Our Journey to Financial Freedom: Baby Step 2 – Pay Off All Debt aka the Debt Snowball!

Welcome to our Journey to Financial Freedom!

If you’re joining us on Baby Step 2, then please hop on over to Baby Step 1 for an introduction on how we came to our journey towards financial freedom.

In this series I’ll breakdown each of Dave’s Baby Steps. I’ll talk about how we personally tackled each one, how long it took us to accomplish that step, plus provide you with a tip from my past mistakes, or what I wish I knew back when.

Oh, wondering why you should listen to us? Don’t blame you! We started this journey in February 2016 and are currently on Baby Step 6. We paid off $35,500 in debt within 13 months … and that’s all you need to know as we’ll get into further detail in future Baby Steps.

Start here with “Total Money Makeover”. Click the photo to purchase.

I’ll also tell you over and over again how this was easily the best decision we made as a couple. Debt is a huge burden to your marriage. It provides stress and tension, and that leads to arguments and restless nights.

You can read all you want about how bad Dave’s advice is. I’m only speaking from experience. Has it been great for us? Yes. Has it helped us financially? Yes. Has it improved our marriage? Absolutely!

WANT HELP? If you want to get out of debt and aren’t sure where to start, or have questions, or need an accountability partner or couple, then please email me at lifewiththreekids@hotmail.com, or message me on Facebook here. We’re here to help you achieve financial freedom!

Baby Step 2: The Debt Snowball

Easily the most difficult of the baby steps, but make it past this step and you’ll feel like a real winner! Oh and be debt-free!

How did we pay off $35,499 in 13 months making almost $60,000 in gross income … GROSS income, meaning not take-home pay? Well, join us as we share our tips on how we got to where we are now.

TIP No. 1: It’s Going to Be Rough!

Hate to break it to you, but it won’t be easy. You’ll want to give up, you’ll make excuses about needing things you don’t really need. You’ll want things you really don’t need. But you got this!

TIP No. 2: Set a budget!

You have to set a budget and Dave’s team has a wonderful tool for you called Every Dollar. Every Dollar will help you set a to-the-penny budget. You enter in your take home pay, necessary monthly bills, for example, the rent, the electricity, the insurance, your average grocery bills, and your debt. At the end it’ll tell you if you should have money leftover or if you’re in trouble.

Again, you’ll want to enter the necessities. Have Spotify, Netflix, gym membership, monthly hair coloring appointments? You need to cut that out of your budget and life – temporarily – but you need to.

Dave jokes about beans and rice, but it’s true. You HAVE to cut out cable, and the unnecessary items. Basically anything over your monthly bills needs to go to debt. It sucks. I know it does, but you’re on a mission to financial freedom, and seriously, it’s much better and less stressful after Baby Step 2.

A screenshot from Every Dollar.
Not my Every Dollar but one found online. 🙂

Oh, and the interesting part when you make your budget. You’re likely going to find that you have money leftover. When we first did our budget we realized we had an extra $200. Where was that going? Well often some of it was headed to savings and some of it was for eating out. Beans and rice folks!

“But, but … you do need to live a little!”

Sure you do! Trust me, nothing brings more more joy to me than traveling with my family, but pausing things for 12-24 months is likely not going to hurt your “living a little.” Speaking from experience, it didn’t and hasn’t. If anything it helps. Everything is paid for in cash. We’re not paying for weekly vacations for months afterwards. Plus, use that 12-24 months to explore the outdoors. Parks, hikes, the beach, vacations like that are no cost – if you can budget properly.

TIP No. 3: Lowest to Highest … in that order!

Baby Step 2 is when you attack your debt. You list out your debts from smallest to largest, and then you start attacking them in that order. Pay no attention to the interest rate, the due dates, nothing, just attack them based on the smallest to the largest.

I’ve talked to numerous people that have decided to do this, but do it in their own way. They want to pay off the high-interest credit cards before the small cards. Those people have never gotten past Baby Step 2.

There’s a reason Dave preaches the debt snowball. It’s all motivation. When you pay off that first debt, you feel like a winner. You’re motivated. You feel accomplished. You’re pumped and ready to attack the next one.

DebtMonthlyOwed
Credit Card $        50.00 $             150.00
Car Payment $      350.00 $          4,000.00
Line of Credit $      400.00 $          7,000.00
Student Loans $      450.00 $        11,000.00

We’ll use the above example. Let’s say you have $150 due on that credit card. You normally $50 a month towards that bill. Once you have it paid off, you add that $50 a month to the next payment. Using the example above, that’d be the car payment.

Even though the monthly minimum on the car payment was $350, you add that extra $50 you were paying on the credit card and are now paying $400 a month.

Make sense? Let the snowball roll down hill.

Our first debt was a small credit card. We hit that immediately and it felt amazing. I was ready for the next one. We hit that second one quickly, alright, we’re on a roll! Then came the bigger stuff, the line of credit for our bad house decision, the car, that’s right the car!

TIP No. 4: The Car IS Considered Debt

“Well you’re always going to have a car payment.”

Uh no, no you’re not and no you don’t have to. When I first help people with getting out of debt, they often fail to mention their car payment because, well that’s not really debt.

Uh, a car depreciates value the second it leaves the lot. You’re not making money off your car, like you hopefully will be doing with a home. It’s debt, pay that thing off!

TIP No. 5: … and so are Student Loans

Don’t wait around for your presidential candidate to bail you out. You got yourself into this mess (and are now hopefully using that degree you spent thousands of dollars on), now climb yourself out of it.

TIP No. 6: Tax Refunds, Bonuses … it all goes to debt!

You might be thinking, “How the heck did they pay off $35,499 in 13 months taking home less than $60k?” We were fortunate to have two tax refunds and two work bonuses in the time we were paying off debt. For me this was the hardest part, seeing a couple thousand – four different times – be deposited into my account and then turning around and writing a check to whoever was next on our list.

It sucks! It sucks big time! But it also helps! It helps big time!

Using the example above, I have $4,000 on my car payment. I paid off the credit card and am now putting $400 a month towards the car. Tax season comes and I’m getting $2,000. Throw it all at the next debt on your list. Now that $4,000 debt is at $2,000 and your 10 months of $400 is at five.

An extra incentive, when you get that first debt-free bonus and refund, oh that feels so good watching it go straight to savings or a paid for, and needed vacation.

TIP No. 7: No More Credit Cards

Another hard one for people because they want that security of borrowing money via a credit card. “But I’ll pay it back right away.” No you don’t. Pay off a card, cut it and trash it. Worried about your credit score? Don’t. You’ll be able to pay cash, plus – and we’ll talk about this in Baby Step 3.5 – by the time it comes time to buy a house you’re credit score will have rebounded (before it drops) and with no debt and a fancy score the lenders will be loving you!

I like what Dave says about your credit score, it’s basically a scoreboard saying how good you are with borrowing money.

TIP No. 7: Did I mention it’s Going to Be Rough?

It’s going to be real rough! Especially if you have student loans and multiple car payments. All I can say is stick with it. Hit it hard. Make sacrifices. You’re about to make an incredible difference and impact in your life that will change it drastically, and change your family and your legacy drastically.

It’s hard to explain, but when you no longer owe anyone money, you don’t want to go back to it. You feel relieved of stress and motivated to move onto the next step.

Plus, when you reach Baby Step 3.5 – Buying a Home, and they run your debt-to-income and realize you have no debt, zilch, nada, and are awestruck (true story – twice), you’ll realize that the sky’s the limit.

You got this! I’m here for you! If you need help, assistance, or motivation, then please email me at lifewiththreekids@hotmail.com.

2 thoughts on “Our Journey to Financial Freedom: Baby Step 2 – Pay Off All Debt aka the Debt Snowball!

  1. Loved this post! Super helpful and informative – it’s beyond true that you need to get the debt out of the way first! Once you don’t owe anyone anything, the possibilities open up!

    Looking forward to reading more of your journey! You got this! 🙂

    Like

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