting, the envelope system or more on getting out of debt? Let me know if you have any questions, I love hearing from you all.
- Dave Ramsey: https://www.daveramsey.com/baby-steps/2
- Forbes Magazine: http://www.forbes.com/sites/laurengensler/2015/12/09/one-in-five-americans-expect-die-with-debt/#24f8ac21030e
- Nerdwallet: http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ (I do not agree with everything written here but there survey information was very interesting)