So Kadie and I made some plans. First, we decided not to get the minivan fixed right away. We waited for a month to save up the money to repair it. My parents graciously loaned us a car for that month. Kadie then signed onto a contract and began to work extra shifts to generate the $3,300.00 for the new car engine.
We then turned our attention to Ramsey’s plan.
Baby step one was the easiest. Dave suggests $1,000.00 in your baby emergency fund. We had around $1,200.00 in the bank, so this was the easiest of our goals to meet. We pulled out $200.00 to throw at our debts and turned our attention to paying off debt.
Baby step two was the hardest. Ramsey says to lay out your debts, from smallest to largest, (except for your mortgage) and then begin to pay them off. Our debt snowball looked something like this:
$200.00 Bank of America Credit Card
$380.00 Discover Card
$1,100.00 Best Buy computer payment (at a lovely 0% interest)
$17,520.00 Our 2005 Saturn VUE
In March of 2005 we began to pay off these debts. We started with the lowest and worked our way through them. Ramsey reccomends starting with the lowest total amount (as opposed to highest interest rate) in order to make some quick progress.
The toughest debt (obviously) was the car. We purchased the car in November and then took charge of our debt the following spring. Dave recommends keeping the car if you can pay off all your debts within 18 months of starting his plan. We figured that we could meet those guidelines.
And we did it. Kadie worked a few contracts and we cut our expenditures down substantially. We stretched our paychecks and tightened the screws on our budgets. Instead of taking an extended road trip for a vactaion (like to Colorado or Virginia, as we had in past summers) we stayed at a relatives home for a weekend. That was our "big" vacation. We spent more time at home and our riding bikes.
The last month, January of 2006, was the toughest. In that last month our microwave died (it was a wedding gift that had survived 14 years of culinary abuse); our dish-washer died; and our garbage disposal died (right after I had installed our new dish washer, Kadie was CERTAIN that I had screwed something up); and Kadie had her debit card stolen at work (amusingly, they went out and immediately began buying gas. It was when gas hovered in the $2.80’s).
So despite the challenges, we paid off all our debts by November, as well as the $3,300 for the rebuilt minivan engine. When we took our last payment check to the post office to put it in the mail we brought Skeeter, Scooter and Squealer all into the lobby to help us drop it in. And then to celebrate as a family we went out to eat at a really nice Japanese steak house.
And yes, we paid in cash.
3 comments:
Why does Ramsey suggest to start with the largest debt, as opposed to highest % rate? Is it because the largest is usually a car, and it's a LOT bigger than the other debts? What if all debts are about the same size? Just curious...
He argues that smallest amount to largest is best for a couple of reasons. First, he argues that when you get out of debt real quickly (say in a year or two) the interest difference is negligible.
Second, it gives you a quick psychological victory. It is nice to say "I'm done forever with that credit card" real quickly. If we had started with the car first, it would've taken us 8 months or so before we would've seen any traction. His reasoning is more psychological than financial. As he says, if we were doing everything by what is mathematically correct, we wouldn’t be in debt to begin with.
If the debts are the same size, then you do go by interest rate and pay off the highest first.
His answer to that question is found here http://www.daveramsey.com/etc/cms/index.cfm?intContentID=4055
Buddy, I'm proud of you as all-get-out for deep-sixing your debt and connecting with your cash. Dave's plan makes a lot of sense, doesn't it? Way to go, jack! www.debtective.com
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