Dave Ramsey’s Debt Solutions That Help You Get Relief
When it comes to getting out of debt, there isn’t such a thing as a quick fix. Being slow and steady will be important. However, Dave Ramsey’s debt solutions can be helpful to you.
Before You Begin
Before you start any of Dave Ramsey’s debt solutions, it’s important to have a plan. It’s can be overwhelming at first but one of the first things you need to do is save for an emergency fund. Start with $1,000. One of the best ways to save is to open a savings account. Below we listed out some of the best options on the market. Take a look and pick the one that fits your needs:
You may be wondering why you are putting money in a savings account instead of paying off debt and the reason is because life happens. This is your safety net. Not only is it for unexpected expenses but it can also give you a feeling of accomplishment and sense of control. It shows that you can control your behavior and you can have the right skills to start paying down your debt.
What to Do When Drowning in Debt
If you are drowning in debt, whether or not you are following Dave Ramsey’s debt solutions, there are things you need to start doing in order to get out of debt.
Get on a Budget
Creating a budget is one of the most important steps to take. It shows you where your money is going, which is important if you are struggling with debt. When creating a budget to pay down debt, you need to make sure your basic needs are met before you are tempted to account for other expenses. These needs include food, utilities, shelter, and transportation. Part of your budget needs to be figuring out how much debt you have.
Cut Back on Your Extras
When you are paying down debt, it’s important that every dollar is accounted for. This means it's time to figure out where you can cut some expenses. Look at any automatic payments that are coming out of your bank account and see where you can eliminate these expenses. You may be surprised at what you can cut.
Pause Your Investing
Saving for your future at this stage can be difficult. It’s time to press pause on future investments so you can free up some extra cash to pay down your debt and you can get back to this when you are debt-free as part of your financial future.
Don’t Take on New Debt
It can be hard to not take on other debt when you are already struggling. Stop using your credit cards and only save them for a true emergency. An emergency isn’t an afternoon coffee run.
Increase Your Income
Once you have a budget an added way to get extra money to pay toward your debt is to increase your income. No one wants to work around the clock and take on extra jobs but if you want to start tackling that mountain of debt, you have to start doing something different. This won’t be forever and in the meantime, it’s going to help you a lot.
Start Your Debt Snowball
When you are making your budget, start listing your debts so that you can begin the debt snowball method. Many people agree that that debt snowball method is the best way to pay off debt.
Work on the Baby Steps
These seven steps are proven to help improve your financial life and paying off debt is one major part of it.
Dave Ramsey’s Debt Solutions Seven Baby Steps
Dave Ramsey's debt solutions are part of the seven baby steps. The seven baby steps show you how to save for an emergency, pay off your debt, and then build wealth.
The first step is to save $1,000 to begin your emergency fund.
Pay off your debt, with the exception of your mortgage, by using the debt snowball plan.
Fully fund your emergency fund with three to six months of expenses.
Start saving for retirement by investing 15% of your income.
Repeat each debt until they're paid in full.
Pay off your home early by putting as much as you can toward your mortgage.
The last step is to build wealth and give.
With the baby steps, you don’t need a degree in finance in order to make it easier to have better control over your money. You can do it and with each step you change how you handle money.
Most Common Types of Debt
Debt isn’t just spending mindlessly on little things and the most common type of debt is student loans, especially for millennials. Student loans take up the majority of the debt, ahead of mortgages, credit cards, and auto loans. No matter how you are living, even if it is paycheck to paycheck, there are ways that you can handle your debt.
Student Loans
Student loans can be worthwhile debt but these loans can be more harmful than you think. Student loans are one of the biggest roadblocks to financial success. While student loans are an investment in your future, many people take out student loans without understanding what exactly they are signing up for. Sometimes, this means a lifetime of debt that makes other financial choices, such as starting a family, much harder than they need to be.
Car Loans
Some people think that a new car is the safest option and that means having to take out a loan. A car’s value starts to drop significantly as soon as you drive off the lot so many times it doesn’t make sense to get a new car. Instead, you can do research and find a used car that you are able to afford by saving up.
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Mortgages
Many people think mortgages are good debt since you get to write off the taxes and your home will ideally appreciate in value. Even if it is considered good debt, it’s still important to note that there is some risk involved. It’s possible that your home value could drop or you could face a financial disaster where you aren’t able to pay down your mortgage. While not having a mortgage is the best option, it’s not usually possible.
Credit Cards
Credit cards can be helpful if you are paying the card off in full each month and racking up rewards you can use. However, for the most part, people aren’t doing this and if you aren’t paying it off each month, you are racking up too much interest and it negates any rewards you do get.
Debt Snowball Method
The debt snowball method gets its name from building snowballs and the best way to get traction to build larger snowballs. It’s one of the most popular Dave Ramsey’s debt solutions and you pay off debt from the smallest to largest, in order to gain energy as you start to pay off each balance. When you pay off the smaller debt then the money you were putting toward that debt goes to the next smallest balance while you still continue to pay your minimum payments on other debts. The debt snowball method is easy to do and only requires a few steps.
List your current debts from smallest to largest. You don’t need to pay attention to the interest rate for this step.
Make the minimum payments on all your current debts except the smallest one.
Start paying as much as you can toward your smallest debt.
Repeat each debt until they're paid in full.
Why the Debt Snowball Method Is So Popular
The debt snowball method is successful for so many people because it’s not about math but instead, it’s about behavior modification. If you start with the largest debt then you won’t get rid of it for a while because of the large balance. This means you can lose steam since it’s taking forever to get even a small win. You also still have all your other small debt hanging around. However, when you tackle the smallest debt first then you start to see progress quickly and you get more hope.
When you start to see your plan working, you will feel like you can stick with it. If you keep at it then soon you will be debt-free. By the time you start paying off bigger debts, you have a lot of free cash to use from when you pay off the earlier ones and it then creates a snowball. Before you know it, you are putting hundreds of dollars toward your debts and slowly chipping away at them.
Staying Motivated through Dave Ramsey’s Debt Solutions
Paying down debt with Dave Ramsey’s Debt solutions can be overwhelming. However, there are ways to stay motivated.
Remember Your Why
You need to remember the reasons why you want to get rid of your debt. It could be building a legacy for your children or staring a business. Get specific with your why so you can keep it at the forefront of your mind as your start to feel discouraged. Every sacrifice you make will get you closer to what you envision.
Break up Your Goals
If you are looking at a pile of debt, it helps to break out your debt into smaller goals. This is why the debt snowball method is one of the popular Dave Ramsey’s debt solutions. The small wins energize you and remind you that the goals are doable.
Create a Visual to Track Progress
Many people are visual learners and, if this is you, it can help to see your progress toward your money by using a debt snowball tracker or even just placing a sticky note on the mirror to remind you how much you have left. You can do whatever you want for a visual, such as drawing a piggy bank and coloring it in as you pay off the debt. Having a visual will help you keep your goals in your mind and reach debt payoff faster.
Set Small Rewards Along the Way
It's still okay to give yourself some rewards when you are working on Dave Ramsey's debt solutions. You could treat yourself to something small, such as a fancy coffee from your favorite shop. You can add those rewards to your tracker so you can see when you get them and build them into your goals. Just make sure your rewards aren’t too extravagant that you slow down your progress.
Quit the Comparisons
It’s possible to get inspired by other people’s stories of debt payoff but it’s best to not compare your stories. Everyone is on a different journey and others have different tools that they can use. An individual just making $45,000 a year is going to have a different process than a couple that is making $120,000 a year. Your debt payment amount will also play a factor in how fast the process will work for you.
Find Your Tribe
When you are working on paying off debt, you are not alone. Reaching your goals can be easier if you have people that are here to help you. Everyone can use a cheerleader. There are communities for others that are following Dave Ramsey’s debt solutions that you can connect with in order to be on the journey together.
Know Your Sacrifices Matter
Remember that paying down your debt matters. The decisions you are making are going to help you in your future. It can be hard but just know the sacrifices are worth it for you to live a debt-free life.
What to Expect with Your Debt Free Journey
There are different things to expect as you move forward with becoming debt-free using Dave Ramsey’s debt solutions.
You Will Have Doubts
When you are staring down a mountain of debt, it’s normal to have some debts. Don’t beat yourself up about this. Instead, redirect this doubtful energy into confidence. You are doing this for you and it’s the right thing for your financial future. Even if no one understands why you are doing this, you can do it.
You Will Start to Get Gazelle Intense
The phrase is "gazelle intense" because you want to get out of debt just like a gazelle wants to get out of harm’s way. You need to find your animal instincts out.
You Start Selling Your Stuff
If you haven’t used something in the past year then the chances are you probably don’t need it. When you are laser-focused on getting out of debt then you will start parting with things you don’t need.
You Become a Bargain Shopper
If you haven’t previously been a coupon expert, this is about to change. You will start to get familiar with awesome coupon apps and if you can get something for a discount or on sale, you don’t want to pay full price. When you get something you need on sale, that is more money for your debt. Being a bargain shopper only matters if you are buying things you need and not just buying stuff because it’s on sale.
It’s Hard Work
Paying down your debt, especially a lot of it, isn’t necessarily going to be easy. Sometimes, it may even take some freelance work or a second job to knock out some debt. Get creative so you can find some ways to bring in some extra cash. Remember that your hard work will pay off.
You Will Learn to Say No
Remember throughout the journey that no is a complete sentence. It’s okay to use it while you are trying to get out of debt. There are going to be things you need that you aren’t able to say no to but there are things you want that you will need to say no to. You will become one of the rare people that know the difference between needs and wants.
While you are paying off debt, your budget is going to be all about needs. You will get what you want after you have said goodbye to your debt. When you say no, you will learn who your true friends are. Your true friends won’t care if you aren’t able to go out to dinner and won’t expect you to keep up with their lifestyle if you are working on getting out of debt.
You Will Get Rid of Conveniences
Part of your budget is going to be giving up some conveniences. You will start to eat more leftovers instead of going out to lunch. Casserole recipes and slow cooker meals can be good for stretching your food budget. You can brew your own coffee at home instead of getting it on the way to work.
Finally,
Using Dave Ramsey’s debt solutions can help you get out of debt and give you better control of your financial life. There are common types of debt and, whether or not it‘s considered good debt, there are different steps you can take so that you can start to pay off debt.
The debt snowball method is the most popular method to pay down debt and it helps you stay motivated during the journey. There are also other ways to stay motivated and certain things to expect as you go through your debt-free journey.