Wednesday, February 18, 2009

Dave Ramsey and going debt free!

So I have decided to start working with the Dave Ramsey Steps for debt reduction. He has these baby steps that if you do them in order you will be out of debt and able to retire before you hit 80, so what the heck here it goes!

Baby step #1: $1,000 to start an emergency fund
OK, so I have over a $1,000 saved in a trip fund but my emergency fund is currently only $ to start funding that again.

Baby step #2: Pay off all debt using the debt snowball
We have already paid off our credit card so that is one thing less on the list. I just went through and added up all of our debt and came to the grand total of $26,230. That includes a car loan, student loans, outstanding balance that student loan didn't cover, and yearly insurance on car and renters insurance. Other than that we are sitting pretty ;D So according to the snowball theory we are supposed to pay off the smallest debt first and then add that payment with the regular payment on the next biggest loan the next month and so on. Following this method we should pay off the insurance, the school bill, the student loan, and then the car loan. I would do this BUT right now I don't owe any interest on the student loan as long as it is paid off before the grace period ends and their is no interest on the insurance or the school bill. So to me it just makes more sense to pay off the student loan first before the interest kicks in then move on to the smaller bills that don't have any interest. So that is the plan, if we stick to the budget the student loan should be paid off in 3-4 months right before the grace period ends!

The rest of these steps will begin one at a time after the debt is paid off.
Baby Step #3: 3-4 months of expenses in savings
Baby Step #4: Invest 15% of household income into TSP
Baby Step #5: College Funding for kids
Baby Step# 6: Pay off home early
**Obviously don't have to worry about this one, I think I will change it to save for a down payment on a house! **
Baby Step #7: Build wealth and give! Invest in mutual funds and real estate

So that is the plan to get debt free, it has worked for so many other people that I am sure we will be there in no time at all! I will be sure to update as the months go by so I can keep track of how well we are doing!

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