Bob and Tammy were like most newlywed married couples — they started off with a modest amount of debt that just seemed to take on a mind of its own.
Add a couple kids and the suburban dream, and this couple found themselves in a crippling mountain of debt… $457,000 in debt to be exact.
But in 7 years they were able to pay off all their debt and they are now 100 percent DEBT-FREE!
And no, they didn’t use some quick “get out of debt” gimmick, and they didn’t pay tens of thousands of dollars for financial advice.
They simply followed a plan that has helped millions of Americans, especially Christians, get out of debt and the best part of all is this plan is right at your fingertips.
So if you’re struggling to get out of debt, check out these 7 steps so you too can be debt-free:
But first, we know you may be skeptical.
After all, how did this couple manage to pay off $457,000 in just 7 years? It almost seems too good to be true, right?
Well, to start, they took baby steps, literally. This couple followed Dave Ramsey’s 7 Baby Steps, the same plan that has helped millions of Americans become debt-free.
Dave Ramsey is a devout Christian and bases his advice on Biblical principles.
And if you’re looking to learn about the baby steps and how they can help you become debt-free, we’ve highlighted a quick overview to get you started.
Step 1: Save $1,000 for an Emergency Fund
To start, Ramsey recommends building an emergency fund and saving $1,000 as fast as you can. Not in six months. Not by the end of the year. ASAP!
This means doing whatever it takes, whether selling your TV, getting a second job, or forgoing your weekly take-out Chinese food night. You must be willing to make sacrifices if you are serious about getting out of debt.
Ramsey explains you must to be prepared for emergencies, which will happen.
Without an emergency fund, expenses like a flat tire or unexpected medical bill tend to go on the credit card and further cause your debt to spiral out of control.
But having an emergency fund is at least a bit of a cushion to help when an emergency arises.
Step 2: Pay Off All Your Debt (Except Your House) Using the Snowball Method
List off all the debt you owe — from the credit cards to student loans. Having everything on paper will help you see just how big the beast is you need to tackle.
Then, go! Take all the extra money you have, and put it towards your debt.
Continue to make a lean budget. Sell stuff. Keep the part-time job. All of your extra money should be going into paying off your debt.
And while it might make sense “logically” to pay off your highest interest debt first, that’s not the best plan. According to Ramsey, if we were “logical,” we wouldn’t be in debt!
The snowball method starts with paying off your smallest debt first, then taking the money you used to pay off that debt to tackle your next smallest debt. Keep doing this until all your debt is paid off!
The reward of finally paying off a debt will give you motivation to keep going.
Once your debt becomes smaller and smaller, the momentum you’ve gained will push you on.
Step 3: Save Up 3-6 Month Emergency Fund
Congratulations! You’re debt-free. But you’re not out of the woods just yet!
Building on the $1,000 you’ve already saved, now is the time to build your true emergency fund.
Should something unexpected happen, like the loss of a job, a sick family member, etc., you’ll want to make sure you have funds to get you through the crisis. The last thing you want to do is fall back into debt!
By taking the extra amount you’ve been applying to pay off debt each month and putting it into savings, you will build up for 3-6 months’ worth of expenses in no time.
And it’s best to keep this fund in a separate account, so you aren’t tempted to use it.
Step 4: Invest 15 % Of Your Income Into A Retirement Fund
Now that you’re debt-free and have your emergency fund locked down, it’s time to start investing.
If your employer has a 401k match… take it! This is literally free money.
You’re never too young to save for retirement and by beginning the habit of investing 15% of your money, you’re making an investment in your future.
The options inside a 401k or an IRA can seem overwhelming, but the best plan is to simply put it all into a broad market mutual fund, usually one with a target retirement age where the investments change as you get closer to retirement.
Step 5: Save For Your Child’s College Fund
Only after you have completed Steps 1 – 4 should you start to save for your child’s college fund.
If you have outstanding debt racking up with interest, you haven’t saved an emergency fund, and aren’t investing in your own retirement, it does not make sense to put money aside for college.
There are no scholarships for retirement!
But when you complete those first steps, the most popular option is the 529 college savings plan.
Click here for one of the best looks at all the different 529 account options. If your state doesn’t make the dean’s list, you can sign up for some states’ plans, even if you don’t live there.
Utah’s 529 plan is very popular all over the country.
If you don’t have any kids, you can skip over step 5 and move right on to step 6!
Step 6: Pay Off Your Home Early
Be a step ahead of most, and pay off your home early! You’re bound to save thousands of dollars in interest — and truly have no debt left to your name.
You can either simply pay extra each month like you did when paying off your other debt, or in many situations refinancing into a 15-year mortgage is a great option.
If you’re looking for where to start, Dave Ramsey’s site had this helpful tip:
“If you currently have an adjustable-rate, interest-only or even 30-year mortgage, consider refinancing to a 15-year, fixed-rate mortgage. You’ll be amazed at how much you can save in the long run!”
Step 7: Build Wealth and Give
The most beautiful step of all, being able to give it all away!
How amazing would you feel if you were in the financial position to be able to be extremely generous with the money God has blessed you with?
And remember, He blesses us, so we can be a blessing to others.
Think of all the people you could help and all the worthy causes fighting you could contribute to if only you were out from underneath your mountain of debt!
You can be a tangible partner helping ministries thrive! Or, you can help send out missionaries overseas to make His name known to unreached people groups!
Being saddled with debt can be crippling. But if you follow these 7 simple steps that are proven to work, and make the sacrifices necessary to get there, you too can be 100 percent debt-free!
Have you followed Dave Ramsey’s 7 baby steps plan in the past? If so, how has it worked for you? What are some tips you have for other readers on how to save money?
Tell us your thoughts in the comments below!