Dave Ramsey - 7 baby steps

dreambig19

Hi all

New here, and going at this all guns blazing - may be the wrong way to go about it but once I decide to do something I'm like a dog with a bone! I've seen Dave Ramsey mentioned a few times, in particular using the snowball method to clear down debts. I've been looking into him more and found his 7 baby steps program.

Step 1, before clearing down debt, is to set yourself up with some emergency savings (he recommends £1K). I have no savings!! So my question is - would you:

a) do this first - get some emergency savings put aside - BEFORE starting to make overpayments on debts
b) just go straight to clearing down debts, savings can come later
c) 50/50 with any surplus funds to an emergency savings pot/overpaying on debt?

Thanks
R

Willing2Learn

When I started my DMP, I included funding for an EF by setting up affordable monthly payments in my SOA. It hasn't got to be a lot, if things are tight. But it is a good habit to get into...I definitely think the main focus of the monthly budget should be weighted heavily toward debt repayments.

On that basis, I guess I would choose option (d)

dreambig19

Willing2Learn wrote: »

When I started my DMP, I included funding for an EF by setting up affordable monthly payments in my SOA. It hasn't got to be a lot, if things are tight. But it is a good habit to get into...I definitely think the main focus of the monthly budget should be weighted heavily toward debt repayments.

On that basis, I guess I would choose option (d)

Thanks for all your advice today! What sort of percentage split do you think would be wise? 80/20? 75/25?

I know I need to start figuring some of this out for myself, but I'm very nervous about it all at the moment - thanks for your patience

Willing2Learn

dreambig19 wrote: »

What sort of percentage split do you think would be wise? 80/20? 75/25?

Work out your monthly SOA. Then from that work out what you can afford from your monthly budget for snowballing your debt repayments. And just include your EF in the snowball. Treat your EF payments exactly the same as all your debts. Whatever is affordable basically. Just so long as it is realistic, affordable and doable. Just remember, your main focus should be toward the smallest debt account (to start your Dave Ramsey snowball rolling).

enthusiasticsaver

dreambig19 wrote: »

Hi all

New here, and going at this all guns blazing - may be the wrong way to go about it but once I decide to do something I'm like a dog with a bone! I've seen Dave Ramsey mentioned a few times, in particular using the snowball method to clear down debts. I've been looking into him more and found his 7 baby steps program.

Step 1, before clearing down debt, is to set yourself up with some emergency savings (he recommends £1K). I have no savings!! So my question is - would you:

a) do this first - get some emergency savings put aside - BEFORE starting to make overpayments on debts
b) just go straight to clearing down debts, savings can come later
c) 50/50 with any surplus funds to an emergency savings pot/overpaying on debt?

Thanks
R

How to split between savings and debt repayments depends very much on the interest rate you are paying on the debts and how much disposable income you have. If after all expenditure and minimum debt repayments you have £1000+ available monthly I would focus on the debt especially if you are paying interest as you would have the monthly available cash to deal with most emergencies.

However if you own a house, have pets or a car (source of most emergencies) and only have a few hundred spare each month I would split between savings and emergency fund. How much the split is depends on the interest rates you are paying on the debt, your situation and how high your debt is.

The reason Dave Ramsey and most debt counsellors say focus on an emergency fund is that you need to break the cycle of going to a credit card when you have an unexpected outgoing which cannot be avoided. An emergency fund should only be dipped into in a real emergency too so if your fridge or cooker breaks or roof is leaking or the car breaks down and you need it to get to work. It is depressing to repay debt and then find you need to use the card to sort out an emergency and be back where you started.

A good start is an soa.

sazaccount

I highly recommend doing a SOA: http://www.stoozing.com/calculator/soa.php format to MSE at the bottom and copy and paste onto the thread, people here will be able to advise on where to cut down where to possibly increase and then you'll be able to see how much you have to possibly but into an EF or working down the cards so you have a little wiggle room for emergencies.

for example if all of your credit is on 25%+ APR it would possibly be best to work on getting these down than having a large EF.

Then there is 2 different snowball methods the DR way of tackling the smallest debts first this has a good physiological side of things being able to get rid of the debts quicker or the MSE method of tackling the ones with the highest APR this will save the most amount of interest in the long run

JayRitchie

My recollection of watching Dave Ramsey is that the spread of interest rates on the debts people call up about is relatively low - lets say between 6% and 20%. The advice he gives when people have very high interest loans (payday loans etc) can be different - you dump cash on these as quickly as possible and live with a degree of risk.

I think some caution is also needed with his advice on not paying into pensions while in debt. I'm not sure how the US system varies from ours. Most of the time it would be madness for a nurse or teacher not to pay into the pension scheme in this country. The value of the employers contribution is so large you just don't turn down that sort of money.

aimeemum

Dave Ramsey's books/videos have been invaluable to me. From your questions my advice would be:

Yes, make sure you have an emergency fund. He recommends scraping it together quickly by any means necessary and keeping it in cash somewhere accessible (Instant access account, in an envelope in your house, with a friend or relative so you can't dip into it unless it's an emergency) - but, and this is a big but, I struggled to get to £1k and didn't want to stall so I just gathered as much as I could in 1 week and then started on the debt repayments - I managed to gather up £300 by selling lots of things and cashing in vouchers.. I got through 12 months and it's all gone but nothing big came up so it went on smaller things like the occasional pair of shoes for the kids or set of brake pads for the car so it did serve it's purpose. Don't think of it as savings...it's a safety net for you to know that your debt repayments wont be dereailed by something coming up unexpectedly.

Everything else should be budgetted for and for the time being - NO savings should be included. Everything £ needs a job, budget into sinking funds for upcoming expenses and big annual bills and all spare needs to go towards debt. Pick your smallest balance debt first and tackle that and then snowball onto the next biggest. Use a calculator or spreadsheet to track your payments and work out when you'll be debt free and mark it on the calendar. If you stray, it will make it take longer, so this is your motivation.

Cherry_Burton

Hi

I followed Dave Ramsey 100% when I was getting out of debt. I would definitely say go through the steps in order. I got together £700 rather than £1000 because he is working on dollars, not pounds and the exchange rate at the time worked out about that. £700 took some finding but it was essential to change the way I thought about money. If I am honest, I was always a bit entitled. So I would think, "I work hard so I deserve X." Or," everyone else has Y so I should have it as well".

I also paid off my debts smallest to largest not by interest rate. As Dave says, it's not about maths (or math:rotfl:) its about feelings.

Good luck. Stick to the baby steps, be gazelle intense and you will win.

getmore4less

The key is a decent budget(plan) SOA format is good for sharing.
Min of 12months planning allowing for some longer term stuff as well.

Emergency happen when the plan is incomplete start by reviewing the last 12 months.

Size of emergency fund depends on circumstances and cashflow £1k is not a one size fits all solution.
Consider a credit card line of credit as an emergency fund if you have high interest debts 0% purchase are good for this.

Snowball analysis using interest rates not size of debts.

Get the SOA done and posted for assistance on potential spend savings.

dreambig19

Hi all, thanks for your replies! I'll sit down and do the SOA this evening and post on here.