*The Dave Ramsey 'Baby Steps' Thread*

[ThereYouSeeHer]

These average debt numbers are from the Dave Ramsey website:
Credit Card-- $14k per household
Auto-- $31k per household
Student Loan-- $38k per borrower so x2 for a couple = $76k

That's $121k for an average couple (without counting mortgage) If that's the average, that means some are significantly more in debt than that amount. I know quite a few couples where both spouses have well over $100k in student loans.

My point was really that the debt snowball is not necessarily a "short term" thing that most people can pay off in a few months by cutting out lattes. For many it requires several years of dedicated work to pay everything off. That leaves a lot of opportunities for something to go wrong where you may need more than $1000 to cover an emergency expense.

Yeah, we always kept a one-month starter emergency fund because it made me feel more secure than just $1000.

Years ago, he used to say getting out of debt (Baby Step 2) takes the average household 18 months. More recently, he has said that step may take 2-3 years. I believe someone once asked what if a single debt (like student loans) is the size of a mortgage--can they delay that one debt until Baby Step 6 (which is paying off the mortgage)? I can't remember the answer, but I know people have very valid questions about working through the steps.

As it's been said, 'if you work the plan, the plan will work. If you don't work the plan, the plan won't work.' I have found this to be true in my own life (it's working) as well as in others' lives (those who went through his Financial Peace University class and never made the changes, so it didn't work).

 

[barkley]

My point was really that the debt snowball is not necessarily a "short term" thing that most people can pay off in a few months by cutting out lattes. For many it requires several years of dedicated work to pay everything off.

agreed-and if a person follows ramsey's method of strictly focusing on prioritizing the paying off of non mortgage debts in the order of smallest to largest it takes longer and can cost substantially more vs. prioritizing in the order of highest interest rate vs. lowest. i get the concept of it being mentally rewarding for some to be able to cross a card/debt at a time off their list but the penny pincher in me can't stand the idea of that (what i consider) wasted money. when we did a comparison for our oldest of using ramsey's method to repay student loans vs. throwing extra at the highest interest rate it ended up being a significant savings of time and money to use the latter.

thing is-however a person manages to get out from under debt unless they change their mindset and habits they will inevitably find themselves back in a similar indebted situation. i know ramsey professes a hugely high success rate for people who follow his program but really-the majority of people calling his show are either people who have'nt started it or have just successfully finished with the debt payoff. no one's calling and say 'dang dave, i paid it all off 5 years ago but i ran those dang cards back up, got 2 more car notes and maxed out on a heloc'. it would be interesting to see what the long term success rate is.

 

[ruadisneyfan2]

When I was brand new at attempting to pay off our debt, I HAD to follow the smallest to largest. Our smallest was something like $250-300 on a Sears card for a lawnmower, 0% for 12 months.
We were paying $25/month on it. We paid it off in about a month.
I dont recall exactly how much our highest interest card was but the balance was significantly higher and I’m certain I would have become frustrated and given up way too soon. Like he says, it makes more sense mathematically to start with the highest interest first, but had we been doing the math all along, we wouldn’t have any credit card debt.

It’s just a guess but I’d think the more outrageous stories are the callers that get aired on his show, for the shock value and drama.
Not many people would tune in to a show where most callers have $3000 on a card and want to pay it down quickly before it gets out of control.

 

[Robber Baron]

i like his program but i'm just not with him on some aspects-for example, he says 'no credit cards-ever', well maybe dave ramsey can rent a car or get an airline ticket without a credit card but i've not found a way to.

I have listened to Dave Ramsey a lot over the years. I have never followed his plan, but, I just enjoy listening because I used to spend a lot of time in the car.

I think Credit Cards are a huge problem for people. They get people in a ton of trouble. Dave always says NO NO NO to credit cards. I liken that to an Alcoholics Anonymous counselor, they don't say you can drink a little, or, just on weekends. Alcohol is the same amount of trouble for an alcoholic as a credit card is to a chronic spender.

Same with the small to largest when paying off debt balances. People take years to get to the point where they finally have to follow somebody like Dave to get a plan. I've heard callers say it makes no sense to pay off the lowest % interest balance first, doesn't make sense to pay off some smaller balance before a larger one they have. I love Dave's response: "It took you 10 years to get this far underwater and NOW you're a math major?"

To those of us that don't really need to follow the Baby Steps, they sound a little over the edge. To people that NEED to follow them, it works.

 

[tzolkin]

To those of us that don't really need to follow the Baby Steps, they sound a little over the edge. To people that NEED to follow them, it works.

I think this is really at the heart of it. I definitely see how his method works on the psychology and re-shaping habits and behaviors for people who have an issue with debt. But for some people who are already naturally extremely frugal/budget conscious/debt averse, his rules feel unnecessary and sometimes counterproductive.

 

[ThereYouSeeHer]

Robber Baron said:
To those of us that don't really need to follow the Baby Steps, they sound a little over the edge. To people that NEED to follow them, it works.

I think this is really at the heart of it. I definitely see how his method works on the psychology and re-shaping habits and behaviors for people who have an issue with debt. But for some people who are already naturally extremely frugal/budget conscious/debt averse, his rules feel unnecessary and sometimes counterproductive.

I think this is probably true for some of his followers, but then we would be an outlier. We weren't over-spenders and didn't need to follow his advice, we just had typical American debt. We weren't maxed out or behind on payments, we were just following the prevailing financial advice at the time, which was:

"Don't worry, it's good debt! It boosts your credit score! It's a low interest rate! You're making more than the minimum payment! You can leverage debt to build wealth!"

Once we questioned why our paycheck was going to everyone else, we finally decided to remove ourselves from the debt game. His little bit on the FICO score being an "I love debt" score was both funny and eye-opening. Currently, I have no idea what our credit score is. We haven't acquired any debt in the past 10 years, and it's been over 5 years since we paid off our last debt. As much as it relies on us, we'll continue this way because I like being weird!

 

[DCLMP]

Motivational Quotes from Dave Ramsey

*Debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice.

*Life moves at the speed of cash.

*Normal is broke. Be weird.

*You can wander into debt, but you can NOT wander out of it. You have to get mad enough to make a change. You have to run like your life depends on it.

*I never met a millionaire who said, "I made all my money with airline miles." Rich people don’t fall for stupid credit card tricks.

Hmm. I have flown to Europe first class several times for free and I still have no debt. I agree with most of what you said but credit cards don‘t cause debt.

 

[DCLMP]

These average debt numbers are from the Dave Ramsey website:
Credit Card-- $14k per household
Auto-- $31k per household
Student Loan-- $38k per borrower so x2 for a couple = $76k

That's $121k for an average couple (without counting mortgage) If that's the average, that means some are significantly more in debt than that amount. I know quite a few couples where both spouses have well over $100k in student loans.

My point was really that the debt snowball is not necessarily a "short term" thing that most people can pay off in a few months by cutting out lattes. For many it requires several years of dedicated work to pay everything off. That leaves a lot of opportunities for something to go wrong where you may need more than $1000 to cover an emergency expense.

Some people carry debt, but still have a lot of assets. With interest rates being so low a lot people take advantage of it by floating expenses. Just looking at a persons debt doesn’t give you their financial picture likewise you could be debt free and be dirt poor.

 

[DVCcurious]

I recommend the DVCcurious financial plan. it goes like this

Sha la la la la la
Live for today
And don't worry 'bout tomorrow, hey

 

[ThereYouSeeHer]

I recommend the DVCcurious financial plan. it goes like this

Sha la la la la la
Live for today
And don't worry 'bout tomorrow, hey

Haha, well, I've tried that!

Then tomorrow came, brought trouble with it, and gave me a shakedown....

But now, my budget tells trouble....

 

[RamblingMad]

I have listened to Dave Ramsey a lot over the years. I have never followed his plan, but, I just enjoy listening because I used to spend a lot of time in the car.

I think Credit Cards are a huge problem for people. They get people in a ton of trouble. Dave always says NO NO NO to credit cards. I liken that to an Alcoholics Anonymous counselor, they don't say you can drink a little, or, just on weekends. Alcohol is the same amount of trouble for an alcoholic as a credit card is to a chronic spender.

Same with the small to largest when paying off debt balances. People take years to get to the point where they finally have to follow somebody like Dave to get a plan. I've heard callers say it makes no sense to pay off the lowest % interest balance first, doesn't make sense to pay off some smaller balance before a larger one they have. I love Dave's response: "It took you 10 years to get this far underwater and NOW you're a math major?"

To those of us that don't really need to follow the Baby Steps, they sound a little over the edge. To people that NEED to follow them, it works.

I think, people are using credit cards a lot more now because their salaries aren't keeping up with inflation, so to keep their standard of living, they're putting more on their credit cards. The only way to fix this is to either cap price increases or pay people more. I don't think it's realistic for everyone to be out of credit card debt. The economy doesn't distribute income equally enough for this to be a reality, so I don't give people a hard time for credit card debt. Do the best you can with what you're dealt.

 

[DCLMP]

Paying people more will not fix inflation. It's only making it worse. Layoffs are incoming.

 

[Sadeesmom]

I have been an ardent Dave Ramsey fan for years and will encourage anyone I care about to strictly follow the baby steps.

I started off with about 60% of my gross annual salary in debt (a car, credit cards, student loans). I buckled down (mostly stopped eating out), picked up a side gig, and paid it all off in just under 2 years. Spent the next year save up BS3 and for another car, and comfortably slid into BS4-6.

There has been a lot of discussion above about $1,000 being not enough, but no one mentioned how it is supposed to feel uncomfortable. It is supposed to help motivate you to power through BS2 so you can save up a fully funded emergency fund. I know everyone's story is unique, but as you pay off your smaller debts, you reduce the quantity of monthly payments you are making. Yes, this increases your snowball amount, but it also frees up your cash flow so that minor emergencies can be cash flowed & not even touch that BS1 emergency fund.

Also not yet mentioned is in regard to credit cards; studies have shown that using them, consumers spend more than using debit cards or cash. I didn't particularly believe this either in the beginning, but once I compared our grocery bill with a credit card month versus a debit card month, I became a believer. Again, I know everyone has their own story, but for the majority, I think this is true.

 

[ThereYouSeeHer]

I have been an ardent Dave Ramsey fan for years and will encourage anyone I care about to strictly follow the baby steps.

I started off with about 60% of my gross annual salary in debt (a car, credit cards, student loans). I buckled down (mostly stopped eating out), picked up a side gig, and paid it all off in just under 2 years. Spent the next year save up BS3 and for another car, and comfortably slid into BS4-6.

There has been a lot of discussion above about $1,000 being not enough, but no one mentioned how it is supposed to feel uncomfortable. It is supposed to help motivate you to power through BS2 so you can save up a fully funded emergency fund. I know everyone's story is unique, but as you pay off your smaller debts, you reduce the quantity of monthly payments you are making. Yes, this increases your snowball amount, but it also frees up your cash flow so that minor emergencies can be cash flowed & not even touch that BS1 emergency fund.

Also not yet mentioned is in regard to credit cards; studies have shown that using them, consumers spend more than using debit cards or cash. I didn't particularly believe this either in the beginning, but once I compared our grocery bill with a credit card month versus a debit card month, I became a believer. Again, I know everyone has their own story, but for the majority, I think this is true.

I love it, great job!

Those are good points about the starter emergency fund. That uncomfortable feeling is what fuels getting through debt as quickly as possible. Plus, like you mentioned, paid-off debts free up cash to then cash flow certain emergencies.

I agree. I know it can be hard to strictly follow the baby steps (especially in our American consumer-driven society), but it's what works. People will try a 'Dave-ish' plan for their money, but as he says, ""ish" is a wish. You've got to go all in. You have to be sick and tired of living paycheck to paycheck and never making progress. You have to be willing to endure the temporary pain that comes with change to avoid the long and drawn out pain of staying the same. Trust me, you can do it... you just have to DO IT."

 

[tzolkin]

Also not yet mentioned is in regard to credit cards; studies have shown that using them, consumers spend more than using debit cards or cash. I didn't particularly believe this either in the beginning, but once I compared our grocery bill with a credit card month versus a debit card month, I became a believer. Again, I know everyone has their own story, but for the majority, I think this is true.

I can understand that there's some psychology involved in using cash vs card, but had never heard that between credit and debit. I thought the point of the cash was that it is tangible and you can see how much you physically have left so you're less inclined to part with it vs swiping a card.

For me, I can't imagine there would be a difference in my spending based on what particular card (debit or credit) that I was swiping. That said, I really haven't used a debit card in probably 15-20 years so I don't have any actual spending to compare. Curious if others have noticed a difference.

 

[RamblingMad]

I can understand that there's some psychology involved in using cash vs card, but had never heard that between credit and debit. I thought the point of the cash was that it is tangible and you can see how much you physically have left so you're less inclined to part with it vs swiping a card.

For me, I can't imagine there would be a difference in my spending based on what particular card (debit or credit) that I was swiping. That said, I really haven't used a debit card in probably 15-20 years so I don't have any actual spending to compare. Curious if others have noticed a difference.

I use my credit card for two reasons: I get cash back and buyer protection that I don't get with a debit card. I also don't like carrying around cash.

 

[RoseGold]

Wow, this thread unlocked a weird memory for me. I listened to Dave many years ago (when he still had his charisma, I would argue). At that time, he was sponsored by a timeshare sales company, so he took a lot of calls about dumb timeshares. He got a call from a guy about DVC. And Dave had to backtrack and he obviously knew the Disney timeshare was worth money, it was a poorly screened call.

It stuck in my brain until I could finally buy DVC, and he was right! It did better than the market, LOL.

So thanks Dave! I finally got my timeshare!

I always hated when Dave Ramsey told people not to take the match on the 401K if they had any kind of debt. That doesn't make sense on any level. The screeners usually stopped that question, because it's so dumb, but sometimes it snuck in.

 

[Sadeesmom]

I always hated when Dave Ramsey told people not to take the match on the 401K if they had any kind of debt. That doesn't make sense on any level. The screeners were supposed to stop that question, because it's so dumb, but sometimes it snuck in.

Financially, it doesn't make sense to skip the match. But this program is about behavior modification. This goes with my other post - the thought of missing that match, that anger, can be used as more motivation to go gazelle & get to BS4.

If math was the main factor, would anyone go into debt to begin with?

 

[ThereYouSeeHer]

I can understand that there's some psychology involved in using cash vs card, but had never heard that between credit and debit. I thought the point of the cash was that it is tangible and you can see how much you physically have left so you're less inclined to part with it vs swiping a card.

For me, I can't imagine there would be a difference in my spending based on what particular card (debit or credit) that I was swiping. That said, I really haven't used a debit card in probably 15-20 years so I don't have any actual spending to compare. Curious if others have noticed a difference.

Dave has mentioned spending less with a debit card vs a credit card. Debit card users would generally be more cautious not to overdraw their accounts. It's tougher knowing the money has to be in your account at the time of purchase versus knowing you have a month to pay it off with a credit card.

I use my credit card for two reasons: I get cash back and buyer protection that I don't get with a debit card. I also don't like carrying around cash.

There are debit cards with cash back and other rewards. Debit cards also come with fraud and liability protections. For example, for debit cards with VISA on them, if you use choose 'Credit' when using them, VISA backs it up.

However, I agree that direct access to your checking account through debit cards adds a layer of complexity that is not necessarily present with credit cards.

 

[RamblingMad]

Financially, it doesn't make sense to skip the match. But this program is about behavior modification. This goes with my other post - the thought of missing that match, that anger, can be used as more motivation to go gazelle & get to BS4.

If math was the main factor, would anyone go into debt to begin with?

It doesn't make sense not to match. That's free money, and you're reducing your taxable income.