When my husband and I decided to dump our debt, I wished that there was a button we could press that would make it all go away. 
Reality was that we had to have a plan.
We’d read a couple of books related to personal finance, but the one book that really made paying off debt simple was The Total Money Makeover by Dave Ramsey. Most books give all the fluff and theoretical processes related to debt elimination. The Total Money Makeover was the most simple “how to” book I’d ever read related to personal finance.
So to begin the course of action, our debt elimination involved five initial steps:
1. Accessed the problem. We sat down together and listed our debts and the balances for each. Those debts included two car loans, medical bills, a credit card, and a home equity line of credit. It was a shock to realize that we owed approximately $93,000. Yes, that’s right….$93,000. It absolutely took our breath away. The questions that arose were…how did we get here? Does everyone have this much debt? How long is it going to take us to get out of this? O.k., after the initial shock, let’s move on.
2. Created the Snowball. After we accumulated the damage, we listed the debts from smallest to largest balance. Known more commonly as The Debt Snowball Method, this became the order in which we would pay the debt. You may ask, “Why not pay off the balance that has the highest interest rate?” Well, for us the debt snowball method allowed faster victories and the motivation to continue with the plan. I couldn’t imagine paying on one debt for two years and it be the first successful payoff of the plan. I know I would have given up.
3. Stopped the bleeding. We had to immediately stop using any form of credit. If we couldn’t pay cash for the item, we could not purchase it. This included any recurring payments that were being made automatically by the credit cards, i.e. subscriptions, memberships, etc.
4. Created a budget. Yes, the dreaded “B” word. You may want to call it a spending plan. Either way, this I believe is the most important factor. Instead of winging it every month, we actually became the boss of our money and told it what to do. EVERY DOLLAR of our paycheck was accounted for. The budget was not just for bills, it included everyday expenses such as eating out, purchases for the children, grocery, dry cleaning, etc.
5. Started an emergency fund. Ideally, the minimum amount for the emergency fund would be $1000. The money should be in a savings account, not easily accessible for daily use and is earmarked for “emergencies only”.
After we started the process, we could immediately feel a sigh of relief. Even though debt freedom was the goal we were working towards, the initial victory was that we finally had control of our money. There was a plan, a workable plan. We were now going to be debt free!!!!!! Debt freedom is truly possible, not a dream, but a reality of what can be achieved.
Where do you stand currently with your debt? Feel free to share stories, tips, or questions in the comments.
Thanks so much for reading!!!
{ 5 comments… read them below or add one }
Great summary here. I’m a Ramsey fan as well.
Hello Alison,
I don’t know if we would have achieved debt freedom so soon if it were not for his message. Thank you so much for your comment.
Good Post, i’m a big D. Ramsey fan myself and listen to his podcasts as well as read his money makeover book. Really inspiring author that reminds you to take action for all the stupid taxes you have to pay in your life.
I used the Dave Ramsey plan also. The thing I like most about his plan (other than the fact that it works) is that he takes human nature and psychology into the equation. This is something that most other plans lack. We paid off about 30,000 in debt, 15k in credit cards, and 15k in car loans. Living debt free is awesome. It allowed my wife to stay home after the birth of our daughter. She wouldn’t have been able to do this had we remained in debt.
That’s awesome! Dave Ramsey has been an answered prayer to so many who were lost. He makes taking control of your money seem so simple that you wonder why you didn’t figure this all out before
. Thanks Eric for the comment!
{ 2 trackbacks }