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YES!! We love Dave Ramsey and have been following those steps, in that order, for the past two years. We have paid off 25-30 grand in debt this way. Not joking. Two car payments and two cc payments. We have my student left after that!
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@citymouse: that gives me hope!!!
DH is a big fan of Dave Ramsey and got me listening to his radio show...I think he is condescending to a lot of his callers and thinks his jokes are wayyyyyy funny when they really aren't but with that said, he gives amazing advise and I am trying to pay down my debt with the snowball effect.
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I have his book and we just started doing the baby steps. We already had steps 1 & 3 down before we started. I don't know if we will stick with the baby steps--we are definitely liking the envelope system but the hardest part for us is doing them in order...right now paying off all our debt doesn't seem exciting because I have 63k in student loans to pay off and that is going to take a while. We want to buy an apartment in our area because lots of people are being priced out of other areas and coming to ours so we want to get in while we can still afford it in the next year or 2 and we won't be able to pay off my loans first.
I guess we're Dave Ramsey light--he wouldn't like our plan!
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@regberadaisy: The reason the mortgage is lower on the list is because it is a "good" debt. Its an investment. Nothing on a CC is good debt. The snowball is like this: Pay off one thing, then roll that payment into the next thing's payment on the list (Both payments were $100, but bc one is gone now, you can pay $200 to #2 on the list), then when that is paid off, roll those TWO payments into the next thing ($200, plus whatever #3's payment is, etc...) So by the end of the list you have a huge amount going to the final thing and its paid off really fast. Does that make sense?
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@CottonCandy: Oh yes, I hate some of his condescending remarks. But he is such a smart person I let it roll off my shoulder. Definitely annoying though!
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Oh lord.....this list depresses me, just because, DH probably has every thing on that list (except pay into college fund, but we'll start that when LO gets here), and I'm wayyyy back on step 2 because I have 1 big college loan left.
But honestly, I've never been in a big hurry to pay if off. The interest rate is 2% and the payment is only $120/month. I guess I could start doubling the payment but at that rate, I'd still have 6 years left to pay it off, which is super depressing for some reason.
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We loosely follow this plan. I think the debt snowball makes a lot of sense. However, since we're pregnant, we skipped #2 and are almost done with #3. He actually recommends "piling up money" when you are pregnant just in case, and then once the baby is here, put what you piled up towards debt. Instead, we are just going to keep it as our 3-6 month emergency fund and start fresh on the debt.
One of the things I don't love about the baby steps is that he assumes you already have a mortgage, which I guess a lot of his followers do. For us, we are going to save for a down payment on a home after we are done paying off our debt, and before we start investing. It just makes more sense to us to put money towards a home that we have equity in than to keep throwing it away in rent.
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I don't follow it... #1 and 3 are fairly easy for us. But #2? DH and I each have 6 figures worth of student loan debt. I think our mortgage is the same amount as our student loans combined? So trying to pay all that off is kinda insane.
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@daniellemybelle: Oh yeah we definitely piled up a big savings account for when I went on maternity leave!
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@daniellemybelle: @highwire: I forgot about the "Pregnancy Clause"!! Haha. We are definitely putting things on hold to let the money pile up! At least a little we hope!
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@Adira: Keep in mind taxes on your earnings eat into the gains. So your earnings have to be large enough over the 3-5% interest you're paying. I had a car loan at 4% and I was making 5% bank interest but I still would have been better off paying off my car since my bank interest was taxed at 28%.
If you're really savvy, you can structure things in such a way that you can write off the interest but I don't know how to do that
I just know that when you borrow money and invest it, you can write off that interest as well.
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We're currently paying down down debt (student loans) and we havent started retirement saving too much yet, but we have the other steps, pretty much.
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@sunny: haha, so true! I don't think I'm financially savvy enough to figure out whether or not my investments really are better for me than paying off my debt! Oh well.
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I've never seen that before, but we've got 1-4 covered. I was very lucky to finish school without any debt and lived at home after graduating so I never had debt and was able to max out retirement funds and save a bit. DH had a little debt after school (I think less than 8k) at pretty low interest so we just paid it off slowly until it was around 1k, then just paid it off to get it done. We'll start the college fund when we have a kid. And we don't plan on paying off the mortgage early since the rate is so low that our money is better off in investments.
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@LindsayInNY: Amen about the student loans, unfortunately. I don't even know where to start with them, so I've just been paying the minimums which is still huge.
Does anyone know if there are different recommendations for paying off student debt? We pay off credit cards every month and have a small car payment with miniscule interest rate so I'm not worried about that.
$1,000 In An Emergency Fund -- check
Pay Off All Debt With The Debt Snowball (except mortgage)
3 To 6 Months Expenses In Savings -- check
Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans -- check, kinda (DH does 14% and I do 10% of mine)
College Funding
Pay Off Your Home Early
Build Wealth And Give -
@NorCalWayfarer: My two cents - when/if you can, look at the repayment plan options. We had all of ours on the longest options possible only to find out that moving them to a shorter plan was only a small amount more per month. So most of ours are on 10-15 year plans instead of 20-25 years now which will help in the long run!
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@Lindsayinny: I think all of mine are on the 10 year repayment plan already, so I guess that's good...less time to repay means less interest I hope!
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I think this is a great advise but when people ask my thoughts about this, I usually tell people to take any money advise with a grain of salt.
What works for others might not work for you and vice versa. Just do what is right for you, there are different ways to invest and save and you have to find the right combo to makes you happy and you are comfortable with.
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