Dave's Baby Steps: Which are you on and is it working?

[debtfreesteve]

Re: Dave's Baby Steps: Which are you on and is it working?

ty ty

[Ima saver]

Re: Dave's Baby Steps: Which are you on and is it working?

puck, being debt free on June 16th is awesome!! You should have a party!![Automated by GetSmile]

[cbmeeks]

Re: Dave's Baby Steps: Which are you on and is it working?

Congrats!

[autoxer]

Re: Dave's Baby Steps: Which are you on and is it working?

Well shoot, here I am sitting at 3.2 - but contributing to retirement... a slight variation.

Yeah, it's a very good plan, but I've also got my own variation. I'm not going to stop contributing to my 401k or Roth, to catch up on some low interest debt, or to start a house downpayment fund. Although I'm considering selling the car that caused most of the debt and I'm considering using some of the Roth money as a house downpayment.

[jmjj215]

Re: Dave's Baby Steps: Which are you on and is it working?

Although I'm considering selling the car that caused most of the debt

That seems like a pretty sound idea to me.

[autoxer]

Re: Dave's Baby Steps: Which are you on and is it working?

That seems like a pretty sound idea to me.

I'm slowly coming to grips with that. I owe $10k on the car, and I think I could sell it for $15k. I don't even need the car, I also have an older nissan that I've been driving to work, while the car with the lein is only driven/autocrossed on the weekend. Sounds really stupid when I put it like that.

But I'm a very passionate car-guy and I really enjoy it. The interest rate is only 3.9% and I have been paying extra, ever since I started learning more about debt and personal finance. I spent a few years trying to autocross as much as possible, but recently my priorities are shifting toward buying a house. If I keep it, I'll have it paid off by March '07 (a year ahead of schedule), If I sell it, I'll instantly have an Emergency Fund. It is a tough decision for me, but I know what makes sense financially.

[Ima saver]

Re: Dave's Baby Steps: Which are you on and is it working?

Now, I know that most of you believe in driving older cars and buying used. That is one area that I have a hard time agreeing with you. We do buy cars new and keep them for quite a long time. We just really like the feeling that we won't have any cars problems for a while.
My goal now, it to establish an auto fund. Well, I already have on that has about $8000 in it. I hope to pay off my car in about a year. I paid off the van at christmas and am taking the payments every month to put in this auto fund.
When I get my car paid, I will add that payment to the fund.

[jmjj215]

Re: Dave's Baby Steps: Which are you on and is it working?

We just really like the feeling that we won't have any cars problems for a while.

If it's really important to you, and you can afford it, why not?

[Elgin526]

Re: Dave's Baby Steps: Which are you on and is it working?

Well, we're on step 2, but we don't follow the plan to a "T" either.

I personally feel that the only people who need to follow DR to the letter are people who are just one pay check away from bankruptcy. For those that have debt but are able to make their bills each month and have something in the way of assets can (and I feel should) modify his advice to their own needs and circumstances.

In our situation, our equity in our house is more than what our total consumer debt is. So if the poop really hit the fan and we absolutley had to, we could sell the house, pay off the debt, and find an apartment to live in while we start over. We wouldn't even ruin our credit!

So, here's what we are doing. We have about $2500 in our baby EF (I feel $1000 is too low, especially since we have two cars and a 60 year old house. Several things could break at once, any one of which could be more than $1000). We are doing the snowball on the CC's but we are paying off the highest interest rate first, which is also our highest balance (by a huge percentage). We have disapline and don't need that "pyscological boost" to stick to our debt repayment, so why pay more interest than we have to? I'm trying to get all the CC debt on a 0% offer and hope to have that done in another few weeks, just need a credit limit increase to do it. That will not only save us money on interest but make my job of paying bills easier!

Once the CC's are paid off, we should be able to get DH's truck paid off ASAP. Once THAT'S done we'll work on the 3-6 month EF (I'm leaning towards 6 months since DH has health issues). At that point, we see where our family stands. The cars will need to be replaced sooner rather than later. We may decide to pay off the house early, or we may decide to fully fund college for our kids (we don't have any yet) or bump up our retirement savings (if we feel we need to). Our mortgage interest rate is locked in at 5.5% and I'd rather have healthy retirement/college funds than a paid off house. At any rate, I don't want to make any plans yet, I'd rather wait and see what the future holds.

We already have life and disability insurance (short and long term). We both have health coverage through our jobs (if one of us gets layed off they can be covered by the other). DH has a pension through his company and I have a 401K. Even though we are on Step 2 I've kept up the contributions. My company matchs 100% up to 3% PLUS an anual 8% contribution in years we are in the black (and we are every year) so I just can't turn down free money. Also, because we are 30 years away from retirement, the money we put in NOW will be worth SO much more than if we try and play catch up later. In fact I just got a raise of 3.5% and I increased my contribution level by 3%, so we are putting more money in the 401k, not less.

The reason we can do all this is because, even with our debt, we make waaaay more than what our expenses are, and that's before the overtime DH earns. Without his OT and paying all our other bills (and we haven't cut cable, internet, phone, entertainment, or food budgets 1 cent) we still have $1000 a month to pay towards our CC debt, and our minimums add up to less than $400 a month, so we are paying way over the minimums. We are able to pay off our debt in less than two years without using any OT or cutting our lifestyle and still be able to invest for retirement. So I don't see a reason to cut any of that out, just be done in 20 months rather than 24. It isn't worth it to us.

Now, not everyone is in this position, a lot of people do need to make budget cuts and sacrifices to pay off their debt. We don't need to, so we don't. But DR still has great advice that we like to follow and feel that most of his ideas are sound and I recomend him to anyone who wants to get control of their financial life.

[cbmeeks]

Re: Dave's Baby Steps: Which are you on and is it working?

You sound like you know what you are talking about Elgin. I agree with what you are saying. While I am trying to follow his plan as close as possible, I also think that not everyone can use the exact same plan.

[jmjj215]

Re: Dave's Baby Steps: Which are you on and is it working?

Elgin's post is exactly what I like to see. I call it self thinking, and it's very healthy over the long haul!

When approaching the tree of financial gurus, you just carefully pick which fruit tastes the best to you, and drop it in your basket...

[boefixepa]

Re: Dave's Baby Steps: Which are you on and is it working?

Not wrong just different. I wish people could understand that on a broader scope. Different people do things different ways and feel differently about different things. It's not wrong...just different.

[wwjdmsl]

Re: Dave's Baby Steps: Which are you on and is it working?

Elgin's post is exactly what I like to see. I call it self thinking, and it's very healthy over the long haul!

When approaching the tree of financial gurus, you just carefully pick which fruit tastes the best to you, and drop it in your basket...

I guess I am cool with "self thinking" but if that thinking got one into a BUNCH of CC debt, then it is obviously time to modify the way that one should self think...I think there is a healthy discussion we all could have on this subject.

[Elgin526]

Re: Dave's Baby Steps: Which are you on and is it working?

I guess I am cool with "self thinking" but if that thinking got one into a BUNCH of CC debt, then it is obviously time to modify the way that one should self think...I think there is a healthy discussion we all could have on this subject.

I didn't mean to infer by my post that it's okay to modify DR's (or any other financial guru's) advice to the point where you're justifing buying a big screen tv or luxery vacation, of course. Just that very few things in life are one size fits all and people need to look at advice given and modify it to fit their own lives without destroying the core princeples of that advice, which in this case is to pay down debt as quickly as possible.

Take DR's advice that you stop retirement savings while you pay down your debt. For a person that is one paycheck away from losing their house, I'd agree with this advice 100%. For DH and I, we can pay off our debt in a short amount of time without having to stop saving (and thus giving up my companies generous match), so we just ignore that particular piece of advice. Why turn down free money (and a signifigant amount of free money, at that!) if we don't need to?

If you are being 100% honest with yourself and your situation, there is no reason not to decide for yourself what works best for you, and what you can skip or change. Obviously bad thinking got you into debt to begin with, but if you are truely changing your thinking, I see no danger in tweeking DR's (or whoever) advice.

[jmjj215]

Re: Dave's Baby Steps: Which are you on and is it working?

If you are being 100% honest with yourself and your situation, there is no reason not to decide for yourself what works best for you, and what you can skip or change. Obviously bad thinking got you into debt to begin with, but if you are truely changing your thinking, I see no danger in tweeking DR's (or whoever) advice.

Bingo. Being honest with yourself is what protects you from what wwjdmsl mentioned above (bad self thinking).