How Dave Ramsey Changed My Life Part 1

Like many people, I was tired of just getting by every month. The bills would come in and, while I had enough to pay them, I never seemed to be able to get ahead. After many years of living like this I finally decided I had spent enough time on the debt carousel and it was time to get off.

My wife and I make a decent income but were still not where we wanted to be. We needed a better path to follow and the discipline to stay on it. This was about the time we discovered the Dave Ramsey program. I was vaguely aware of his name and that he dealt with personal finance issues. I decided to buy the Dave Ramsey Starter Kit and read the books and watch the videos for myself.

All of this was taking place in October of 2010. Inspired by Dave’s words, we decided to try the program. We decided that November 1^st would be our starting date. At this point we were looking at just over $70,000 in non-mortgage debt. This included student loan debt, two car payments and two credit card debts. Our program was further complicated by the fact that we had a daughter looking to start college in two years.

Baby Step #1

The Dave Ramsey plan has seven “Baby Steps” to help you along the way. Baby Step #1 is to save an emergency fund of $1,000. This is money to help tide you over any rough patches so that you do not generate additional credit card or other debt. We were able to set aside this fund right away with some money we had scattered around in different accounts.

Baby Step #2

Baby Step #2 is the debt snowball. In this step you focus on paying off your existing non-mortgage debt. When you finish paying off one debt you take that payment and apply it to the next debt, hence the snowball effect. As I stated, we were starting with just over $70,000 in non-mortgage debt with minimum monthly payments of just over $1,500.

Debt – November 1, 2010 Amount Minimum Payment

Student Loan                          $7,336                     $206
Credit Card #1                        $7,310                     $150
Car Payment #1                      $9,900                     $279
Credit Card #2                       $28,609                    $540
Car Payment #2                    $17,129                     $356
Total                                     $70,284                  $1,531

We started off with a bang by taking some money out of the college savings account and applying it towards our debt. We are still saving for our oldest child’s college but it will be on more of a pay as you go basis that, combined with financial aid and scholarships, will still be able to help with college costs.

The next thing we did was to cash in an old whole life insurance policy to access the accumulated cash value to apply to the debt. We replaced the policy with a term life policy at a much lower monthly cost for more actual insurance protection.

The third lump sum of money we were able to apply to this debt was money from our tax return. This was not much money but every dollar gets us closer to our dream of financial freedom. By May we had paid off over $32,000 of debt.

Debt – May 20, 2011 Amount Minimum Payment

Student Loan                                  $0                  $0
Credit Card #1                                $0                  $0
Car Payment #1                              $0                  $0
Credit Card #2                       $22,512            $1,175
Car Payment #2                     $15,469               $356
Total                                      $37,981             $1,531

We anticipate having our non-mortgage debt paid off by the end of September 2012. This would have us paying off $70,000 in debt in 23 months. It is a great feeling knowing that you are on the right path to achieve your goals. Once this step is complete we can move on to the other steps of expanding our emergency fund, investing for retirement, saving more for college and paying off our mortgage.

We have achieved this without living like misers and ruining our quality of life. We have cut back but still splurged on some little things, paid for with cash of course! Thanks to Dave for providing the inspiration to help us do the hard work.