Implementing the 7 Baby Steps to Debt Freedom
So you want to know about implementing the 7 Baby Steps to Debt Freedom? Well duh, that’s why you made your way over here! Debt was a way of life for us. It’s what I knew. I had debt from the time I turned 16 because I couldn’t afford that $1200 Pontiac Lemans without it. I didn’t know any better.
If you look around, you’ll discover that I’ve spent years working my way through anxiety and panic. You know what else is stressful? Worrying about how your family will pay the bills when you die.
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Debt is a stressful burden!
Paying off our debt was a huge weight lifted off my shoulders. Read on to find out how we did it and how you can implement it in your life.
While I’m not here to disclose our finances, I’ve included some tidbits to give reference to where we started from :
- we have a median Wisconsin household income
- outstanding credit card debt (not including the mortgage) of about $15,000
- we’ve always had two vehicles, but never two auto loans at the same time
- combined student debt (associate degree) under $10,000
Our debt epiphany.
The hands down, most influential thing we did was listen to a set of Dave Ramsey CDs a friend borrowed us. Truth be told, I never finished them all, but in those first few CDs, I had the motivation to kick our debt to the curb for good.
Remember the first step to getting out of debt is the ambition and desire to do so!
“If you keep doing what you’re doing, you’ll keep getting what you’re getting.”
I make nothing of this link, but here it is, the motivation I needed: Dave Ramsey’s Financial Peace University. Yes, there is a lot of information out there regarding his teachings, but listening to him present is soooo much more meaningful and motivational.
I’m excited, now where do I start!?
That’s great! Motivation is key. And it’s the first few baby steps of his plan that are life changing and have made all the difference in our debt-free journey.
Baby Step 1 – Get $1000 in savings asap.
This little buffer gives you not only peace of mind, but if you car breaks down, you don’t need to go further into debt, you just use that emergency fund – that’s what it’s there for!
Some tips to get you there:
- Save your spare change.
- Sell gently used clothing to resale shops.
- Offer items through your local buy/sell/trade Facebook group.
- Have a garage sale.
- Sell online using sites like Poshmark (use referral code BLONDIE7940 and get $5 off your first purchase!), Ebay or Mercari.
- Ditch cable for at least a while.
- Stop eating out.
- Participate in survey sites that pay cash.
- Pick up an extra shift or two.
I chose to keep this fund highly accessible. It’s the basic savings account associated with my brick and mortar checking account. Paltry interest, but accessibility is important here.
Baby Step 2 – It’s time to start paying off that debt!
(Disclaimer here – prior to my Dave Ramsey revelation, we had been transferring credit card balances around as necessary to keep interest rates low and consolidate balances. It was easier this way.)
The Snowball Method is the way to go. It’s the fastest way to SEE progress. And seeing is believing!
- Make a list of all your debts and their outstanding balances.
- First, determine if you want to chip away at your smallest debt or highest interest rate debt. Pay your minimums on everything else and as much as you can afford on what we’ll call debt #1.
- All paid, awesome! On to the second smallest debt, we’ll call this debt #2. To this payment you’ll add the payment of debt #1.
While smallest to largest tends to be the most rewarding, because of the balance transfer offers we had on our credit cards and (albeit small) tax savings on our student debt, we chose to pay off the our auto loan first. Being the biggest payment of all, once paid off our snowball grew fast.
Now that our debt is gone (mortgage not included):
- we’re building our 3-6 month emergency fund – we’ve currently got a bare minimum 3 month fund, and depositing $200 a month until we have at least a comfortable 6 month’s worth of living expenses
- we bought a new camper with cash (ooh, that was painful to withdraw but justified knowing all the memories is allows our family to make)
- we’ve both increased our 401K contributions to 10-13% of our income
- started a new (to us) vehicle fund because I’m determined to pay cash for my next one (got a few years yet, so hopefully my 12 year old minivan makes it!)
Baby Step 3 – Build a 3-6 month emergency fund
We are working on this step right now, at the same time as Baby Step 4 and I think that’s perfectly ok. I recommend a separate savings account, preferrably one that offers a high interest rate. We’ve chosen Ally Bank to hold our long term savings accounts due to the ease of setting up multiple accounts and a whopping 2.2% interest rate (as of 2/11/19).
Baby Step 4 – Put 15% into retirement savings accounts
Here is where you want to always take advantage of your company match. If that’s the minimum you can handle right now, that’s ok. For example, our company will match 50% of our first 6%. So at a minimum contribute that 6%. You get a 9% contribution at the price of 6%. Currently we’re at 10% and 13% between our employer sponsored 401K and Roth 401K. We continue to bump this up annually.
Baby Step 5 – College
We’re skipping this step. Yes, you read that right. Judge us if you like, but my girls are on their own. We’ll pay for books, and maybe some basics like auto insurance if they’re full time students.
Baby Step 6 – Paying off your home early.
I would love to pay off our mortgage, but the time is not now. Given our excellent interest rate and modest balance, this isn’t yet a focus.
Baby Step 7 – Build Wealth and Give.
We’re just beginning to learn about investments. There’s much to learn and I feel rather overwhelmed at the moment.
All in all, our debt-free journey took us about 1.5 years. And it FEELS SO GOOD! Remember Dave’s 7 Baby Steps as you embark on your debt-free journey.
What step are you on in your debt free journey?
I’m a little bit crafty, a diy-er, a thrifter, a lover of craft IPAs and probably swear a tad too much. I’ve been living with anxiety since high school and learned a lot along the way. Just trying to live my life simple. And sane. Welcome to my corner of the web!