Dave Ramsey's Total Money Makeover - The 7 Baby Steps and Debt Snowball Method

A few years ago, I attended Dave Ramsey's Financial Peace University at a local church.  This is the process which allowed me to pay off SEVEN student loans!  Yep, that's a crazy number but hey, they are all paid off now!  But I've incurred debt since then so I really want to focus on getting Debt Free and I want to see just how much I can get paid off during these last 100 days of this year.  I also have a goal to be a homeowner so I know I need to buckle down and focus to get a down payment put together.  I'm going to go back to what's worked, Dave Ramsey.

Dave Ramsey teaches the 7 Baby Steps:

• Baby Step 1 – $1,000 to start an Emergency Fund
• Baby Step 2 – Pay off all debt using the Debt Snowball
• Baby Step 3 – 3 to 6 months of expenses in savings
• Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
• Baby Step 5 – College funding for children, if applicable
• Baby Step 6 – Pay off home early
• Baby Step 7 – Build wealth and give!

If you don't know about Dave Ramsey, here's a fantastic video of how it all works: Dave Ramsey's Total Money Makeover Live!

The goal of the Debt Snowball Method is to build up your payments until you've paid everything off and you are debt free!! The Debt Snowball Method works like this. 

You track all of your debts in the order from the smallest balance to the largest.  For example, you have 3 debts:

• Credit Card #1: Balance $5000 - Minimum payment $100
• Credit Card #2: Balance $12000 - Minimum Payment $250
• Car Loan: Balance $20,000 - Monthly Payment $350

You must always make at the very least the minimum payments on all of your debts until you have your $1,000 Emergency Fund.  You have to complete Baby Step 1 before you do anything else!!

Once you have your Emergency Fund, you then squeeze your budget for any extra money and apply that to the smallest debt first so in our example, Credit Card #1. Let's say for our example, we have found a way to apply an additional $250 a month to our debt.

Once the smallest debt (Credit Card #1) is paid off, you roll that money over towards paying off the next largest debt. In this example, that means you'll be sending $600 a month to Credit Card #2 (CC#1 Min Payment of $100 + CC#2 Min Payment $250 + Additional $250 each month = $600)

And repeat over and over and over! 

One of the key factors in this 7 step process is that you incur no new debt! Don't buy any more cars.  Don't charge up anything else on your credit cards. 

Now, Dave Ramsey wants everyone to be credit card free. I travel for business so that's not always the best idea so I keep one strictly for business and pay it off with each expense report check I get.  This incentivizes me to file my expense reports ASAP so I don't incur financing fees. I also make sure I pay off that credit card right after that payment posts to my bank account to keep me from spending it on something else! 

Need more money to apply to your debt? Sell stuff. You have more than you need or use, so sell it and put the money towards your debt! Have a yard sale! Post your stuff up on a Facebook Buy/Sale/Trade Group or Facebook Marketplace. Get an extra part-time job if it will help. Take side jobs and earn extra income to accelerate paying off your debts.  

For a more in depth discussion of the baby steps, head over to the Ramsey's site at www.daveramsey.com.

I also recommend you join a few Facebook groups of people working along the same path as you.  They are great at giving advice and feedback.  Now keep in mind, some groups are more restrictive than others and well, they are filled with humans so there will be some flaws to get through.  

#100DaysToGreat #FinishingStrong