Hi all!
My husband and I just finished reading Total Money Makeover. We both think it seems like a good plan for us considering we have a substantial amount of student loans from undergrad and grad school and credit card debt.
So I am curious if anyone here has followed Ramsey's program/steps and how it worked out for you.
Thank you for any info you share on your experience.
I didn't read the books but I did follow his Baby Steps ideas to pay down debt with great success! I completely agree with the $1000 emergency fund so that you don't easily fall back on using a cc the next time a pet has a big vet bill. I also agree 100% with the Debt Snowball, starting with the smallest debt. Debt accumulation from overspending is
psychological, not a matter of rational thinking. Obviously, we've all passed 2nd grade math.
If we were taking the time to do the math, and pay attention to where our money goes and how we spend, the debt would never have accumulated. Of course, from a mathematical POV it makes more sense to start with the highest interest rate debt. Often though, that particular one has a high balance too. It can feel like you're climbing a mountain and progress is slow because you still have so many other debts to pay on as well.
Slow progress makes it hard to stick with and very easy to just give up.
By having a very systematic plan of attacking a small debt first, it's knocked out quickly and you get a taste of success. In my case, it was a Sears bill from when our lawn mower died and we charged a new one, prob $275 balance when we started with a $25 min payment with 0% interest. By really focusing, it was gone in less than 2 months. I felt like Rocky at the top of the Art Museum steps.
The key is taking that $25 min that no longer gets sent to Sears and making sure it gets applied to Debt #2, hence the term snowball because the amount that gets applied to debt keeps growing every time you pay something off.
By the time you get to the mountain size debt, you're experienced, pumped to see it all gone, and you're cruising right up with mountain in 4 wheel drive with a big fat snowball of $2000/month. So even a huge debt doesn't take long with big payments.
The last debt I paid off was a Parent Plus loan for ds20 who changed his mind about going to college after 1 semester. It was $15k last summer and paid off in April. If I had started with that big debt (my highest interest one) with my little $25/month payments, I would still be chipping away at it for years to come. All of the rest would still be there.
We do still have our mortgage and a small home equity loan for a small addition we put on our home. (We are bursting at the seams in our small rancher but don't want more house: more mortgage, more taxes, more HVAC bills, more cleaning, etc. so this was a much better plan.) It's been 1 year since we got the HEL (out of 10 yrs) and we are 25% done. I am confident this will last no more than 4 years total, not 10.
For the past 3 years I have been able to set $3000 aside so Christmas shopping is no longer stressful.
This year, we're taking a tiny break and going to London & Paris, 9 more days!
but when we return we'll jump right back on it and attack the HE loan.
The things he recommended that I completely disagreed with:
1. Not contributing to the retirement account at work. I just couldn't bring myself to do this or suggest it to dh.
2. Gazelle intensity. It can only last so long. I know we could have paid down faster with no cell phones or cable but I felt like that was equivalent to fasting for a diet. I was afraid if we're miserable, we'd give up. We only go out to dinner on birthdays and anniversaries so that was cutting back pretty good right there.
3. No cc use at all. I completely understand the alcoholic analogy but I always felt I could handle it once we start paying close attention to spending. We do that now and enjoy all the rewards, new card bonuses, etc. This lets us take little trips here and there without spending a lot out of pocket. I absolutely pay it off every month and keep close tabs on spending so that it never gets to the point that I can't pay it in full.
Before I started following DR, I would just pay extra to various cards but still not making much progress.
I also feel that anything that is a quick fix, like a debt consolidation loan, doesn't teach anything about money management. It's equivalent to getting liposuction to lose weight instead of diet & exercise.
We don't have him on our radio stations so I don't have to hear any political crap.
As far as pointing us in the right direction and giving us a real system to follow, I'm grateful that I found him.