is anyone else following the Baby Steps to pay off debt?

[smiley]

I love reading this board because there is so much knowledge, but I feel alone in the debt repayment camp. So, are you on a debt free journey? how long have you been on that journey? goals? maybe we can have a monthly or bi-monthly check in!



My husband has recently started having baby fever... when we first got married he had this goal that we had to have a baby by the time he is 30, well that 30 year mark is coming in 2016 so he is really looking at our finances now so we can start a family.... we have a lot of debt... like 130k (including the house) left to pay off. We sold our travel trailer this past month to get the ball rolling which is a huge help. I ran the numbers last night and if we only make our minimum payments (including the house) our debts will be paid off in 7 years... obviously that isn't the plan and we intend to get gazelle about it and pay off every dollar we own as soon as possible. I would love to put baby on the back burner (figuratively) until we have these debts paid off but I don't think he'll go for it!

[SJ]

Is your goal to pay off all your debt before having a baby? Including the mortgage?

Why? What interest rates are your loans at? Do you have adequate retirement savings? Are you currently saving?

Putting your life on hold to pay off all debt is not usually the wisest strategy, but it depends on many other factors. It sounds like you are a Dave Ramsey fan, though, and I don't think following his advice literally makes sense for most people.

[dexteroni]

I don't know what the Baby Steps plan is, but most people don't include their mortgage in their "getting out of debt" plans. How much debt do you have other than the mortgage? And how do you only have 7 years left on your mortgage - is it a 10 year mortgage or something?

[Deleted]

I don't know what the baby steps plan is. Link?

I'm in debt payoff mode to pay off my credit cards. Now that I've graduated I have a solid plan. I won't be using them at all and will have them paid off in 2-3 years. I'm happy with that plan.

I have no clue when I'm going to pay off the 300k in SLs and for now am just paying the minimum. I hope to qualify for pslf in 10 years so they'll be forgiven, but I'm not holding my breath as who know what government regulations will be around by then. I have several years before I get more serious about paying them down. Right now I can't afford to do so.

[iheartbanjos]

It's the Dave Ramsey plan.

Step 1 is to save a starter efund of $1K
Step 2 is to pay off all debt besides your mortgage
Step 3 is to save a 3-6 month efund
Step 4 is to save 15% toward retirement
Step 5 is to save for kids' college
Step 6 is to pay off mortgage

If you become pregnant while on baby step 2, Dave recommends only paying the minimums on your debt and waiting until the baby is born save and healthy to get back to paying down debt.



OP: how much debt do you have besides your mortgage?

To answer your question, H and I are on baby step 6, but are keeping the cash liquid since we will be moving in a couple years.

[CrazyLucky]

I took the Dave Ramsey class. I think he has a lot of good points, but his advice is geared to people who are in financial trouble. If you are going to be able to pay off your house by age 36, you are not the prime target of his advice.
During the class, we did decide to pay off all debt except the house. The rate on the house is less than 4%, so we're ok paying that off more slowly, and it should be paid off when DS is about 16, so we can put mortgage money towards college.
I don't think there's a need to be debt free before having a kid- otherwise no one could ever do it! I would pay off all debt but student loans and the house though.

[delawarejen]

smiley - this board doesn't have many DR fans, unfortunately. The paid boards are good, and there are a bunch of free ones out there as well. Part of the reason I lurked for my first 10 years on this board was because I didn't really feel like this was the place to share my debt-free journey.

I'm happy to chat by PM. I personally follow more of the YNAB philosophy these days (you can use a credit card or debit card instead of just cash, as long as you have the funds in the bank before making the purchase, etc.)

[SJ]

Here are SJ's baby steps:

Step 1 is to ensure you have a basic will & estate plan set up
Step 2 is to put enough into your employer retirement plan to get the maximum match which is FREE MONEY
Step 3 is to save a starter efund of $1K
Step 4 is to make sure you have appropriate term life insurance
Step 5 is to pay off all HIGH INTEREST debt
Step 6 is to save 15% toward retirement
Step 7 is to save a 3-6 month efund
Step 8 is to focus on non-retirement saving/investing
Step 9 is to save for kids' college - at least the minimum to get any necessary state tax breaks
Step 10 is to ENJOY LIFE! Travel, spend money, etc.
Step 11/never is to pay off mortgage & other low-interest debt

[SJ]

To clarify, it's not necessary BAD to pay off all debt. It's just not the wisest thing you can do with your money.

It's all about alternatives and interest rates.

If you are spending/wasting the money, then yes, paying off low-interest debt is a better alternative.

If you know you won't invest the money and it is going to sit in cash earning 0%, then yes, paying off low-interest debt is a better alternative.

If you will invest the money or take advantage of tax breaks or opportunities, then that is a better use of your money.

[dreamcrisp1]

I'm paying off debt too. Once I get a job, I'll be able to do this more easily. I've already paid off 1 CC. And I'm left with 2.

I don't even know about my student loans. That will come!

[Deleted]

Jul 23, 2015 14:41:59 GMT -5 SJ said:

Here are SJ's baby steps:

Step 1 is to ensure you have a basic will & estate plan set up
Step 2 is to put enough into your employer retirement plan to get the maximum match which is FREE MONEY
Step 3 is to save a starter efund of $1K
Step 4 is to make sure you have appropriate term life insurance
Step 5 is to pay off all HIGH INTEREST debt
Step 6 is to save 15% toward retirement
Step 7 is to save a 3-6 month efund
Step 8 is to focus on non-retirement saving/investing
Step 9 is to save for kids' college - at least the minimum to get any necessary state tax breaks
Step 10 is to ENJOY LIFE! Travel, spend money, etc.
Step 11/never is to pay off mortgage & other low-interest debt

If your employer doesn't offer a match, do you still recommend saving for retirement before having a 1k efund and paying down debt?

[SJ]

Jul 23, 2015 15:07:13 GMT -5 @wandering said:

Jul 23, 2015 14:41:59 GMT -5 SJ said:

Here are SJ's baby steps:

Step 1 is to ensure you have a basic will & estate plan set up
Step 2 is to put enough into your employer retirement plan to get the maximum match which is FREE MONEY
Step 3 is to save a starter efund of $1K
Step 4 is to make sure you have appropriate term life insurance
Step 5 is to pay off all HIGH INTEREST debt
Step 6 is to save 15% toward retirement
Step 7 is to save a 3-6 month efund
Step 8 is to focus on non-retirement saving/investing
Step 9 is to save for kids' college - at least the minimum to get any necessary state tax breaks
Step 10 is to ENJOY LIFE! Travel, spend money, etc.
Step 11/never is to pay off mortgage & other low-interest debt

If your employer doesn't offer a match, do you still recommend saving for retirement before having a 1k efund and paying down debt?

It depends on income/expense levels and what kind of debt & what rates you are paying.

[smiley]

Jul 23, 2015 14:01:58 GMT -5 SJ said:

Is your goal to pay off all your debt before having a baby? Including the mortgage?

Why? What interest rates are your loans at? Do you have adequate retirement savings? Are you currently saving?

Putting your life on hold to pay off all debt is not usually the wisest strategy, but it depends on many other factors. It sounds like you are a Dave Ramsey fan, though, and I don't think following his advice literally makes sense for most people.

We most likely will not pay off all of the debt before having a baby. However, I would like to have a large chunk of the consumer debt gone before then.

The interest rates vary drastically from a 0% credit card to almost 30% on a credit card. This is a lot of stupid consumer debt that has been piling up over the years.

[smiley]

Jul 23, 2015 14:04:25 GMT -5 dexteroni said:

I don't know what the Baby Steps plan is, but most people don't include their mortgage in their "getting out of debt" plans. How much debt do you have other than the mortgage? And how do you only have 7 years left on your mortgage - is it a 10 year mortgage or something?

We have 61k left on our mortgage. If we snowball all of our debts the mortgage would be the last debt to pay off since it's the highest balance. If we continue the snowball into the mortgage it would be paid off in 2022. We refinances a few year ago into a 20 (from a 30) year mortgage, I am not sure how many years we have left at this point.

[smiley]

Jul 23, 2015 14:31:40 GMT -5 @vicmo said:

I read the DR book a while back and I think it's an OK plan for people who are bad with money. Like, is a 1k efund a fantastic idea for most people? No. But is it better than zero efund and maxed out credit cards? Yeah.

I think it makes sense to work the baby steps if you have historically been terrible with money. I wouldn't pay off my mortgage or low-interest debt early - we are not paying extra on our mortgage or my 0.9% car loan. We are investing that money in retirement and other lt savings.

we are bad with money, really bad with money.... I read the Total Money Makeover like 3 years ago and never did anything. Since then we have bought a travel trailer, timeshare, truck etc all on credit which has just increased our balance and minimum payments. Our minimum payments are way more than our mortgage payment! It's nuts. So a little guidance has really helped us see the light at the end of the tunnel and get our shit together.

[smiley]

Jul 23, 2015 14:46:57 GMT -5 @vicmo said:

Ditto delawarejen on the YNAB recommendation. Especially if you just want some more visibility and help getting spending under control. It has enough flexibility that you could be a debt free gazelle or leveraged like a hedge fund manager.

I found YNAB last year, bought it during black Friday and it just sat in my inbox until this June when I finally downloaded it. We have used i the whole month of July and it has really opened our eyes!

[smiley]

Jul 23, 2015 14:38:35 GMT -5 delawarejen said:

smiley - this board doesn't have many DR fans, unfortunately. The paid boards are good, and there are a bunch of free ones out there as well. Part of the reason I lurked for my first 10 years on this board was because I didn't really feel like this was the place to share my debt-free journey.

I'm happy to chat by PM. I personally follow more of the YNAB philosophy these days (you can use a credit card or debit card instead of just cash, as long as you have the funds in the bank before making the purchase, etc.)

this is one the reasons why I have never posted about our debts before or asking Dave Ramsey questions. I figured I would rather not be pulled apart like that, I have seen budget posts in the past and just cringe thinking of being on the receiving end of the advice.

we are using YNAB and I love the software!

[smiley]

Jul 23, 2015 15:34:32 GMT -5 @vicmo said:

Jul 23, 2015 15:32:07 GMT -5 smiley said:

I found YNAB last year, bought it during black Friday and it just sat in my inbox until this June when I finally downloaded it. We have used i the whole month of July and it has really opened our eyes!

Woo hoo! Wtg. Have you checked out the YNAB forums? There's good support available there. A few DR lovers, but mostly just YNAB fanatics.

I have not ventured into the forums but do follow a few YNAB groups on Facebook

[mrsfarmer]

Jul 23, 2015 15:34:19 GMT -5 smiley said:

Jul 23, 2015 14:38:35 GMT -5 delawarejen said:

smiley - this board doesn't have many DR fans, unfortunately. The paid boards are good, and there are a bunch of free ones out there as well. Part of the reason I lurked for my first 10 years on this board was because I didn't really feel like this was the place to share my debt-free journey.

I'm happy to chat by PM. I personally follow more of the YNAB philosophy these days (you can use a credit card or debit card instead of just cash, as long as you have the funds in the bank before making the purchase, etc.)

this is one the reasons why I have never posted about our debts before or asking Dave Ramsey questions. I figured I would rather not be pulled apart like that, I have seen budget posts in the past and just cringe thinking of being on the receiving end of the advice.

we are using YNAB and I love the software!

Make sure your 0% is paid off within the timeframe for it to be paid off at 0% and then attack what you can.  Are you saving for retirement?

[smiley]

Jul 23, 2015 15:51:12 GMT -5 mrsfarmer said:

Jul 23, 2015 15:34:19 GMT -5 smiley said:

this is one the reasons why I have never posted about our debts before or asking Dave Ramsey questions. I figured I would rather not be pulled apart like that, I have seen budget posts in the past and just cringe thinking of being on the receiving end of the advice.

we are using YNAB and I love the software!

Make sure your 0% is paid off within the timeframe for it to be paid off at 0% and then attack what you can.  Are you saving for retirement?

We both contribute to our 401ks and put in enough to get our company match. We have been putting into our 401ks since we were 18 so we are ahead of the game with retirement.

[mrsfarmer]

Jul 23, 2015 15:54:56 GMT -5 smiley said:

Jul 23, 2015 15:51:12 GMT -5 mrsfarmer said:

Make sure your 0% is paid off within the timeframe for it to be paid off at 0% and then attack what you can.  Are you saving for retirement?

We both contribute to our 401ks and put in enough to get our company match. We have been putting into our 401ks since we were 18 so we are ahead of the game with retirement.

Good job!  You could always do a post about the debt and how to pay off, people have done that in the past even if you don't want to do a full budget.  I do a cross of DR, Suze Orman, etc.

[dexteroni]

We didn't know about Dave Ramsey when we got out of debt. We had maybe $5k in savings at the time so we just left it there and stopped saving until we were out of debt. Even if we had known about DR, I don't think we would have been comfortable with having only $1k in savings anyway, since we owned a house by then. Then we cut our spending significantly and put every dollar we could toward debt. We had several cards with small balances so we wiped those out first to make things a little tidier, then we snowballed based on interest rate. We also didn't stop contributing to retirement during our debt payoff. I still don't really agree with that approach.

Can you sell the truck and get something cheaper? I know that doesn't always work out once appreciation is factored in, but it's worth looking into. If you have $69k in consumer debt, you should look into every money saving situation you can. And definitely sell the time share asap, no question.

Good luck!

[aurora]

Jul 23, 2015 15:34:19 GMT -5 smiley said:

Jul 23, 2015 14:38:35 GMT -5 delawarejen said:

smiley - this board doesn't have many DR fans, unfortunately. The paid boards are good, and there are a bunch of free ones out there as well. Part of the reason I lurked for my first 10 years on this board was because I didn't really feel like this was the place to share my debt-free journey.

I'm happy to chat by PM. I personally follow more of the YNAB philosophy these days (you can use a credit card or debit card instead of just cash, as long as you have the funds in the bank before making the purchase, etc.)

this is one the reasons why I have never posted about our debts before or asking Dave Ramsey questions. I figured I would rather not be pulled apart like that, I have seen budget posts in the past and just cringe thinking of being on the receiving end of the advice.

we are using YNAB and I love the software!

I think most of us would like to be friendly and not pull you apart, even if we aren't specifically DR fans.

I know that the "smartest" way to build wealth is to leverage (earning more in investments than you pay in interest), but I also know that doesn't work as well in practice for some people as for others. I think it's totally fine to start practicing good money habits in ways that are the most emotionally rewarding to you - that will give you the motivation to keep going. Even though I don't follow DR's specifics, I don't think there's real harm to getting started using his method if that's what motivates you. I definitely wouldn't accelerate your mortgage payments, though, and I wouldn't put off having children for 7 years just to get the mortgage paid off if you're otherwise ready.