*The Dave Ramsey 'Baby Steps' Thread*

[WDW_fan_in_TX]

No 23.9 percent is really high not a little high. You have made progress but the car payment is a real beast. At this level, as Dave Ramsey says, you are eating beans and rice, and not being in a restaurant unless you are working on one. Every time you want to eat out have a picture of the payment and interest to remind you and DW your priorities. Keep the momentum

Exactly. We've cut way, way back on eating out. I basically just go out once a week for work (we got out one day a week and have a meeting at lunch, and we have to pay for our own). Then we go out Sunday after church with friends. Otherwise, it's chicken, salad, veggies, pasta, meat loaf. cheap stuff at home.

Our road on paying debt will be:
Bank loan, $1,800 (11% interest);
Photo loan, $1,200 (0% interest);
Car Loan, $14k (23% interest);
School Loan, $19k (4.25% interest).

Then after that, we'll hit medical debt.

 

[huggybuff]

Exactly. We've cut way, way back on eating out. I basically just go out once a week for work (we got out one day a week and have a meeting at lunch, and we have to pay for our own). Then we go out Sunday after church with friends. Otherwise, it's chicken, salad, veggies, pasta, meat loaf. cheap stuff at home.

Our road on paying debt will be:
Bank loan, $1,800 (11% interest);
Photo loan, $1,200 (0% interest);
Car Loan, $14k (23% interest);
School Loan, $19k (4.25% interest).

Then after that, we'll hit medical debt.

I already searched online, but what's a photo loan?

 

[WDW_fan_in_TX]

I already searched online, but what's a photo loan?

Basically, the short of it is my DW got professional pictures made and put it on a payment plan. So we're paying x amount per month until the $2k is paid off. She got them done in October, and repayment plan is about halfway done.

 

[TDK44]

I would encourage you and anyone else in this situation to educate themselves on how credit scores populate.

You have two very low limit, low account history cards. One with a large monthly fee attached to it.

Once debt is closed (credit cards, loans, etc) they remain on your credit history for up to ten years after closure.

Do people stop paying student loans or car loans to keep their credit score up and their credit history of paying available? No. That would be incredibly unwise, and creditors would be able to see on your credit report if you paid on time, etc even after you finished paying off a loan for up to 24 months.

What will help your credit score more is by paying the car loan, personal loan, and school loan on time. Having payments on loans more than 30 days late will damage your credit score, but not plummet it unless it is done consistently.

Please don’t make assumptions as to what will happen if you close two tiny credit allowances. Your score might go down, but as long as you keep on your other payments, it will continue to go up.

Credit scores are great if you need to take a loan out. I hope you don’t need to take any further debts on at this point for you.

Close the cards.

This is bad advice.

 

[Willow Ufgood]

Exactly. We've cut way, way back on eating out. I basically just go out once a week for work (we got out one day a week and have a meeting at lunch, and we have to pay for our own). Then we go out Sunday after church with friends. Otherwise, it's chicken, salad, veggies, pasta, meat loaf. cheap stuff at home.

Our road on paying debt will be:
Bank loan, $1,800 (11% interest);
Photo loan, $1,200 (0% interest);
Car Loan, $14k (23% interest);
School Loan, $19k (4.25% interest).

Then after that, we'll hit medical debt.

Why would you prioritize paying off the 0% photo loan? Is it one of those kinds of loans or balance transfers that balloons up to a high APR after a certain time?

Looking at the order you've listed, I suspect that you're not following DR 100% because the order of priority would be different with the photo loan being #1 and the bank loan being #2. But that's okay as long as it works for you. Personally, I would be throwing every extra cent at that auto loan because of the extremely high APR. The amount of interest you're paying every month is a killer.

 

[WDW_fan_in_TX]

Why would you prioritize paying off the 0% photo loan? Is it one of those kinds of loans or balance transfers that balloons up to a high APR after a certain time?

Looking at the order you've listed, I suspect that you're not following DR 100% because the order of priority would be different with the photo loan being #1 and the bank loan being #2. But that's okay as long as it works for you. Personally, I would be throwing every extra cent at that auto loan because of the extremely high APR. The amount of interest you're paying every month is a killer.

put it in thr put it

 

[Twilghtsprkle]

Basically, the short of it is my DW got professional pictures made and put it on a payment plan. So we're paying x amount per month until the $2k is paid off. She got them done in October, and repayment plan is about halfway done.

Are you guys on the same page at all? Why would she spend that much on photos?

 

[WDW_fan_in_TX]

Are you guys on the same page at all? Why would she spend that much on photos?

Long story. Not going there again (it's already in the debt dumpers thread). But yes, we're on the same page.

 

[WDW_fan_in_TX]

Why would you prioritize paying off the 0% photo loan? Is it one of those kinds of loans or balance transfers that balloons up to a high APR after a certain time?

Looking at the order you've listed, I suspect that you're not following DR 100% because the order of priority would be different with the photo loan being #1 and the bank loan being #2. But that's okay as long as it works for you. Personally, I would be throwing every extra cent at that auto loan because of the extremely high APR. The amount of interest you're paying every month is a killer.

When we started the debt snowball back in November, the photo thing hadn't happened yet. So when it came to be, we weren't sure where to put it. Right now, we're just paying it monthly for now since there's no interest. It should be paid off before the bank loan since it's a smaller amount.

 

[ThereYouSeeHer]

This is bad advice.

The advice regarding credit cards and credit scores might be different than most people are used to, but it aligns with the specific purpose of this thread (dumping debt and building wealth by following the Baby Steps and accompanying guidelines).

For anyone interested in learning how credit scores are calculated, they can read more at the included link. As shown below, negative payment history and amounts owed is more detrimental to a credit score than other items (65% of the score vs. 35%).

How are FICO Scores Calculated?

FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

 

[TDK44]

The advice regarding credit cards and credit scores might be different than most people are used to, but it aligns with the specific purpose of this thread (dumping debt and building wealth by following the Baby Steps and accompanying guidelines).

For anyone interested in learning how credit scores are calculated, they can read more at the included link. As shown below, negative payment history and amounts owed is more detrimental to a credit score than other items (65% of the score vs. 35%).

How are FICO Scores Calculated?

FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

View attachment 1057197

I'm well aware of how credit scores work.

Putting aside the more egregious faults of the Baby Steps method, my critique on the specific piece of advice was that the commenter was creating a false-dilemma between making on-time payments on outstanding loans and keeping zero balance credit cards open. It's just flawed logic, and even though closing the cards may not have a huge impact on credit scores, it can only have a negative one.

The OP can still make payments on the other loans without having to close those credit card accounts -- they are unrelated to each other.

If the worry is any annual fees, then downgrade the card to a free version within the same family.

If the worry is that the OP will use the cards to get into more debt, then cut the card up or hide it somewhere, but that doesn't mean that you have to close the account. Besides, having the available credit in an emergency at least provides short-term optionality vs. getting into a worse debt option.

Being smart about managing your credit score from all angles doesn't have to be at odds with dumping debt.

I haven't looked back to see if the OP has been given the good advice that they should be given, I was just calling out this particular piece of advice as being bad.

 

[Sadeesmom]

I haven't looked back to see if the OP has been given the good advice that they should be given, I was just calling out this particular piece of advice as being bad.

I don't believe ThereYouSeeHer was debating whether the advice was good or bad. She was merely pointing out that it is contrary to this thread's methods. If you don't like the Dave Ramsey method, that's fine, but since those Baby Steps are the point of this thread, maybe we could stay on topic?

There are many people (myself included) who live without debt of any kind. We have no need for a credit card or a credit score. I realize (and remember) that it is a difficult mind shift to make, especially while climbing out of debt, but commitment to the proven plan can have amazingly successful results.

 

[TDK44]

I don't believe ThereYouSeeHer was debating whether the advice was good or bad. She was merely pointing out that it is contrary to this thread's methods. If you don't like the Dave Ramsey method, that's fine, but since those Baby Steps are the point of this thread, maybe we could stay on topic?

There are many people (myself included) who live without debt of any kind. We have no need for a credit card or a credit score. I realize (and remember) that it is a difficult mind shift to make, especially while climbing out of debt, but commitment to the proven plan can have amazingly successful results.

You may have no need for a credit score (non-sequitur), but they do have a need for a credit score right now (and for the foreseeable future). There can maybe still be a goal of closing credit cards for good when the time is right, but doing it now makes no sense and can only hurt.

@WDW_fan_in_TX , please feel free to DM me if you'd like another perspective.

 

[afan]

If the worry is any annual fees, then downgrade the card to a free version within the same family

For most that would work, but these are low level cards with af due to his low credit score. There may not be an option to product change to a no fee card and in this case it would be an upgrade/product change not a down grade.

Secure credit cards aren't the same and having that information is why the previous advice made sense.

More practical information would be that if you don't let the small balance hit a statement so it hits your credit report and then pay it off, any small charge isn't helping. You have to have a balance report and it get paid off to matter. His credit limits are so low on these cards that a small purchase may hurt more than it helps depending on the card it's on and the size of the charge.

He's better off not using them and seeing if he can get rid of the card(s) with an af.

 

[barkley]

curious-has anyone else's radio stations been dropping DR's radio show? two of the majors in our region initially went (a year or so ago) from multiple hours per day to a single noon hour (full show re-run in the a.m. overnight hours) to now entirely eliminating.

 

[ruadisneyfan2]

Putting aside the more egregious faults of the Baby Steps method,

Please don't put aside. I'm curious why you feel this way.
It has worked for me like magic and I've stayed debt-free including our mortgage since 2021.
I'd actually like to shake his hand and thank him for turning my life around. In the process I went from being a spendaholic to saveaholic.

 

[ruadisneyfan2]

curious-has anyone else's radio stations been dropping DR's radio show? two of the majors in our region initially went (a year or so ago) from multiple hours per day to a single noon hour (full show re-run in the a.m. overnight hours) to now entirely eliminating.

I don't know. I never listen to the radio and when I did, I never knew DR was on the radio.
I watched his youtube videos.

I wonder if it's because lately, the call in shows have been answered by his staff and not DR.

 

[TDK44]

Please don't put aside. I'm curious why you feel this way.
It has worked for me like magic and I've stayed debt-free including our mortgage since 2021.
I'd actually like to shake his hand and thank him for turning my life around. In the process I went from being a spendaholic to saveaholic.

Not here to debate all of the merits and lack thereof of his advice, as that’s obviously not welcome in this thread.

 

[barkley]

Please don't put aside. I'm curious why you feel this way.
It has worked for me like magic and I've stayed debt-free including our mortgage since 2021.
I'd actually like to shake his hand and thank him for turning my life around. In the process I went from being a spendaholic to saveaholic.

we used it as a basis but tweaked it such that we ended up at repayment (and beyond) far financially ahead vs. had we followed it to the letter. some of the steps are structured (understandably) to generate feelings of accomplishment/encouragement but aren't nesc. the best numbers wise financial principles.

 

[ruadisneyfan2]

we used it as a basis but tweaked it such that we ended up at repayment (and beyond) far financially ahead vs. had we followed it to the letter. some of the steps are structured (understandably) to generate feelings of accomplishment/encouragement but aren't nesc. the best numbers wise financial principles.

He addresses that in his talks, that people criticize him saying if you do the math, it's better to choose the highest interest rate debt first. He jokes and says if we were "doing the math" all along, we wouldn't be spending more than we can afford to pay.
Also, just doing the math ignores the huge psychological/emotional aspect of overspending.

Do the math is like telling someone who is obese to simply eat fewer calories than they burn each day. If it were that easy, no one would ever be overweight or in debt, certainly not morbidly obese or drowning in debt.

When I was paying down my debt, my smallest balance was $250 and the next one was $400. The rest were significantly higher but my highest interest cc had an $8000 balance. To start with that one would have been a certain failure. I only had a tiny bit of extra money each month to pay down debt, IIRC it was around $25-50. So paying off the smaller balances, seeing small amounts of success and more importantly applying those payments to the next debt, making the snowball larger, is what kept me motivated.
I couldn't wait to get another bill paid off and see my snowball get to the next level.

It worked so well, by the time I got to the card that was $8000, I was making extra payments of $800/month in addition to the regular monthly payment and it only took a few months to pay it off. At $25-50 extra per month in my early days, it would have taken yeeeears. By the time I was attacking the mortgage, I was paying an extra $1000/week.


I can accept other criticisms of him: he goes too far scorched earth, he says to cancel cable/tv subscriptions, he says to stop contributing to retirement, he's too religious, he quotes the Bible, he says to sell the expensive car, etc. but his recommendation for following the debt snowball is spot on. It absolutely works and I'm living proof. After years of struggling, trying to pay extra here and there, frustrated, disgusted, angry, the debt snowball is what straightened out my life. I will defend it to my death.

Anyone struggling with debt, follow it and it will work for you too.