This is the story of how we paid off $76,000 in debt in less than 2 years (was actually 18 months) thanks to following the Dave Ramsey plan! Hopefully it will inspire others to hop on the bandwagon with us and say goodbye to debt for good!
I’ve always been pretty financially savvy I’d say. I paid my way through college working full-time, only having to take out student loans for about one year. I started saving for my retirement when I was in my early 20’s and I always had a decent cushion of money in my savings account. I had read a lot of financial books throughout the years so I thought I had a pretty good grasp on how to be financially stable and make good decisions. However, I was always used to having car payments thinking it was just always normal to have one and once I purchased my first home it was the typical 30 year fixed mortgage. I had handfuls of credit cards to my favorite stores for all the perks but if I used them I immediately paid them off before any interest kicked in, thinking it was okay and not really “debt” since I would pay it off quickly.
When me and my husband got married in 2010 we kept our bank accounts separate, he did his stuff and I did my stuff. We both had different views about money, he would spend every dime he had without a second thought, and I would invest for the future and save some but I’d still shop to my heart’s content buying whatever I wanted whenever I wanted it. Since I am the financial nerd he would just write me a check every month and I would use it for bills and we would both go on our merry ways, spending how we were used to. We never asked each other what we did with our money or paid any mind to it at all. We didn’t argue about money or think we were in any financial strife. It was working well for us so why fix it right?
Fast forward a few years later and I finally ended up paying off my car right about the time we found out we were expecting our first child. I was driving around a super sporty Mustang GT, white with black racing stripes, I loved that car. I was so happy about not having a car payment for the first time in my life that I told myself that even though I was going to have a baby soon that I would drive that Mustang until the wheels fell off!
Well that’s not what happened. About six months after our precious baby girl arrived I found myself at wit’s end desperately trying to fit a huge infant car seat in and out of a 2 door sports car with basically no back seat. I had promised myself that I could make it work but then I’d see these moms driving around their kids in spacious SUV’s and mini vans that looked so easy compared to the misery I was faced with every time we had to go somewhere.
I told my husband it was time for an upgrade, I had had enough of banging my head on the door and getting stuck between the seat. So off we went to find the perfect mom car for me! I knew as soon as I drove the new Jeep Grand Cherokee that it was the car I wanted. And that’s exactly what I got, I said goodbye to the Mustang and I think I literally cried, it had been such a good car to me so I was sad to see it go. And then I think I cried because I realized how stupid I was for buying a BRAND NEW VEHICLE with a STUPID CAR PAYMENT!!!! I instantly had buyers remorse the moment I drove it off the lot. I felt like the car dealership took advantage of me (which they did) and I felt like a fool. But that feeling is the driving force and the reason we are where we are at today. I got myself into the mess of another lengthy car loan and I was going to get myself out of it. I learned a valuable lesson from purchasing that Jeep and I am thankful for that.
The last thing I wanted was to be stuck in another 5 years of payments so I started researching online the very next day how to pay off debt quickly and I came across something called the envelope system. It’s basically paying cash for everything using envelopes for each category of spending. I started crunching numbers and getting spreadsheets out trying to figure out how it might help us. It was apparent that it was very doable, in fact I knew that if we worked hard we could pay off the car in half the time of the original loan. I told my husband about it and I told him that I found this Dave Ramsey financial guys method of spending with cash only. I also told my husband that in order to do this we would need to combine our finances to make it work. So we each got put on each others bank accounts and I got busy calculating our expenses and how much money we could spend every month. My goal was to pay off the Jeep as soon as possible no matter what it took.
We had gone from not having much debt in terms of monthly payments to all of a sudden having what seemed like a ton of debt within a short period of time. Aside from the new Jeep we had racked up quite a bit of other debt within a few short months plus some old debt that we had lingering around. The old debt was mostly my husbands students loans coming in at about $30,000 although I still had about $4,500 of my own from that one year I took out loans, the newer debts we had accrued were zero interest credit cards for a new pool fence, decking, pool equipment, a storm shelter (living in the middle of Oklahoma you need one!) and other small miscellaneous home stuff. Once I put a pen to paper and wrote it all out we were looking at $76,000 in debt, car and all, that was everything we owed with the exception of our mortgage. OUCH! Seeing it on paper was like WHOA!!!! That’s insanity! Why were we borrowing so much money?? And why did I think it was okay?? We made good money so why did we owe so much?? Not a good feeling!
So starting in July 2015 we began using the cash envelope system, which in turn started allowing us to have about $2000 a month after expenses to pay off any debt that we had! How did we go from not really having any money leftover every month to having $2,000? Well we cut cut cut, we cut out all unnecessary expenses and tightened our budget. Once we saw how much money we were spending on going out to eat and shopping those were the first things to get cut. We became much more frugal and found creative ways to keep costs down. We cut up all our credit cards and even quit using debit cards except to withdraw our money every month, it was cash only from here on out.
We were trucking along staying on budget and using the money we had been saving since switching to cash only to pay off some of our debt and making some steady progress. But then one day about 8 months into using the envelope system my aunt dropped off a book to me called “The Total Money Makeover” by Dave Ramsey because she knew I was already using his envelope system (you can grab your copy of this incredible book down below). I opened the book that night and I literally read it in less than 24 hours. It was so inspiring to hear other people’s journeys to financial freedom and how they were able to pay off their debt. Couples making way less than we did were paying off astronomical amounts of debt by following his system. His book was a blueprint to how to get out of debt and to do it with intensity.
The book talked about the 7 baby steps to financial peace which need to be followed in order:
- Save an emergency fund of $1,000
- Pay off all debt, smallest to largest (called the debt snowball)
- Build an emergency fund to 3-6 months of expenses
- Contribute 15% to retirement
- Invest in college savings for kids
- Pay off mortgage early
- Build wealth and give generously
The book goes into great detail on how to move through each step and gives real people’s stories on how they changed their lives from desperation to building wealth. The great thing about the book is that it is a simple plan to follow and it makes sense! A lot of financial books go into so much other stuff that it can be overwhelming or complicated.
I had new inspiration and motivation now, it gave me that extra push to work even harder to destroy the mound of debt we had. I was gung-ho after reading his book so I went back to the drawing table and started doing more calculations, where else could we cut expenses in order to pay off our debt even quicker? I came up with our new budget plan and I told my husband with enthusiasm. He was not nearly as excited as I was initially. He felt like we were already cutting enough expenses and he didn’t want to let go of anymore of his monthly allotted spending money. Dave Ramsey had become a cuss word in our home for a little while, haha! I was not backing down though, I kept on trying to convince him that it was just temporary, that once we dug ourselves out of this hole that we could get back to where we were. He obliged but only because he knew it meant a lot to me, he was not happy about cutting his monthly envelope allowance basically in half but he was on board nonetheless. My approach was probably not the best way to convince him but the battle was worth it because once he started seeing the results he was also convinced and made into a believer. He actually ended up encouraging me throughout the process and was my encouragement to keep going so I give him major kudos for seeing it through, he had done a complete 180 and was just as excited as I was. I also listened to the Dave Ramsey podcast daily as my motivation to stay on track.
I redid our budget and made a spreadsheet listing all of our monthly expenses in pretty rainbow categories because I love rainbows. Then we listed all of our income for the month and subtracted the expenses, whatever number was leftover was going straight to our debt, every single penny was accounted for and had an assignment. So at the beginning of every month we knew where every dollar was going and we stuck to it. We were telling our money where to go instead of letting our money control us.
This is the point where we got real serious with the baby steps. We already had step 1 complete with the $1,000 in savings but we also had much more than that. I had been so used to this cushion of our savings account that it was extremely hard for me to part with it to pay off debt. It was like my safety net. Since step 2 is to pay off all debt Dave Ramsey says you need to use any funds you have, aside from retirement, to pay off existing debt. You do this by paying only the minimum payment on all debts except the one with the lowest balance which you attack with a vengeance any way you can, once that one is paid off you move to the next and so on until all debts except for your house are paid.
Oh and he also says to stop ALL RETIREMENT savings until you are on step 4. WHAT?! No contributing to my 401K anymore?? This was another hard pill for me to swallow, I loved seeing my 401K grow every month so not contributing to it seemed crazy to me! So here’s what we did- I cashed out some non retirement mutual funds I had (about $7000) and threw all of that money at our debt snowball. I had a list of all our debts smallest to largest and I would cross them out as soon as we got them paid off and it was such a good feeling once we were able to see those lines disappearing and celebrate those small victories.
We stopped contributing to our daughters college fund (which is step 5 of the baby steps) and I also lowered my 401K retirement to 5% (even though Dave says zero I still wanted to get that 5% match from my employer, sorry Dave!) and I completely stopped my monthly contribution to my Roth IRA. This gave us a huge boost in extra income to help pay off the debt, we were making more than $3,000 payments towards our debt each month! Once all the smaller debts were paid off it took me a few months to finally do it but I went to the bank one day and I withdrew most of our savings to finish paying off the last item on our debt snowball, the Jeep.
Once all of our debt was paid off except the house we took the next few months to beef up our emergency savings to 6 months of expenses and then started the retirement contributions again along with our daughters college fund. So there we were back on track and working on steps 4, 5, and 6.
Whew! WE DID IT! We paid off the $76,000 in debt in less than 2 years, it was actually more like 20 months! Like I said before I thought it would take 2 years alone to pay off the Jeep but once we got the ball rolling we were able to pay off all of our debts within that time! We sacrificed a lot during that time, no shopping or vacations or big purchases. I sold a lot of stuff through eBay and Craigslist, consigned clothing, and cashed in our pennies. I looked at it as a creative lifestyle switch and it was really not that bad, I actually liked our new way of living, it was much more intentional and purposeful. My husband was supportive through it all and he actually kept me on track from time to time when I would get tempted to purchase something or go somewhere, so it was really a team effort and still is.
Once we were out of debt we also started a vehicle fund that we contributed to monthly knowing that my husbands truck was on its last leg so that once the time came and it went to car heaven we were able to pay cash for a newer truck for him. Never ever again were we going to be slaves to a car loan or any other kind of loan for that matter! It was the largest cash transaction either of us had ever done and we were a little nervous but it felt so good knowing that our truck was paid in full 100%, and we didn’t owe one dime on it when we drove off in it. The average car payment in America is about $475 a month according to Dave Ramsey, and if instead of making a car payment every month you invested that amount into mutual funds you would have over 1.6 million dollars after 30 years! Talk about crazy! Yet most Americans think that it’s okay and normal to have a car payment the rest of their life, that they will always have one, like I had always thought.
So there it is, we stuck to the system and it worked! It was all worth it in the end, and it was just temporary. It was such a huge relief to not have any debt except for our house! We still use the envelope system to this day and are still working on baby step 6 which is paying off our mortgage early, and we are hoping to have it paid off within the next 4 years. We are able to take vacations again and purchase some of those bigger items we postponed but with the main goal of throwing every extra dollar at the house.
One big key to being able to accomplish this feat was a monthly budget meeting. My husband and I would sit down the last Sunday of every month (we still do by the way) and have a budget meeting. We call it Sacred Circle. We mostly talk about finances and do a check on where we are at and discuss any upcoming expenses but we also like to talk about other issues or family goals we have. It’s a great way to keep our marriage in check and it’s like a little couples therapy (side note-the number one cause of divorce in America is due to finances so don’t be another statistic haha!). The first couple budget meetings we had were not so much fun since we were not on the same page with the budget but after a few months they became very informative and enjoyable and we talked about our future goals together. The other key for us was discipline, saying no to things we did not need and staying on track and keeping the end goal in mind.
Anybody can do it, no matter how much you make or how much debt you have, you just have to want to, and you have to start today! Do not delay! It is the best financial decision you will ever make! We have all made mistakes when it comes to money but if you can change your mindset and behavior towards money then you can come out a winner! It’s never too late! Live beneath your means, spend less than you make, come up with a plan and stick to it.
If you are interested in more information on the baby steps I suggest checking out “The Total Money Makeover” by Dave Ramsey at your local library, find the Dave Ramsey podcast on iTunes and give it a listen, or you can even attend his class called Financial Peace which is a 9 week course that gives you all the tools you need to get out of debt, they have classes going on all the time in most cities throughout America.
Here’s a link to his website where you can get more information or sign up for a class:
And this is the book that everybody needs in their life!!! The Total Money Makeover will seriously change your life!