Seven Steps

[EconoMutt]

Recenly I've decided to get my finances in order.
I've listened to Dave Ramsey and liked some of his advice to the callers.
I went to his web site and started to follow his seven baby steps.
I'm already in disagreement on step #2.
He claims you should pay your debt before saving 3 to 6 months expenses.
I think it's much more important to have some cash on the side before paying your debts.
Any thoughts?

[maat55]

In an normal economy I agree with Dave, but in this unstable economy I think people who are in doubt about their job should build an bigger
EF first.

I do agree with his system overall. It is simple and motivating. If everyone lived by his system, there would be a much more stable society.

I highly recommend you follow his advice after you have set aside a bigger EF. Be careful not to get further behind on current obligations while doing so.

[disneysteve]

Personally, I think you should do both. With whatever money you have free each week, put some toward your EF and some toward your debt. I see no reason why it needs to be one or the other exclusively.

[LuxLiving]

Economutt (neat name),

We did just as Disneysteve is suggesting - saved EF & paid off debt. It only made sense to us to be building up cash reserves as we paid CC's down, so that we could avoid adding more to CCs.

It Worked.

~L.L.Frugalis, DEBT-FREE!

[JustDave]

I think DR's advice is effective for people who need serious motivation to get out of debt. However, I think there are many people who are better off with a customized version of his advice.

I personally never understood his idea of paying down debt first before any real saving can begin. If a true emergency comes up (like a layoff or an unexpected medical bill) while you're paying down debt (before you build up your 'real' emergency fund), what's going to happen? You won't have the money to pay for it, so you're just going to go into more debt to pay for it.

Like others have said, there's no reason why the two steps need to be mutually exclusive. I think there should be a balance between 1) stopping spending, 2) paying down existing debt, and 3) building up savings.

[lovcom]

Back when I was in debt, I took his advise, but only because I had a very high paying job, and there were loads of other jobs I could get if I lost mine.

But this is now, and these days, it is far better to create a 3-6 month savings amount then to aggressively pay off one's debt (beyond the normanl minimum monthly payments).

Dave's advise list really needs to be updated for the times.

[maat55]

Back when I was in debt, I took his advise, but only because I had a very high paying job, and there were loads of other jobs I could get if I lost mine.

But this is now, and these days, it is far better to create a 3-6 month savings amount then to aggressively pay off one's debt (beyond the normanl minimum monthly payments).

Dave's advise list really needs to be updated for the times.

Dave has mentioned numerous times on his radio show that if you feel your job is in question or you are expecting a child, you should build up more EF first.