Hi and welcome back to my series on the Dave Ramsey Baby Steps.
You can find the other posts in the series here:
Part 1 (Baby Step 0)
Part 2 (Baby Step 1)
I’ll reiterate that you NEED to have written a budget before you start the Baby Steps, and you NEED to follow the Baby Steps in order. If you need help with how to write a budget, I have a post on that too, here.
Today we are moving onto Baby Step (BS) 2. This is probably the most exciting of the Baby Steps, paying off all of your debt except your mortgage.
So, you start BS2 by writing down all of your debts in order from smallest to largest. For some people, me included, this is the hardest part of the whole journey, seeing how much you actually owe. I found it very eye-opening, and made me want to run in the opposite direction.
But once we get through that part, and face it, you have the motivation to start paying it off. If you’d like to read about how to keep motivated during your Debt Free Journey, I have a post about that HERE.
To pay off the debt, you’ll be using The Debt Snowball Method. This is where you pay off your debts by balance, 1 by 1, starting with the smallest debt and finishing with the largest debt. You do not take interest rates into account unless you have 2 debts with the same balance, in which case you pay the higher interest rate one first.
Once you have your list of debts, you look at your budget and pay minimums on all of your debts except the smallest one. Attack the first balance on your list by paying as much as you can towards it every month while still making minimum payments on your other debts. When you’ve paid that first debt off, use the money that you were paying on your first debt, and put it towards your next debt and start attacking that one. You continue that pattern until you have paid off all of your debt and are Debt Free! That is BS2 finished!
But after writing your budget, what happens if you don’t have any money left over to put towards debt? Well, the issue is either that your income is too low, or your expenditure is too high. Or it may be both! You need to go through your budget and make adjustments and cut anything you can from it. If you have already done that, you need to make more changes.
In this case you either need to try working more hours (if you work outside the home already) or if you are a stay at home Mum, then you’ll need to find work outside the home that fits around your husbands working pattern.
If you are a Single Mum like I am, you’ll need to work outside the home if you don’t already, or work more hours. I understand this isn’t always possible, but these are just guidelines.
If you need childcare and are worried about the cost, please look at https://www.entitledto.co.uk/ to work out how much better off you will be in work. Despite many misconceptions, I have NEVER been worse off working than when I was on benefits.
I’ll be back at the end of the week to talk about Baby Step 3