I’m planning on wrapping up my series on debt unless someone has a question, then I’ll do another post.
So far I’ve touched a bit on why we are focusing on getting out of debt and how we still live a little by doing so. Most of the principles we follow come from Dave Ramsey. You can get any of his books from Amazon. While I do believe that following his plan 100% works for some people, I just want to encourage you if you’re struggling or feeling bad about not following everything he teaches.
Ramsey’s Basic Principles
1. Build a $1,000 Emergency Fund
2. Put as much $$ toward debt as possible, snowballing your debt by paying the smallest first and working until the largest is paid off
3. Build your 3-6 months of living expenses in savings
4. Invest 15% of household income
5. Start child’s college fund
6. Pay off home early
7. Build wealth and give
Following his plan, you will finish #1 before moving to #2 and so on. When reading his book or taking his class, these guidelines sound great! Get a little money for a “rainy day”, pay off debt, build a savings, then start focusing on the future. Sounds like a great plan!
I will be honest, we are not even thinking about anything past Rule #3 right now, so just know that when I’m sharing my suggestions and struggles.
Finances Our Way (or God’s Way?)
Our plan to becoming debt-free is a bit different from what Dave Ramsey suggests, and here’s why and how.
1. Prayer After getting all of our finances in order, how much we owed, how much we had, we realized we had enough to pay off our 2nd smallest debt and had the chance to live without a car payment. See, this went against Dave’s suggestion of paying off the smallest debt first.
We could have that one off and put some toward the car, but the idea of not having a car payment intrigued us. We spoke with our class leader, prayed over it separately and with one another, and also prayed over it with a church leader. We decided to pay off the car!
Had we simply followed Dave’s plan like so many do (let me be clear, he does not discourage praying, but if you aren’t taking his class then you may not understand that) and not been prayerful, we may not have taken that route. You see, we need to remember that all of our money is God’s anyway! He gave us the skills and talents and passion we have and use to earn an income. It’s all his, so asking him how we should spend it honors and glorifies him!
2. Saving Now Dave definitely makes it clear that one should pay off debt before building a savings (not talking about your Emergency Fund here). He even talks about how men and women differ in their need to have a savings. I agree with his point, there is something inside me that needs to know we’re taken care of, my husband too. We get it, the longer you have debt, the more you will pay in the end..stinking interest! And that sucks, it does. It really ticks me off that if we took the recommended (by the loaner of course) 10ish years to pay off my student loan debt, we would have paid well over $5000 in interest. Pshh, how is that right?
Regardless of that, we do have some money in a “Life Savings” account. It’s not the full 3-6 months worth of expenses, and we don’t put into it every month, but it’s there. We aren’t taking from it to pay debt or to live. Again, this was something we talked over and prayed over and was right for us.
3. Giving Dave talks about the freedom to give in such a way that each of us would want to strive for that, and I love that. It’s a beautiful thing, being able to give freely to those in need. Spreading God’s love through gifts not only feels good, but makes God happy as well! While his #7 Baby Step is talking about giving on a larger scale than what we do, I don’t want you to feel like giving isn’t important now.
As a Christian, Dave assumes you’re giving 10% of your income to your church, that’s actually the first thing he lists on his budget sheet. Every month you should be giving 10% of what you earn back to your church or in the form of some other tithes. Between our church and an orphanage in Haiti (my friend is on the board!) every month 10% goes to someone else, to further God’s kingdom. It’s hard, but it’s what we’re called to do.
On top of that, which is not something we even question or think about, I love giving gifts! I love making gifts, which is usually more frugal. Believe me, there are months where we are scrapping by on other things so we can buy and send gifts. Doing this allows us to be selfless and exercise gratitude. We may cut back on our payments on debt so we can adorn our family and friends with things they need or things we think they’ll love. I don’t think this kind of giving heart goes against what God would want.
4. Credit Cards Dave recommends that nobody have a credit card. I agree, most of the time. Unfortunately, we live in a culture in which swiping plastic is like breathing. For varying reasons, we are living on credit. We are living above our means. We give in to the temptation of having to get something because someone else has it. We don’t know when to say no. We feel like we deserve something even if we don’t have the money to buy it.
There are many reasons people use credit and so as an overall rule Dave discourages using them. I agree. If you know your heart and know that you’ll abuse having a credit card, don’t have one. Pay it off, chop it up, and say goodbye. It’s not worth the temptation or hassle or interest rate. We felt a release the night we chopped up our credit cards. The temptation was gone, it was a real feeling.
Now, we do still have on credit card. And here’s why.
My husband and I are both in agreement that given our pasts and view on debt and money, we can handle this. We only use it for gas for the cars!! That’s it. Nothing else. The goal is to pay it off at the end of each month. That’s the goal, it doesn’t always happen. If he has to drive to San Diego everyday for a week for training and has to fill up twice, we may not pay it all off. But it’s still the goal.
Neither of us ever struggled with credit cards in college (or ever). We live in agreement, that if we can’t afford something be it a new couch or airline tickets to see family, we don’t get it. Our credit card is not our crutch. We live frugally and within our means, therefore, we find think it’s appropriate for us to have a CC.
Know yourself. Know your limits.
What are your tips or rules for getting out of debt?