Dave Ramsey has a devout following by giving no nonsense advice on how to get out of debt and stay out of debt. As he puts it “The paid off mortgage has replaced the BMW as the status symbol of choice.”
His advice boils down to six “baby steps”
1. Save up $1000 as an emergency fund.
2. Get out of debt as fast as you can by listing your debts smallest to largest. Pay off the smallest first while paying minimum payments on the others. Then as you pay off the smallest one, roll that payment in the next highest one, etc. until you have them all paid off.
3. Create an emergency fund of 3-6 months of expenses
4. Invest 15% of your income towards retirement
5. Create a college fund for your kids
6. Pay off your home early
7. Never borrow or go into debt again
I must admit – as simple as his plan is – it resonated with me to help me get my financial life in order. I started looking at my incoming and outgoing and realized that I was spending as much or more than I was making. I also had no real idea what it was all going to. I had never really done a proper budget but generally knew where everything was going and had never really set aside money for an emergency fund.
So my wife and I sat down in 2007 and did our first proper budget. It was an interesting exercise when you realize how frivolous some things were. We cancelled some unused services and looked for ways to cut expenses.
Dave teaches that you should cut up and cancel all of your credit cards with the idea being if you don’t stop charging and exceeding your means by buying things on credit, you’ll never turn things around. So we looked at all of our credit cards that we had and the annual fees we were paying and started to cancel them right and left.
We made some real traction and started to get things in order. I then started to become a little bit more active reading about this miles and point hobby and started to read the Frugal Travel Guys blog. He talked how to apply for credit cards over and over in order to get a lot of points and miles. So in October 2008 I wrote him an email and he helped me do my first churn. I think I applied for like 9 cards at the time and was approved for all of them.
Since then I’m done a pretty substantial amount of credit card applications here and there in order to score some significant bonuses. But always in the back of my mind, I’m thinking about what Dave says that you’ll spend more on credit and it’s true to some degree especially now with minimum spend requirements. With the US Mint deal dead, you have to put actual spend on the cards and sometimes you can justify this by hitting a spending bonus all the while perhaps charging more than you intended.
In total, we’ve paid off high five figures so far and are much better off that we were long ago but I just can’t seem to pass up the lucrative credit card bonuses. So in that respect I’m a Dave Ramsey fan but also a serial credit card churner – and so perhaps my debt snowball is going to take a longer time but we’re going to see some incredible places in the meantime with all of these miles and points.