Paying off debt can be daunting. It is very common for people who are in debt to feel extremely overwhelmed to start the process of getting out…or to even evaluate their current process and make changes. There are several methods people use to get out of debt and build wealth. The plan I follow and encourage anyone I know to follow is Dave Ramsey’s. The reason I trust this method is because it is simple, it makes sense to me, and there are no tricks or hacks. There are just 7 steps that he calls the Baby Steps. They have worked for millions of people. If you talk to someone over the age of 80 how they handled their finances, they will probably tell you similar things that Dave would like: “live on less than you make”, “pay off your home”, “pay with cash”, etc.
Tip #1: Decide you will never accumulate more debt!
Though we were working to pay off our debt since 2016, we were still accumulating student loan debt up until July 2019. When Tyler began graduate school, we decided that the only way he would be able to go through school would be to get student loans. We were doing “our plan”. Once I began listening to Dave’s podcast, I began trying to figure out how we could cash flow Tyler’s last semester of graduate school on a teacher income. We were already really good at saving, and I worked a few side hustles to bring in even more money. We were able to put together around 6500 to pay for his last semester and other school costs. So, in August 2019 we were no longer going into more debt. Unfortunately, I had not yet understood that student loans were avoidable. We could have made Tyler get a part-time job that would piece together with my income to pay cash for school. So, you can be ready to become debt free whenever you decide to STOP accumulating debt.
Tip #2: Develop your WHY
You have to have a “WHY”. A “WHY” is the reason as to why you are doing something? It is what will motivate you to become debt free.
Here are some “why” examples.
A working mother who would rather spend more time with her children might decide that she would like to be able to get to a financial position where she could cut back her working hours in order to make that happen. Getting to stay home with her kids could become a reality for her if she and her husband sacrifice for a few years. This can look like downsizing their home, selling a car and purchasing a cheaper one with cash, choosing to go out to eat once a month instead of multiple times a week, all in the name of upsizing their dream.
Another example could be a young couple
would like to have a paid for home before they bring children into the world in order to feel stable and free to make choices about vacations, schooling, etc. for their children that is not put to the side due to a mortgage.
A single lady who would like to travel freely and upgrade from her apartment to a home of her own might choose to make temporary sacrifices to live on half of her income and use the other half to pay off her debt and save for a home…
A retired couple who are seeing that they have to continue working after they retired in order to fund their lifestyle might decide to sell their large home and buy something more suitable for their current dreams.
Whatever situation you are in, you can develop YOUR own PERSONAL to YOU why.
Everyone needs their own why in order to be motivated to become debt free. Once you get the ball rolling, the debt is beginning to be paid off, and you can taste freedom…your why…your dreams become more and more detailed…more and more exquisit.
Our why started out so that we would be able to buy a home and travel without fear of having enough money. Since beginning our payoff, our “why” has developed into this: We want options! We would like to pay cash for vacations/road trips/weekend getaways, upgrade from one car to two nicer cars, and have a huge down payment on our first home…or even pay cash! We both went to private, Christian schools, and we would like to have that as an option for our future children. We would like to eventually be able to pay for our own kid’s college, and being out of debt ourselves is essential for that to happen.
We want to purchase a camper or van and travel around the country. We want to take time off or vacation from work and not bat an eye at our bank account. We want to retire in our fifties. And retire to live a life we love! We want to potentially purchase a vacation home or run an airbnb. We want to be free from owing others anything! We want to be able to give to our children, to tip the check, to support our favorite organizations and missions, to send others into the mission field, to potentially have a business.. So, to sum it up…WE WANT OPTIONS. There aren’t many options when you have payments every month.
Dave has a YouTube channel Live Show every weekday where people from all over call in to ask Dave’s advice, to call and give their debt free scream, share stories of giving, etc. There is a show that he did in 2017 that is titled “How to Discover Your Why”. It is almost a 3 hour show, but there are a lot of opportunities to listen to this show during your day… while you do the dishes, as you drive to work, while you plan your grocery shopping, etc. He starts talking about this topic with Ken Coleman within the first 3 minutes. Related to this topic, Ken Coleman has a short blog on the Ramsey Solutions website titled “How to Find Your Passion”. This could also help you in discovering your WHY.
Tip #3: Lay It All Out.
This is the part where you will feel the most pain. It won’t be pretty. I suggest popping open a coke or pouring a coffee and playing some calming music as you do this. It is just a tough, bloody scene.
This is the part where you write out all of your debts except for your home. The leased car, the financed couch, the credit card, the student loans, etc. Write them all out and put their stats beside them…total amount due, the minimum payments, the interest rate, and due date. Here is a little graph for your to print out and use. Click here to download Debt Snowball Graph
If you are following the Dave Ramsey plan, you should list out your debts smallest to largest, not even acknowledging the interest rates. Some want to try to figure out which has the highest interest rate and then begin chipping away at those.
As Dave says “if this was a math problem, you wouldn’t still be in this mess.”
Debt is a behavior problem. And paying off your debts off from the smallest to the largest will give you the “wins” you need to motivate you to continue to pursue debt freedom!
Tip #4: Begin the Baby Steps!
To begin you will need to first get Baby Step 1 completed…This means it’s time to get “savings” down (or up in some people’s case) to just a $1,000 emergency fund. This will be used as defense against Murphy…because something is bound to go wrong. Your water heater breaking, AC going out, car needing maintenance…these are all valid reasons to use your emergency fund and then rebuild it. It is there to prevent you from ever going back into debt. Remember you said, “Never again!!”. Many people have several thousands in savings, but still carry debt that has interest accumulating. You may feel like your savings is a security blanket, but the problem is that savings doesn’t get used on emergencies…it gets used on Facebook clothing sales, a daughter’s bedroom makeover, your vacation to the beach… You need to get your savings down to just the $1,000 emergency fund so that you can feel the pressure…the high need to get out of debt. Once you complete this task, you are now on Baby Step #2: Paying off all debt except for your mortgage.
And this is the toughest part. The part where you have to just put your head down and get after it. But, I believe in you! I want to cheer you on in your journey! I want to be your debt freedom friend! If you begin the process, I want to hear about it! Email me at email@example.com.