Dave Ramsey's Baby Steps Explained for Free
LivingAlmostLarge
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I actually really like Dave Ramsey (DR) and think his get out of debt method works and makes sense. However I find it greatly ironic that people who are in debt will pay money to him to get out of debt. It seems almost counterintuitive. But he's making a lot of money, people are happy and getting ou 
t of debt so whose to complain? But if you are serious about getting out of debt and are a cheapskate at heart, I'm going explain his steps to you for free.
Pre-baby step 1: Cut up all Credit Cards and draw a line in the sand, NO MORE DEBT!
-At this point, concentrate on getting current on all bills (rent, CC, car payment, utilities)
-Build a bare bones budget starting with the 4 walls (home, food, utilies, health), then determine what are absolute essentials and what are not.
Baby Step 1: Build a baby Emergency Fund of $1000.
-Because you've cut up the CC, this is to prevent more debt from occuring when setbacks or unexpected expenses occur. You may sell stuff off to get this, you might get a second job. The objective is to get a cash cushion as soon as possible.
Baby Step 2: Get out of Debt!
-DR says to pay off debt smallest to largest. Why? Because you are changing behavior and it's easier to stick with the plan if you see small accomplishments along the way. Yes it makes more financial sense to pay off the highest % rate debt, but if you understood finances you wouldn't be here reading about DR, would you?
-Snowball your debt. What that means is pay the minimums on every debt owed, then use your leftover money to pay off the smallest debt. Example you owe $300, $800, $2000 with $10 minimums each. You have $100 to pay off debt, you pay $10, $10, $10, and add the $70 to the $300 debt. That should be paid off in 4 months, then you can take the $10 minimum and $70 extra and throw it to the $800 debt. Got it?
-My main issue with BS2 is that DR says to stop all retirement contributions, something I disagree with but it's a minor point.
Baby Step 3: Fully Funded Emergency Fund (FEFF)
-DR says to put into a liquid account 3-6 months of your expenses. This can be at ING, HSBC, etc. Just somewhere in case of emergency pay it off.
-But what really constitues and emergency?
Pre-baby step 1: Cut up all Credit Cards and draw a line in the sand, NO MORE DEBT!
-At this point, concentrate on getting current on all bills (rent, CC, car payment, utilities)
-Build a bare bones budget starting with the 4 walls (home, food, utilies, health), then determine what are absolute essentials and what are not.
Baby Step 1: Build a baby Emergency Fund of $1000.
-Because you've cut up the CC, this is to prevent more debt from occuring when setbacks or unexpected expenses occur. You may sell stuff off to get this, you might get a second job. The objective is to get a cash cushion as soon as possible.
Baby Step 2: Get out of Debt!
-DR says to pay off debt smallest to largest. Why? Because you are changing behavior and it's easier to stick with the plan if you see small accomplishments along the way. Yes it makes more financial sense to pay off the highest % rate debt, but if you understood finances you wouldn't be here reading about DR, would you?
-Snowball your debt. What that means is pay the minimums on every debt owed, then use your leftover money to pay off the smallest debt. Example you owe $300, $800, $2000 with $10 minimums each. You have $100 to pay off debt, you pay $10, $10, $10, and add the $70 to the $300 debt. That should be paid off in 4 months, then you can take the $10 minimum and $70 extra and throw it to the $800 debt. Got it?
-My main issue with BS2 is that DR says to stop all retirement contributions, something I disagree with but it's a minor point.
Baby Step 3: Fully Funded Emergency Fund (FEFF)
-DR says to put into a liquid account 3-6 months of your expenses. This can be at ING, HSBC, etc. Just somewhere in case of emergency pay it off.
-But what really constitues and emergency?
- Dave Ramsey's Baby Steps
- Debt