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How Dave Ramsey Helped Me Pay Off My Debt

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Dave Ramsey's Total Money MakeoverLate last December I came across a post on Bargaineering about Dave Ramsey’s book, “The Total Money Makeover.” Prior to this, I had never heard of Dave or his somewhat controversial teachings (e.g., he recommends folks pay off their debts from smallest to largest, regardless of interest rates, he quotes Bible verses – though mostly to share common sense financial wisdom, etc.).

Somewhat intrigued, I picked up a copy of the book and read it in about 24 hours. The writing style was engaging and the book really spoke to me. It caused me to sit down and take a long, hard look at where I was financially, a decade plus out of college… The picture wasn’t pretty; a good retirement account, almost no savings, credit card debt, a car loan that was underwater, and incredibly poor spending habits. Today, 11 months later, I am debt free (other than the house) and feel fantastic. If I can change my ways and eliminate more than $25k in debt in less than a year…anyone can.

So how did I do it?

  1. Get Angry – For me, the first step to becoming debt free was developing an intense hatred for every penny I owed to my creditors. While I didn’t beat myself up (all the time), I realized that I had made foolish purchases (lots of shiny electronic toys), lived beyond my means, and fallen prey to the consumerism that has defined much of the past 20 years. Reading Dave’s book, and attending his online “Financial Peace University” course, made me realize that the problem wasn’t my debt…it was me.
  2. Stop Using Credit Cards – This was key. The day you decide to start getting out of debt, is the last day you use your credit cards. Period. End of sentence. Some folks like to use their cards and pay them each month (right, Jim?), but there is some very strong evidence that people spend 10-12% more when they use plastic, as opposed to handing over cold, hard cash. I was amazed at how many little purchases I didn’t make, because I didn’t want to see the $20 bills in my wallet disappear.
  3. Debt Snowball – Say what you want about Dave’s “Debt Snowball” model, but it worked for me. By focusing on small debts first, and then rolling those payments into the larger ones as those were paid off, I saw real results, very quickly. This kept me motivated, and created a great, positive feedback loop.
  4. Built a REAL Budget – For a guy with a background in finance, I’m embarrassed to admit that I’d never done a personal budget. By building a detailed budget for each and every month, I knew where EVERY dollar was going before it came in. And by using envelopes with cash for major spending categories (groceries, household, pet, entertainment), I had a build in spending limited: once the envelope was empty, I wasn’t allowed to spend anymore in that category.
  5. Share With Friends – Soon after I started Dave’s program, I encouraged several friends to consider doing it as well. We talked about what we were doing and how we were doing against our goals. It was great to share in our successes and to help each other through setbacks. Having a support network of other folks working the program was a huge asset to me.

Sound simple? It really is. It was hard work and required a ton of focus and intensity, but I am now in a position to build up a solid 3-6 month emergency fund. After that, life will get very interesting as I will be able to ramp up retirement savings, accelerate the paydown of my mortgage and, yes, have a little more spending money to buy those electronic toys I love so much…

If you’re in debt, and you want to get out of it, I encourage you to visit Dave’s website, or check out his radio or TV show. He’s controversial, to be sure, but he’s a great teacher…and made a huge difference in my life.

Nick has been a buddy of mine since college, still lives in Pittsburgh, and spends his free time dealing with an insane labrador retriever. He is hoping for swift passage of the HAPPY tax credit.

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36 Responses to “How Dave Ramsey Helped Me Pay Off My Debt”

  1. zapeta says:

    Congratulations on getting rid of that debt!

  2. Kevin says:

    Can’t say I’m a big fan of Mr. Ramsey. All the scripture turns me off. The book that that kicked me into paying off debt and saving more was the “The Automatic Millionaire” by David Bach.

  3. Daniel says:

    I have mixed feelings about Dave Ramsey but feel his message is an important one – expecially to the majority of Americans that spend blindly with credit.

    His television show is available on Hulu for those who are interested.

    http://www.hulu.com/the-dave-ramsey-show

  4. RJ Weiss says:

    Nick – Congrats on getting out of debt.

    I know Dave Ramsey is a love him or hate him type of guy, but overall he has helped more people get out of debt than anyone I know.

  5. nickfro says:

    I can appreciate what Kevin is saying… I was a little worried that the book would be filled with “Bible Banging”, but then I realize that Dave’s method is nondenominational and, while he is a devout Christian, the majority of the Biblical references are designed to share some ‘old school’ ideas on debt and wealth – it’s not much different than things my grandmother used to say…

    • Dustin says:

      I definitely don’t enjoy hearing scriptures quoted, but I’ll back up nick’s comments here.

      The scriptures that Dave quotes aren’t about making you believe in God or Dave’s particular intepretation of the bible. They’re all common-sense type verses like “the borrower is slave to the lender.

  6. joann says:

    There are many truths in the Bible.Many examples about money, and asset allocation. It is a time tested teacher. What is wrong with truth.Does this one bother you–”To much is given, much is expected” (paraphrased).

  7. Jerry says:

    I didn’t care for Dave’s religious references in his book either, but I think these references give him the license to recruit customers in church settings. Not a bad idea for a guy making a fortune off broke people.

    He reminds me of a 12 year old bully the way he challenges people to challenge his ideas – “Go ahead, I’ll call you stoooopid, stooooopid, stooooopid”. Really juvenile. But I guess that’s what some folks need to get their finances straightened out.

    I’ve done many of the things Dave says never to do, and that’s how I built my wealth. I’m so glad I didn’t hear about him or take his advice while I was doing so, or I might not be in the financial position I’m in now.

    • TJ says:

      Agreed with Jerry. I’m 32, came from a working-class family, studied and worked hard, and now have over $1mm liquid net worth and no debt and high income. I disagree with a lot of what Dave Ramsey advises. He’s gone bankrupt multiple times, and now in his old age is making a lot of money selling flawed personal finance advice to poor people. Both of our resumes speak for themselves.

      • Dustin says:

        “He’s gone bankrupt multiple times.”

        False. He was forced to file bankruptcy one time. At the time his net worth was $4 million, and the reason he had to file bankruptcy was that one of his lenders was bought out by a bigger bank which called $1.2 million of his loans in within 90 days. They did this because of the Tax Reform Act of 1986 drastically reduced the value of many real estate investments.

        Your whole post is called an argument from authority ( http://en.wikipedia.org/wiki/Argument_from_authority )…a common logical fallacy, and a poorly done one at that. Dave Ramsey has helped thousands and thousands of people get out of debt and build their net worth. You are one person. I guess he wins.

      • DebtisDumb says:

        TJ,

        impressed @ your liquid wealth. Listened to Dave Ramsey off and on for 15 years. His popularity is astounding. 450 radio stations carrying his program in the U.S.
        One correction,he only filed BK once,I think you need to do a little more research before you go crowing about how your resume stand up to his. how many people do help on a daily basis who are at the brink of disaster with thier finances?

    • Dustin says:

      You didn’t specify what things you’ve done that Dave says never to do, so I’m going to make some assumptions.

      Dave has never said that many of the things he says never to do can’t make you money.

      He says that his method carries less risk, and that is just a plain fact that any economist or accountant worth his salt will agree with.

      For example, it’s trivially obvious that many people have gotten rich by borrowing money. Dave Ramsey’s point is that in his opinion the added risk of borrowing money isn’t worth the added speed with which you can get rich by doiong so. He’d rather build wealth slowly and steadily by investing his own earned income.

      His advice is doubly true for those who his show is targeted at…those who have already shown a weaker ability to manage debt appropriately by, for example, getting into mountains of credit card debt.

  8. saladdin says:

    Ramsey is like Saturday Night Live. You have to set through some crappy stuff to get to the one or two good ones. I was turned off to him until I listened to the people who call in and tell him they are debt free. You can just hear the relief in their voices.

    There are a few things of his I would change or just question. Like when he tells people to sell their upside down vehicle and get a loan for the difference. What bank is going to give you an unsecured loan like that today?

    With Dave you have to remember:

    1. He’s not an investment advice guy.
    2. Money is as much emotional as math.
    3. Very few people have self control, hence over spending. So they need someone to tell them what to do.
    4. I like making lists.

    saladdin

    • Dustin says:

      “What bank is going to give you an unsecured loan like that today?”

      It’s not like Dave is telling people to go out and blindly sell their vehicle and then just hope they can get a loan for the difference.

      He tells people to try and find one that will before they sell the vehicle.

      Many credit unions will do this.

      It obviously works at times, because his radio show has people call in saying they’ve done just that.

      • saladdin says:

        Really? People with bad scores getting unsecured loans to sell a vehicle they are upside down on?

        Come on now. Out of 100 people, how many can walk in a credit union on Monday and walk out with this loan?

        saladdin

        • Dustin says:

          Who said anything about people with bad credit scores?

          Regardless, the question you ask about 100 people is irrelevant. Dave doesn’t tell people that this is the solution that everyone will be able to do. He tells people to try it. And it works for some people, I hear them on the radio every Friday which is the day that Dave’s radio show does lots of people talking about how they get debt free.

          It may only be 1 out of 100 people, but it’s worth a try…which is all Dave says.

  9. I am a fan of Dave Ramsey’s for the most part although of course I take issue with the “never use credit cards” stance because I try to use my cash back credit cards to pay for everything I possibly can. If I use my debit card or pay cash for something I pay 100% of the price. If I use my cash back credit card I pay 97% to 99% of the price. I just schedule my card to pay off the balance in full every month direct from my checking account. Seems like a no-brainer to me.

    • saladdin says:

      The problem is that we are in the minority. I’m with you, why would anyone carry a balance. But, people do it every day. It’s a fact of life. Listen to his show and it’s person after person saying “I’m 10k in cc debt.” It’s about temptation. People are weak and dumb.

      saladdin

  10. crystal says:

    Congratulations on becoming debt free! I am personally a huge fan of Dave’s… My husband and I became debt free over a year ago using his methods, and I will be the first to say how wonderful it is… especially in this economy! My husband was laid off in May 2009 , six weeks before our 4th child was born, cutting our income by more than half! Three weeks later, I was put on bedrest until the birth of our child on July 2nd. I was on maternity leave after that until six weeks ago when I returned to work on Oct 19th. During my maternity leave, I was only making 60% of my income through short term disability provided by my employer, so our income was not much & still is less than the average household income in America now that I’ve returned to work. My husband is still without a job & is currently being Mr. Mom and homeschooling our children while looking for work.

    I say all of this to show how amazing being out of debt really is… during this time that most Americans would be stressed out and struggling to make ends meet, we have not struggled once! We are not by any means wealthy, we are just your average family who once had credit cards, student loans, and car payments. If we still had those to worry about, I don’t know how we would survive right now… but because we are debt free, we were actually able to truly enjoy our time at home as a family with the new baby without any financial worry! Though we are wise shoppers, we are not tight with our money and have not had to change any of our spening habits since my husband was laid off… in fact, we even had to buy a new fridge and we didn’t even have to dip into our emergency fund! We have actually been able to continue saving each month because we just have our basic monthly living expences to worry about!

    We are believers, and of course I give all credit to our Heavenly Father for providing for us faithfully, but I believe He is honoring the hard work it took for us to break the bondage of slavery that debt had on us. I believe He used Dave’s ministry to help us with that and I truly appreciate that he is willing to follow that calling!

    • saladdin says:

      Ramsey should pair up with an investment guy for people like you who become debt free but are not investment wise. This is my major fault with Ramsey, no true investment advice for your hard earned money. Retirement planning is just as important.

      saladdin

      • crystal says:

        I agree that people like me could definitely use some investment advice, but he does have his ELP’s (endorsed local providers) for those types of things… We actually trust his endorsements so much that we go through his insurance agent of choice (Zander) for our life & identity theft insurance policies, we’ve used his favorite jeweler (Randy Barker owner of Barker’s Diamonds), and will find one of his endorsed investment advisors once we’re ready to start that stage of our “Total Money Makeover.” Right now, we’re finishing up our 6 month emergency fund though…

  11. Tuan says:

    I am actually reading the book right now. Although I am debt free, I really do have other ‘fat’ that is mentioned in the book which I need to pay attention to. His breaking down of debt myths was very informative.

  12. Brad says:

    I am a huge fan of Dave Ramsey and even if I wasn’t already a Christian I do not let someone’s beliefs about religion or life sway me unless that is the context of what I am reading. If someone I disagree with 90% of the time has something useful to say and can help me, I listen and take from it what I can, while discarding what might “offend” me.

    As far as investment advice, he does give it, but he specializes in becoming debt free. He has an entire two hour class that discusses investing AND RETIREMENT. Just because he doesn’t believe in day trading and other risky ways to invest doesn’t mean he doesn’t give investment advice.

    He shares with people what he himself has done which you could say is a proven method. Mutual Funds are a legitimate investment vehicle. It just kills me to listen to folks complain about someone they clearly know nothing about.

    Nick- Great job rocking the Total Money Makeover man! We became debt free by using his approach in about 18 months and since I have lead two FPU workshops and I can tell you that others are just as appreciative.

    We don’t use credit cards and life doesn’t cease to exist regardless of what others may think. We are funding our 6 month emergency fund now and look forward to funding our RETIREMENT, which is baby step 6. Very happy for you man!

    • saladdin says:

      The only things I have heard him say about investment is “good growth stock mutual funds” and “15% into retirement.” Both of which are suspect to me.

      If you have to pay to get his advice then I’ll pass. But that is a seperate issue then his get out of debt method.

      But I will say that his out of debt method works for the majority of people. I’m all for people taking hold of their financial life.

      saladdin

      • Brad says:

        Aren’t growth stock mutual funds and roth IRA’s tools for investing? Some investors take more risk, while others are more conservative. Dave Ramsey’s views about investing are; you do not have to be risky to build wealth. That’s not wrong or “suspect”, it is just another point of view. You can day trade if you like, I do not have a problem with that at all, but I would never say that your method is suspect simply because I disagreed. I prefer security over gambling which is why Dave Ramsey’s views on investing are of interest to me.

        Actually, you do not have to pay to get his advice, you can borrow his book from the local library—now you don’t have to pass. :) I would add that I do not see anything wrong with someone earning a living by helping others. Dave Ramsey has put together a very helpful series that he should get paid for–Financial Peace University.

        Across America people everywhere, are forking over hundreds of dollars for debt consolidation. Charging $100 for a lifetime membership which includes audio cd’s, books and more, and transforming lives is much more valuable to me than not paying anything to learn more and staying in debt.

  13. Glenn Lasher says:

    I like Dave Ramsey for the most part. Like many here, I’m not so much into the religious aspects of it (I am not a Christian), but I also understand that Dave’s religious practices are at the root of his actions, which is not a bad thing in and of itself. My religious underpinnings are at the root of my actions as well, so who am I to criticize for that?

    He has spoken a bit lately on his radio show about healthcare, and I don’t think he and I see eye to eye about it. So be it. He has, however, gotten me to stop and think about my own position to make sure it is sane.

    On to the main point, however, the thing he does that is most important in my book is his dispensing of financial advice. By hosting a call-in talk show, you get a sense of perspective about your predicament. You come to understand that you are not the only one in a mess with debt, and you come to understand that there are, in many cases, many folks worse off than you. This is enough to motivate you beyond self-pity and into action. It helps you get angry, as it were.

    I also like the idea of the “heart of a teacher”. He encourages you to buy services from people who will teach you, not just sell you. When you buy something, you should understand it thoroughly. I’ve always felt that way, and I think it is great to see that someone is pushing this idea in the public view.

  14. Sam says:

    The best and rarely mentioned side-effect of the Dave Ramsey plan is the elimination of risk around basic needs. Once the risk around basic needs such as food, water, shelter, retirement and healthcare are near zero you can do anything you want.

    Keeping risks low does have a cost in potential rewards. We’re constantly reminded that you have to take risks to succeed, but people telling you that are trying to sell you something.

    Think of the phrase “A bird in the hand is worth two in the bush”. You can gamble on the two-in-the-bush once the important stuff has been taken care of.

  15. I think that part of the joy of life is spending freely so long as you can pay off the entire credit card bill at the end of the month. I am the type of person who is anal about most of my purchases before I make them and there are others like me that get free vacations for charging instead of paying cash. At least get a reward debit card!

    If you want to save money then throw away your television, cancel your cable, and stop letting marketing tactics influence all of your decisions in life. I agree with the previous comment and think that people need to evaluate and take care of their basic needs like shelter, food, etc. You don’t need cable, expensive data plans, or Air Jordan’s.

  16. Congrats on getting rid of all that debt!

  17. aua868s says:

    I read a lot of +ve feedbacks abour Dave Ramsey….but deep down me I just can’t get the logic of paying of lower interest rate debt over a higher interest rate debt…maybe its just me.

    • Des says:

      What’s not to get? Breaking habits (financial or otherwise) isn’t about math. If it were just about the math, people wouldn’t be in debt in the first place.

      Think of it like using the patch to quit smoking. Some people might ask “why give up one addiction for another?” But the point is that it helps build proper habits one step at a time.

      Many people think “I don’t need the motivation, I’ll go with the numbers.” That may be true if the debt is from medical bills or divorce. But if it came from overspending then habits need reformed and Ramsey’s method is worth a shot.

  18. Brad says:

    aua868s: Logic huh? Where’s the logic in spending more than you make? Where’s the logic in going into debt in the first place? Getting out of debt is about much more than doing math. If you were doing math then you wouldn’t have got into debt in the first place.

    Getting out of debt is about stating motivated. If you try and pay off your highest interest rate debt first it will take you longer to gain momentum. Anyone who has actually paid off debt will tell you that momentum is important. Psychologically, it is more beneficial to achieve the quick wins right from the beginning.

    Trust me, it’s not just you, many others have the same issue. I would say this: Do you want to do good math, or do you wanna get out of debt?

    I and many others have used this method to get out of debt. It is a proven method.But don’t let logic get it the way.

  19. aua868s says:

    Brad…appreciate your reply on my comment.
    I personally do not spend more than what I cannot repay within a month…thats why I always maintain zero dollar balance in my credit card at the end of the month.
    Not “everyone spends out of spite” more than what they make…its situation and compulsion which forces some (if not all) to spend more than what they make.
    There’s more than 1 way to solve a problem..be it high school math or finance or any issue in life….I am one of the many people who live and plan things by logic and have been successful (at least by our own scales!). Still, I feel a person’s debt is solved by finding ways to make more money (legally and ethically!), cutting down expenses and doing some MATH!!!
    Brad, final thoughts…you need to tone down a bit..agreed this is a public forum…but nothing to get too excited about an idea which is not even yours in the first place…at least I have my own way of dealing problems (approach logically and realistically!)

    • Brad says:

      aua868s -I was not specifically referring to you when I responded, I was speaking for people who were in debt—and for all I knew at the time,that could of been you.

      Trust me, I think in terms of logic as well, and as Dustin pointed out, it is still logical to take into consideration other psychological factors when trying to take on something as hard as consumer debt. You yourself said there is more than one way so why would you then call someone illogical for not using your self-professed—”LOGICAL” method.

      I would also like to point out that someone such as yourself—who admits to never having been in debt because they use “logic and math”, then it would be hard for you to make a determination about which way is better.

      I work closely with people who use Dave Ramsey’s method, and I can tell you that it is proven. I also know people who are stuck doing math, and can’t seem to find the motivation to continue getting out of debt. They go back to the same habits only to find out that they are deeper in debt than they were before. If only they would have been Dave Ramsey fans.

      As far as toning it down, I am not really sure what you are referring to. There was nothing over the top about my comment. You posted your response and I asked you questions that I felt were relevant to what you said. Sorry I hurt your feelings.

      If anything I thought your comment was rather condescending when it should of been more of a celebration that Nick got out of debt. There is a time and a place to talk about different methods but this was not the time or the place.

      In my world when someone becomes debt free, it’s worth enormous applause and celebration, regardless of whether or not they used the method I think is best. The bottom line, and most important thing is that they are debt free…correct?

      Also, please do not mistake my passion for negative, or confrontational tones. My mission in life is to get people to become debt free so they can live life and enjoy the fruits of there labor, so they can give more money to others in need, and so they can provide a stable and secure financial foundation to pass down to future generations…so I’ll leave the math to you.

  20. Dustin says:

    But can’t you see that people who don’t have a brain that works the same as yours (for example, the people who get too deep into debt) may need the psychological motivation?

    That’s perfectly logical.


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