By 2007, my husband and I had been carrying debt since college in the early 90s. Our 17-year-old moody debt teenager was giving us sass and it was time for her to fly the coop.
Baby Step #1: Save a $1,000 Emergency Fund
Committed to the Dave Ramsey plan to pay off our debt, we built our budget, set up our envelope system, and it was time to take our first baby step: save a $1,000 emergency fund. This is an insurance policy against Murphy’s Law, so when life deals you a dead refrigerator, the large purchase won’t knock you off course. For us, it was the oven. The night before Easter. That we were hosting. Since we had pared down spending during our budgeting process, we saved the first $1,000 much more quickly than we thought we would. One point for team Lanz!
Dave recommends charitable giving throughout the process and almost everyone who had succeeded on his plan had done so. Our giving had previously been very sporadic, mostly going into red kettles at Christmas or to neighbor Boy and Girl Scouts. Somewhere between baby steps 1 and 2, we did our research, chose a few local and national organizations to support and set up monthly automatic withdrawals from our bank account. It was odd. We had never given more and, yet, we had also never paid down more debt. Dave says those that give generously will be rewarded in kind. And rewarded we were- and continue to be; helping others feels fantastic!
Baby Step #2: Pay Off Debt Using Debt Snowball
Baby step #2 is to start paying off debt (except the house) using the “debt snowball” method. After our minimum payments were made on our loans, utility bills were paid, and our envelopes were funded, anything left over went toward paying down the smallest loan. When the smallest loan was paid off, we applied that payment onto the payment of the next smallest loan. And so on. Doing this built momentum each time a loan was paid off and, by the time we were tackling our largest loan, we had a big ol’ snowball to throw at it. We gave ours the finger, too.
By this time, we were getting good at cutting our spending. We had done away with the “Dining Out” envelope- which also meant, unfortunately, that we had done away with dining out. We sold hunting property, a 4-wheeler, and a boat. My very pretty, newly-leased SUV was exchanged for an older model sedan. I was in full-on cash hoarding mode and I barely recognized myself. I had challenged myself to spend as little on groceries as possible and thought I had grown the super power of deliciously stretching a Costco pack of ground turkey for weeks. It seems I failed; Scott won’t eat it anymore.
Baby step #3, save an emergency fund of 3-6 months of household expenses. This was where we chose to put Dave’s plan on ice for a while. Many who successfully complete the plan take breaks and we were no different. Our miserly ways had us putting off projects that needed to be done and we needed a break.
Check back to see what we did during our break and how we finally made it through baby step 3.