- Bargaineering - http://www.bargaineering.com/articles -

How Dave Ramsey Helped Me Pay Off My Debt

Late last December I came across a post on Bargaineering about Dave Ramsey’s book, “The Total Money Makeover [3].” 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 [4], 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 [5], 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 [6].