In my quest to educate myself about personal finances, I found several really informative blogs on money. (See my Money Blog list off to the left hand side.) Several money blogs and websites often tout and talk about Dave Ramsey and his book The Total Money makeover. I have not read the book but I have heard about his baby steps to get out and stay out of debt. Dave Ramsey has seven baby steps:
- Start an Emergency Fund of $1000.
- Pay off all debt using the Debt Snowball.
- Create a fully funded emergency fund equal to 3-6 months of expenses in savings.
- Invest 15% of household income into Roth IRAs and pre-tax retirement.
- Save money to fund a portion of college for children.
- Pay off the home mortgage.
- Build wealth and give! Invest in mutual funds and real estate.
Like I said, I have never read the book but I did learned about Dave Ramsey and his steps from several online sources and for the most part the steps seem to speak for themselves without too much further explanation. Debt snowballing, in baby step 2, was something that did need further explanation and so I did a little research. Basically with debt snowballing, you concentrate on paying off the smallest debt first. You pay what you can on it, over the minimum payment and pay only the minimum on the other debts. Once the smallest debt is gone, add what you were paying on that former debt to the next outstanding debt payment...and so on...and so on. Thus, creating a snowball effect. This method helps your efforts to be focused and less diluted over various debts and Dave Ramsey reasons that by paying the smaller debts first you get quicker feedback/successes.
I did think this was a very interesting concept to paying down debts and since I had step 1 down, I worked on step 2 using the Debt Snowball method. Well, I did start off following this method, but in all honesty it wasn't because of the this method that I just paid off my credit card. I recently received a sum of money and used that money to pay off my credit card. I paid the largest balance first and I still have a small balance left and will now focus my efforts toward that. Then, I will put my money efforts into focusing on baby steps 3 and 4.
Getting closer to my financial goals does feel good. It is all about baby steps!