Bye Debt

Diverting from Dave

I believe in Dave Ramsey. I believe in the Baby Step plan that he teaches. Why? It works, and it’s proven to work time and again. So far, we’ve paid off $37,000+ following it, so I’m not just blowing smoke at people – it’s a tangible plan, with tangible results. For those of you who don’t know, here are the Baby Steps:

  • Baby Step 1 – $1,000 to start an Emergency Fund
  • Baby Step 2 – Pay off all debt using the Debt Snowball
  • Baby Step 3 – 3 to 6 months of expenses in savings
  • Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Baby Step 5 –College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give!

What did we do differently? My husband and I began our debt free journey on 1/4/16. We started by paying off my smallest student loan. Awesome, right? Not particularly. We didn’t save for Baby Step 1, we went right ahead and bulldozed through 4 debts. The first way we strayed from Dave Ramsey was we didn’t have a penny saved for 11 months. Luckily nothing happened…until it did. In November James’ grandfather passed away and we had to buy a plane ticket to Texas. Suddenly Baby Step 1 seemed important. Thankfully, a family member gifted a plane ticket so James could be there. We realized ‘Perhaps saving up first isn’t such a bad idea.’ Duh. By the end of December, we had saved the $1,000, and man am I thankful. The first four months of 2017 we had to use our EF 4 times. Murphy’s law is a REAL THING. My advice to anyone starting this, or even thinking about starting this, or if you’re not even going to do this is SAVE FOR AN EMERGENCY FUND ASAP. I know $1,000 seems like a mountain to save for, but if that’s your perspective, you’ll be happy to have a mountain of cash when you need it the most.

The second way we diverted from the Baby Step Plan is that we bought a home while in Baby Step 2. This diversion I am happy about and feel 0% shame for. We live in Wilmington, North Carolina. Wilmington has always been expensive to live in (In NC). With UNCW, The Cape Fear River, and our 3 beaches, it’s beautiful, and highly sought after. Here’s an average cost of living here for an apartment:

Utilities – $475
Internet – $50
Rent – $1200

While it’s not California prices, it’s expensive, especially for our state. James and I decided to purchase a home for three reasons:

1) We have four animals – no apartment complex would allow that, and even if they did, pet fees would be astronomical
2) We are staying in the area
3) The VA Loan

If we didn’t have 3, it would have been a different story, but since James is a veteran we not only had a $0 down payment, we got an incredible interest rate with cash back at closing. We pay below average on every single item listed above – so we are building equity and saving money. Our circumstance is not the normal circumstance, and we are both well aware of that; but being able to buy a home now as opposed to later has helped us pay off more debt.

*I do not recommend purchasing a home until you understand exactly what you are getting in to, meaning you need to have a hefty down payment, a bulked-up emergency fund, and an understanding of how the home buying process works.

For us, buying a home was the best option.

The third and final way we’ve gone outside of the Dave Ramsey plan is switching up our last two debts. The snowball method, which is the method you use in Baby Step 2 to pay off your debts, states that you begin with paying off your smallest debt to the largest debt. This is based on the amount of debt, NOT interest rates. We did that for every debt until the last two: Auto Loan and Student Loan. Instead of paying off James’ car first, we paid off my student loan first. The reason the snowball method is used in Dave Ramsey’s plan is purely psychological – once you pay off the smallest debt, you have a ‘quick win’ in your pocket, so you feel motivation to move on to the next. For some people, if they began with a larger loan, they wouldn’t see results quickly enough, and they would quit. Obviously, James and I have been doing this long enough to where that doesn’t really matter anymore. This lifestyle has been internalized, and we’re going to keep going until we’re debt free. The biggest accomplishment of doing the Dave Ramsey plan was to get out of student debt at the age of 24, 1.5 years after graduating. In order to achieve that, we switched it up and are completed my student loan payments in May.

Have any of my debt free people diverted from Dave? Let me know! @veefrugalfox

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