How I Plan to Pay Off My Credit Debt in 28 Months

Okay, I’m actually putting this down in black and white for the whole world to see – I have a lot of credit debt (credit cards, car loan, medical debt, retirement loan.) At one point, I thought it would take 10 years to get rid of it all if I was lucky and somehow was able to get through those ten years without using the credit card again – seriously?! Well, now I’ve made a plan and in 28 months, give or take a couple of months, we will be debt free except for our house loan. Keep reading to find out how to get out of debt yourself.

Several months ago, a friend of mine told me about a personal finance blog – or is it a website? – called Get Rich Slowly. I signed up for the newsletter and have enjoyed reading the insightful tips and debt advice. I need all the debt help solutions I can get! One of the Get Rich Slowly newsletters is where I learned about Dave Ramsey’s The Total Money Makeover book. I went straight away to check it out on Amazon. I thought it sounded promising, so I put it in my shopping cart. I often put items I think I want in my shopping cart and leave them there for a while until I decide whether to really spend the money on it or not. Well, I’m very happy I decided to spend my money on this book!

I’ve read several personal finance books that discuss how to get out of debt; my favorite authors on the subject are Suze Orman, David Bach, and now Dave Ramsey.

I highly recommend all three, even though their debt reduction methods differ - they all have great tips for paying off and getting out of debt.

The Total Money Makeover was, surprisingly, a very easy and enjoyable read – not dry at all. Two things turned me on right away about this book and Dave Ramsey’s philosophy:

1. Ramsey says that “…personal finance is 80 percent behavior and only 20 percent head knowledge.” He believes that becoming knowledgeable isn’t the only thing necessary to build wealth; he makes you realize that to change your ways, you have to change. This may not hit home with some people, but it really hit home with me. I’ve been, for as long as I can remember, a shopper – when I’m upset, depressed, sad – I shop for therapy. I sometimes think I can buy love – that’s the side of me that buys way too many toys for my kids!

2. The second thing that turned me on to this book was Dave Ramsey’s mantra, which is printed over and over again at the bottom of every single page of The Total Money Makeover: “If you will live like no one else, later you can live like no one else.” What this mantra is saying is that if you will live like no one else – meaning don’t live like so many do with too much debt, little to no savings, relying on credit cards - if you will just make the sacrifices now which most people aren’t willing to do, then later on you’ll be able to live unlike those people will ever be able to live. It’s not magic; it’s a great reminder, however, that if you stick to the plan, you will succeed, and the payoff will be worth the temporary sacrifice.

Ramsey’s “plan” includes what he calls “baby steps” and there are seven of them. I will briefly touch on each of them here:

Just as it states, save $1000 cash – liquid cash. It must be easily attainable, should you need it for an emergency (but not so attainable that you’ll be tempted to spend it unnecessarily.) Emergency does not mean you need a new outfit for a wedding you were recently invited to. Emergency means your car broke down, you have to bury a loved one, you lose your job. Christmas is not an emergency!

This is where I’m at as of this week.  This is what Ramsey refers to as the way to pay off debt.  The debt snowball concept itself is actually common sense, yet genius – and it’s all part of a proven plan to financial fitness.  Visible progress is important whenever going after something big; if you don’t see any progress along the journey, then you lose the motivation to continue.  That’s why Ramsey to list all your debts (except your home) from smallest payoff balance to largest, the interest rate does not matter – quick wins is what matters because when you see something get paid off it lights a fire in you – or under you – to keep it going.

According to the plan, once you’ve made your list of debts, pay the minimum payment to stay current on all debts except the smallest.  Make whatever sacrifices you can to put every extra penny and “found” money toward that smallest debt until it is paid off.  He gives you a lot of tips about where to “find” money, which is what helped me significantly.  Once that smallest debt is paid off, put every penny you were paying toward it to the next smallest debt, plus the minimum you were already paying to that one until it is paid off.  Continue to do the same thing until all your debt is paid off – the payment becomes larger each time a debt is paid off – thus the “snowball effect.”  Sounds simple, doesn’t it?  Well, it really is – but you have to be committed in order to stick it out and succeed.  If you put it all down on paper, you will be surprised at how quickly you can pay it all off.

The major elements of making this plan work for you is that you must have a budget, get current before you get started, smallest to largest payoff, sacrifice, and be focused on the goal.  According to Ramsey, the most important thing is total, sold-out, focused intensity in order to win.

One last thing about this baby step is that should an emergency occur and you have to take money from your $1000 in savings, you must put the debt snowball on temporary hold and replenish the $1000.  Once you do so, continue with the debt snowball. 

At this stage, you are out of debt, except for your mortgage (if you have one.)  Now it’s time to fund an emergency fund with three to six months of expenses.  If you have a job that you feel is very secure, then a three month emergency fund may be sufficient for you.  If, however, your job is not so secure and there’s even the slightest chance that you could lose it, then you should focus on a six month emergency fund.  At this point, since the only debt you may have is your mortgage, your expenses shouldn’t be too much and it should not take too long to complete this step. 

Here is where you really start to get serious about your wealth building.  At this stage, you have no debt payments except your mortgage and you have three to six months’ worth of expenses saved up.  It should be easy at this stage to invest heavily.  Here’s the rule:  Invest 15% of before-tax gross income annually toward retirement.  The earlier you get started, the more benefit you’ll realize from the magic of compound interest!

Did you know that 39percent of Americans with kids don’t save a dime toward college (according to Money magazine)?  By the time you get to this stage, following these baby steps, you’ll have a strong foundation and you’ll have the money to save.  If you don’t have kids or they’re grown and gone, then skip this step and move on to the next. 

You were wondering when this step would come, weren’t you?  At this point, every dollar that you can find in your budget after living, retirement and college expenses should be used to make extra payments toward your mortgage.  Can you imagine having no debt payments whatsoever?  It can happen if you follow through with intensity. 

This is where all the sacrifice finally pays off completely – that’s not to say that your sacrifices along the way did not pay off somewhat as you went along the baby steps. When you get here, it’s finally time to live like no one else because you have lived like no one else through this process! You have plenty of cash, so you can and should pay for everything you want with cash. You don’t ever need credit cards again. Have fun, invest, and give!

If this sounds as good to you as it did to me, you should get this book. What I described above only touched on the main premise of each of the baby steps. The book has so much more information to help you budget and stay motivated. It also includes some very helpful worksheets.

Now stop crawling and begin your baby steps!