Baby Step 2: Pay-Off All Debt

I am working on Dave Ramsey's Baby Steps, and along the way, I will share our progess and frugal finds! In January, we were able to complete Baby Step 1: $1,000 Emergency Fund.

Now we are approaching Baby Step 2: Pay-Off All Debt!  Here is how to:

• Set-up a debt snow ball.
• Do a 1 year debt snow ball.
• Do a 1 month debt snow ball. 

Any insights are welcomed. I do have a few frugal finds to share too!

Frugal Finds

Before I get started, I want to share a few frugal finds that might help your budget!

• Set-up a Will for Free! 
• Life Insurance for $8 per week through Nevin's work plan.
• Health Insurance for $250 per month with a health sharing plan.
• No car payment (We paid $1,000 cash.)

Here is a free budget guide with links and helps!  Now onward . . .

How to Change

In Latin, Mea Culpa, means "through my fault." Debt is something, we must, like the Roman soldier, pound our chest and say, "Mea Culpa." By wrong choices, my  husband and I have debt.
Here are our Top 3 Mistakes: 

1. Credit Cards (We didn't use them, until we "needed" furniture for our new home. Solution? No Credit Cards!  Also, eliminate all other monthly payments such as car.)
2. No Health Insurance*  While our self-employed budget could not afford traditional health insurance, we needed a Health Sharing Plan that protects against medical emergencies. Our big problem was that most do not cover pre-existing conditions.  We are incredibly grateful to Houston Methodist Foundation who covered a huge portion of the second heart surgery.  We are now covered under a healthshare ministry, because Nevin is no longer considered to have a pre-existing condition.
3. Income Decrease.  This one was out of our control. While we were tackling too many monthly debt payments, major health surgeries (+months with NO income), and a new baby, our income source fluctuated.   Self-employed expenses went up, while income went down.

This was the situation we were in that lead to our Financial Freedom 101 changes!

How to Set-Up a Debt Snowball

Use this free debt-snowball calculator at Crown. 

1. Enter in each debt payment (from least owed to most owed).
2. Enter in the extra amount you can pay each month.
3. ​​Print the payment plan.

It will tell you how long it will take to pay-off the debt.  Want to pay-off faster?  Try this ...

How to Do a 1 Year Debt Snowball

Before you start, try to eliminate any monthly payments that you can now!  Cancel monthly subscriptions to all things!  Try to have no car payment.  

Here's how to do a 1 year debt snowball (with sample):

• Add up all debts owed and write total ($12,000)
• Divide the total by 12 months ($1,000 per month)
• Make montly payments to pay-off in 1 year. ($0 debt in 1 year)

What if I owe $24,000 or more?

• Pay-off debt in 2 or more years

What if I want to pay-off even faster?  Try the 1 month debt snowball.

How to Do a 1 Month Debt Snowball

The 1 month debt snowball is NOT for everyone, but it does work.  We did it before (not for debt reasons) and we're doing it again.  Selling the home!   Here's what to ask:  

Did my home value . . .

• increase to cover all or most of the debt?  Yes
• increase to supply a down payment for next home?  Yes
• increase to cover closing & moving costs? Yes

We answered yes to all of these, so it is to our benefit to do a 1 month debt snowball.

Here are a few more things we considered:

• Does the next home have lower taxes (and hoa fees)?  Yes
• Does the next home have a lower mortgage?  Yes
• Can I manage a 10 - 20 year mortgage?  Yes
• Does the next home have a nice neighborhood?  Yes
• Is it priced close to the appraised amount? (Researching)

Take Action

• Eliminate all monthly payments (if possible)!
• Set up your debt snowball plan!
• Want to go faster?  Try a 1 year or 1 month debt snowball.

​

*A lot of greed has entered into the health care industry.  Prices are so inflated that many people can not afford health care or health insurance. As we shopped around, we found that an echocardiogram could range from $200 to $800. Conroe Regional Medical Center turned us away from a very important heart procedure when we wouldn't pay them $8,000 upfront. We found out that Medicare pays about $400 for that same procecure. After confronted, they said we could pay $800.  When we asked for itemized bills, we found that one hospital was charging $100 per tylenol pill!  Take Action!  Talk to your representatives!  We need a federal law that limits how far over the national average a medical facility can charge.