Posted on | January 2, 2013 | 22 Comments
This past weekend, my sister-in-law and I were driving home from lunch out when we started talking about money and budgeting. She mentioned that she and my brother-in-law were starting the Dave Ramsey “Snowball Debt Payment” method and that she thought it was a really good system. She gave me a rundown on the basics, and when I got home, I brought it up to Taylor.
You see, money has always been a subject we kind of steer clear of during our typical conversations. He brings it home, I pay all the bills, we occasionally have a meeting of the minds, but we don’t talk about the really important things. We haven’t done great at creating and sticking to a serious budget. We tend to have the habit of just going ahead and buying something when we want it instead of budgeting for it and saving for purchases. Because we still put away for retirement, college, and are up-to-date on all bills, it’s never seemed like something we really needed to get under control.
But over the past couple years, we have slowly let our debt begin to climb. Before kids, we were doing really well with saving and not having any real expenses. We rented, usually with a roommate, and we didn’t even have a car payment. So we put as much money away as we could, and we’re always grateful for that period of time in our life where we didn’t spend much and saved as much as we could. It saved our butts over the past couple of years. Because, right before babies were born, we purchased a car. We faced some major student loans. The we bought our house (a huge fixer-upper) while we were still renting, and we took out a line of credit to do some of our home improvements. In addition to acquiring more debt, we let our savings account grow smaller as we worked to turn our house into a home. The result has been us looking at our account every now and then and feeling a little sick. It’s nothing devastating. Some people would probably think nothing of the debts we owe. They are typical family debts; a car, a student loan, a couple cards, a mortgage. Nothing worse than the vast majority of middle class Americans, but we are not in a position where we feel really comfortable with our finances or how we’re handling them.
So as I proposed the new Snowball Method to Taylor over the dinner table, his eyes lit up. He’s a man who loves a good, sensible plan, and for once, we had a clear-cut way of getting out of debt and taking control of our situation. The idea behind Dave Ramsey’s method is that most people get into debt because of behavior (duh). It’s not that we don’t understand the math behind debt, it’s that we get used to the idea of getting what we want when we want it, and we thrive on instant gratification. It wasn’t easy admitting that we needed to change our ways, but it was the first step.
The second step, was coming up with a serious budget. And honest-to-God, down to every single dime, budget. No, “Well, let’s just grab lunch because it’s easy.” No, “Hmm…I think I want some extra eye shadow while I’m at Target!” Cutting out all the extras. Budgeting every dollar that runs through our hands. And making it happen. It means no more nights out for awhile, no more grabbing up a bottle of wine because I drank all of mine over the weekend, no more picking up extra Red Bulls or trashy magazines. Taylor is currently driving an old Corolla that was my high school graduation gift. We need to replace it. But he’s waiting until we tackle this mountain for awhile before he gets his first car (he’s never been able to pick out and buy a car for himself with a reasonable budget). It’s not going to be fun, but it will be worth it.
The next step is making sure you have $1000.00 emergency money. If you have any extra savings, it goes directly towards your debts (not retirement savings, but just cash flow savings).
Then, you sit down and list every debt. Every single bill that you owe every month (not counting utilities and such, but true debt), from smallest to largest. This part wasn’t that fun. You have to be completely honest with every bill owed. Luckily, Taylor and I are always upfront about money, so there were no hidden expenses that either of us have tried to keep a secret. But it still wasn’t a good feeling to see all the debt on one piece of paper. Now, we are making double the minimum payment (or more) on our smallest debt and the minimum on everything else. This was a new plan for us. We’ve always paid more than the minimum on everything, but it’s never been enough to feel like we were making a real dent. Instead of a clear, aggressive plan, we were kind of all over the map. It gets discouraging to feel like you aren’t making much change to the issue even when you’re paying bills constantly.
To jump start our pay off, I sold off some Pyrex and other little things we had in the house that weren’t getting used. I decided to postpone my master’s program to the fall so that I wasn’t accruing extra student loan debt while we were trying to pay down our other student loans. I am looking into getting an evening/weekend part-time job where the extra pay would go directly towards payments (Taylor isn’t digging this step yet because he would prefer that we have time together when he’s home). I called and refinanced our car with another bank, saving us almost half the payment cost. I consolidated our credit bills from the home improvement onto one card with 0% interest for eighteen months, which will give us more than enough time to pay it down completely. We’ll be doing a big yard sale this Spring to sell all the things that have been sitting in our garage since we moved in last May. When you pay off that smallest debt, you add its payment towards the next debt, creating a “snowball” of funds to put towards your other bills.
If you follow Dave’s method to a tee, and if you put your all into it, most families have all debt minus the mortgage paid off within eighteen to twenty-four months. Once your debt-free except for your home, you build a three to six month emergency fund and then attack your mortgage while contributing to retirement/college funds again. We probably won’t get to the mortgage part…at least not yet. Most likely, we’ll move in three to five years, so we will try to follow this plan with our next mortgage instead. I’ve heard some criticism that you should focus on highest interest debts first. I understand where people are coming from with that. Just looking at the math on our debts, most of our loans/cards are low or no interest. Even tackling our highest interest debt first wouldn’t make much difference, and it would be awhile before we saw a real dent in the debt (because our highest interest is our car at 3.59%). So, for us, that isn’t an issue.
Even though we’re having to make some major sacrifices, including putting life plans and purchases on hold, this is the first time in a year that I feel really good about our financial path. There is a place for every penny we bring in, we’re making our money work for us, and it’s a great feeling to know that things are falling into line. I have to admit, it was kind of hard to sit down and write all this out. I feel like, everyone I talk to seems to have it all together with money. People don’t want to admit that they have debts and have made a bad financial move or two. It can feel lonely when you think you’re the only family who doesn’t have it quite together financially but who isn’t completely falling apart either. But if you’re in our shoes, rest assured, you aren’t alone. And if you want to tackle your debt with us, please join in! I probably will not share exactly what we owe until it’s all paid off (just feels like way TMI), but maybe once we’re finally done, I’ll share our numbers.
Good luck if you’re dealing with financial issues this year, too. Here’s hoping 2013 ends on a much brighter note!
I am in no, way, shape, or form connected to Dave Ramsey. I am not getting paid or recognized for this post. His method makes sense, so I wanted to share it with you. To see a real break down of the plan, check out his book. (not an affiliate link).