Debt Snowball - Baby Steps

Dave Ramsey – Baby Steps – My Total Money Maker Over
Some of you probably read my post back in early January talking about my finances and how we were going to tackle our debt. Some of you may have already heard of Dave Ramsey and applying his Baby Steps…but for those of you that haven’t and would like to get a good handle on your debt, I highly suggest buying and reading his book. Many of us complain about being broke all the time, and when you look at the overall picture, we get sort of depressed and say “it’s impossible” to live the debt free lifestyle. I use to think that way, but not anymore. I’ve started the Baby Steps and although we haven’t paid off half as much as we wanted to thus far, we are still plugging away at our existing debt.

Here’s what we have done during the past four months:

Save $1000.00 in Emergency Funds
Switch Cell Phone Carriers to save $60.00+ dollars a month. Termination fee of $350.00. OUCH!
Paid off House Security System Service, $200.00
Paid off first credit card debt, approximately $950.00
Paid off second credit card debt, approximately $1,500.00
Recurring $250.00 doctor’s payment (maternity - for the next four months).
Next task…tackle $2,800 credit card debt

My husband is actually in the process of looking for a new and better paying job. Currently, he’s working 50+hours a week, never has a weekend off and barely makes minimum salary (not counting his commissions, but those are few and far in between). The current job has potential but it’s been almost a year now and we can’t live off of what he’s currently making, we are paying stuff off but at “turtle” speed. I has already interviewed twice for “Lowes”, and it’s seems like he’ll be hired at corporate level, which means, a normal 8 to 5 job, with weekends off, paid vacation, excellent benefits and paid at almost twice the amount that he’s currently making right now. This means, after careful review of our budget, we’ll be able to put $500.00 more on our debt each month. I’ve also “STRONGLY” suggested to my husband that he pick up a second job at night to help us on our debt snowball, at least, until all credit cards and equity line of credit are paid off (which is about $8,000 total). I won’t push for the second job until he’s enjoyed several weekends off, he deserves it and there’s a lot of stuff that needs to get done around the house and inside that I need his help on! Right now, I feel like I’m doing it all alone, the cleaning, cooking, etc. I, personally, would love to do a second job, such as cleaning houses on weekends, etc. I could easily pull in an additional $200 a week but it’s impossible with being pregnant and taking care of a toddler. My job is to be at home with my kids at night. :)

Anyway, here’s a summary of the “Baby Steps” for those of you that need a refresher (a kick in the ass! *lol*) and for those of you that are curious:

1. $1,000 in an Emergency Fund
After you do your first budget, save up $1,000 as fast as you can. Just take care of the essentials (housing, utilities, transportation, food, clothing) and make the minimum payments on your debt until you get the $1,000 saved up. An Emergency Fund will help you keep your head above water while you're getting out of debt. As soon as you start this journey, life will happen. Murphy's Law goes into effect. Murphy might even move in with you. For example, your refrigerator might break down but guess what? You have an emergency fund to take care of that so you don't have to stop your debt snowball. Always replenish your Emergency Fund when using or depleting before continuing with the debt snowball.

2. Pay off all debt (except the house) utilizing the “Debt Snowball”
The debt snowball is simple, yet effective. First, list all your debts smallest to largest. Next, make minimum payments on all the debts except the smallest one. Put as much money as you possibly can on that debt. Once the smallest debt is knocked out, carry the money you were putting on your smallest debt up to the next smallest debt and attack that one. Over time, you'll knock out debt after debt until they're all gone! Don’t tackle the credit card with the “highest interest rate”, just pay off the smallest and work your way to the biggest (there’s many reasons for this, just no time to get into them, get the book!!! *lol*).

3. 3-6 months expenses in savings for emergencies
Once your debt is gone, build a larger emergency fund of 3-6 months. This emergency fund is important as it will serve you in case loss of employment occurs. This fund allows you to continue living the way you are without stress and fear. It gives you time to choose your next step and place of employment.It allows you to stay on the plan.

4. Fully fund 15% into pre-tax retirement plans and ROTH IRA, if eligible
Once you've reached this point, it's time to put a little away for retirement! Take advantage of your company's 401k if they have one, put money in mutual funds...whatever it is, just start putting away 15% of your income.

5. College funding
You have kids? Guess what...high school graduation comes before you know it! What better gift to pass on to your children than a college education. They might not understand now, but they will someday!
6. Pay off home early
It's time to own a home! On Baby Step 6, you pay off your home as fast as you can. Put as much extra money as possible toward your house payment. Once that house is paid off, you just gave yourself a raise because you have NO PAYMENTS, BABY!

7. Build wealth!
Keep socking away money and making it work for you so that you can retire with dignity.