Debt Story

Welcome, AKA, The very first post…

Hi All, this is my first post to my new blog. I will update this blog with information about my journey to get out of debt, stay out of debt, and stockpile tons and tons of cash. I am following the “baby steps” program suggested by Dave Ramsey. If you would like info about him or his 3 hour daily talk show, click here… www.daveramsey.com …I LOVE Dave’s stuff. My wife and I are on step 2. There are a total of 7 steps. I will outline the first 3 today, and go over a little about them for you.

Step 1… Create a “baby” emergency fund of 1000 dollars. Put this 1000 dollars in a savings account or a money market account. You need to be able to get to this money if you have an emergency. I have my emergency fund with ingdirect.com. Right now they are offering 3 percent on their savings accounts, much more than any local bank is offering. You can also receive a 25 dollar sign up bonus for opening an account with them. Email me at contact for a referral. You will get 25 bucks, I’ll get 10, you’ll be on your way to saving some money, I’ll be one little bit closer to being debt free. Win, win, win, win.

Quick note…Be sure you are CURRENT with all of your bills and payments before you save up the 1000 dollars.

Step 2…This is the step I am on. List your debts smallest to largest, by amount owed, not by interest rate. Pay minimums on all of the debts, and pay AS MUCH AS YOU CAN on the smallest debt. Once you pay off the smallest, keep paying that same amount on the next smallest. Then once you have two debts paid off, pay those 2 amounts on the third debt. Here is an example

Card 1 Balance 100
Card 2 Balance 250
Card 3 Balance 500

So, suppose you had 100 dollars to pay towards ALL of your debt for the month of January. Suppose all cards had the same minimums, say 10 bucks. Now, that means you will pay 10 bucks to Card 1, 10 bucks to Card 2, and 10 bucks to Card 3. Now, you still have 70 bucks left over to pay on debt. Pay all of this on card 1. (Let’s assume, for the sake of ease, that there are no finance charges) Now, your balances for February look like this.

Card 1 Balance= 100-10-70 = 20
Card 2 Balance= 250-10 = 240
Card 3 Balance= 500-10= 490

So, for February, you pay your 10 dollar minimums again, leaving you another 70 dollars for debt repayment. You put 10 more dollars towards Card 1, creating a zero balance. Yay! This card is paid off. Now, you STILL have 60 dollars for debt reduction. DON’T STOP NOW! Put this 60 dollars towards card 2. This is called the DEBT SNOWBALL. Here are your results at the end of February.

Card 1 Balance= 20-10-10 = ZERO
Card 2 Balance= 240-10-60 = 170
Card 3 Balance=500-10 = 490

Keep doing this, using up the entire 100 dollars you have for debt repayment each month. By the way, as you pay off debts, you will might find that you have more and more money each month to payoff more and more debts.

You can see the reason for step 1: The Emergency Fund. If you don’t have the 1000 dollar cushion, then anytime a tire goes flat, or a window gets broken, you will have to run back to Mr. Credit Card for a bail-out. BUT, if you have the Emergency Fund, these unexpected things can be taken care of.

Step 3: After you are out of debt, everything except your mortgage, then you are ready to create a fully-funded emergency fund of 3-6 months expenses. I am on step 2 right now, but when it is time for step 3, I will shoot for an emergency fund of about 10,000 dollars.

I hope you have enjoyed this first post, hope to hear from many of you soon. Thanks,
NCN

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7 thoughts on “Welcome, AKA, The very first post…

  1. Hi,

    I stumbled upon your blog today. Nice layout! One thing I noticed. when I clicked on search button, without first clicking in the search text box, website performs a search for the term ‘search this site’. Is this a desirable behavior? You can call a 2 line java script function to empty the textbox and prompt the user to enter something.

  2. This looks very much like my first blog (I just started a few days ago). I haven’t read the book (but I will!) but I did come to realization that we have to be debt-free.

    Thanks for encouraging us by sharing your story!

  3. Although , one haqs to give a good hand to the ideas given, what happens if your income is below that of the national average and are still living paycheck to paycheck, in addition without the “luxurious overspending” [because you simply can’t], in addition to the worries? How does one put these ideas to work. I myself have only god to thank for the opportunity given to make over $40K a year [combined] after a 20 year stint in the military, but I don’t know what I’d do if I had to return to living on just retirement pay in these days’ economy. I don’t think there a solution to every situation. There are those of us who can save the $1000, and those who’ll struggle at the mere thought of trying. Not to knock the present ideas or take credit from them, What’s a person to do then????

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