You Get Out of Debt The Same Way You Learned How to Walk- One Step At A Time
Dave Ramsey
I am from the generation of instant results. Sometimes this can be a bad thing, but in this case, I think my generational behavior will pay off. I am working toward my next financial goal of having a zero balance on my credit card by August 1, 2014. Once I reach my goal, I plan to only use the card for things that can be paid off before the end of the billing cycle (if I must use the card at all). Last year, my balance reached over $5300.00 and my monthly bill was putting a wrench in my spending/savings plan. That was my “aha moment”. It was then that I decided to take full control over my financial situation by not only setting goals, but dates to meet the goals. Financial coach and author, Dave Ramsey, believes that you get out of debt the same way you learned to walk—one step at a time. For this idea, Ramsey created 7 Baby Steps to help people beat debt and build wealth. The first Baby Step is to start an Emergency Fund of $1000.00. Once you’ve completed Baby Step One, you then move on to Baby Step Two where you start to pay off debt using the Snowball Method. I’m at Step Two and I am trying to pay off my credit card and then move on to my student loan debts as fast as possible. This led me to a thought one day to do something extremely risky….
Playing Russian Roulette With My Finances
In my Week 14 update of my money challenge, I relieved for the first time just how I have gone from balance of $5300.00 to a $1345.00. The closer I get to the $1000.00 mark the more crazy ideas flow through my head.
For instance, I came up with the idea, a while ago, to go against Ramsey’s advice and completely deplete my emergency fund. I would do this only when I got my credit card balance under the $1000.00 mark. The Pro to that idea is that I will immediately have a ZERO balance by using the Emergency Fund to pay off the remaining balance. The CON… well we call it an “emergency” for a reason. It is a somewhat good idea if I had a crystal ball and a glimpse that there would be no financial emergencies soon. No one can foresee when you really need to tap into that fund. Plus, not having the funds at all will send you right back into debt because you will have to cover the “emergency” with credit or even worse, borrowing from someone else.
Keeping my original idea in my, I considered a tapered down version of my risky plan. Instead of depleting the Emergency Fund completely, I would take out $500.00 and apply it to my credit card balance once I got under the $1000.00 mark. Doing so will help me to reach the zero balance goal, two months ahead of time and stay on track with my financial plan. Once the credit card balance is paid in full, I would then continue my normal $300.00 per month + money from the 52 Week Money Challenge to replenish the Emergency Fund until August 1st. Because I have eliminated interest, I would actually end up with $100.00 extra going back into my Emergency Fund.
If You Were Me, What Would You Do?
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~ Update: Click here to see what Danielle decided to do ~
shemakescents 
We love Dave Ramsey at our house. Looks like you already got some great advice. Although I never follow a plan 100%. I like to pick and choose from the best of everybody’s ideas. So all that to say, I think that a person shouldn’t do or not do something because of one person’s thoughts. Do what works for you and your situation!
Mary, thanks for your comment. I agree that you have to do what works for you. Things started to get “interesting” after I decided to use the $500.00 for my credit card debt. Stay tuned to see what happens next.
Ha! Doesn’t that always seem to be the case? Lol. Looking forward to it 🙂
I like your second idea of $500. To have no money in your emergency fund would just be too risky for me!
I agree that having ZERO money in my emergency fund is not only risky but a poor financial decision altogether. If it were you, would you use the $500.00 or just be patient?
Being that you own a home I definitely wouldn’t deplete your emergency savings, and I wouldn’t really recommend taking $500 out either. You are SO close to your goal and have been kicking butt. I know the feeling of just wanting it to be done, but I don’t think it’s worth the risk. It will all be paid off soon!
Thanks Heather! Your comments always hit the nail on the head!
I wouldn’t completely deplete that emergency fund. Maybe half of it, with the knowledge that you will pay it right back. But know if something happens you are probably putting it back on that credit card again and that kind of defeats the point. Either way you are going to get to that zero balance really soon and maybe not rushing it is best especially if you own a home, a car, have a family, etc. The more things you depend on, the more likely to have to use that emergency fund for something.
Yes, if I use half ($500.00) would start paying it back immediately. I would have recovered the money by my original goal date of August 1st. It’s definitely risky since I own my home and car. Thanks for your comment because it has given me some additional things to consider before I make a decision.
I would consider your “risk” for emergencies. Do you own a house? House emergencies can have a lot of zeros behind it! Do you own a car that frequently needs to be repaired? Do you have medical insurance deductibles greater than $500? For me, even if I had potential for an emergency of greater than $500 I wouldn’t deplete my emergency fund.
We are in a semi-similar situation. We have a 6+ month emergency fund ($20,000+). We only have our mortgage left for our debt. Currently ~$73K. My husband said the other day once we get under $20K, he would like to throw the emergency fund at it. I said “over my dead body” LOL. However, I would be willing to use $10K of the emergency fund, leaving $10K+, because it would be a 1 in a million chance of us having an emergency over $10K.
Best wishes and congratulations on all your progress! 🙂
Nichole,
Thanks for your comments. You definitely bring up some very smart and logical points. Yes, I own a car, a luxury car at that so repairs can get pricey. I owe a home, and you are right, when my pipes burst last year that bill had one zero to many for my liking. I am truly taking all suggestions into consideration and my idea could be the result of me not being patient. Thanks again for your comment and please feel free to comment anytime with your thoughts or suggestions. Us, money girls have to stick together:)