v'ܩ Dave Ramsey’s 7 Steps to Getting Out of Debt and Building Wealth
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Dave Ramsey’s 7 Steps to Getting Out of Debt and Building Wealth

December 4th, 2008

The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey has helped millions of people become debt free. Right now we are in a financial crisis that was caused when people stopped being able to pay for their houses. Too many people had their homes foreclosed on all at once.

The key to not letting this happen again is us as a nation taking control of our finances. We need to stop buying things that we can’t afford and get out of debt. As Dave says, 100% of foreclosures happen to people with mortgages. If you own your house, they can’t come take it from you. I won’t describe these as easy steps, because it is going to require effort on your part. However, they are proven to work. These steps will help you become debt free and build wealth.

1. $1000 Emergency Fund

The first step is to build a one thousand dollar emergency fund. This is to help stop using credit. To get out of debt, you have to cut up the credit cards. This small fund is your safety net from the world.

2. Get out of Debt

The second step is to get out debt except for your house. Pay off car loans, college loans, credit card debt, and anyone else you owe money. Dave’s method is to start with the smallest debt and move up. If you do this, you quickly get positive reinforcement that will motivate you to continue, and each debt you pay off frees up more money each month to help pay off the next.

3. 3 to 6 Month Emergency Fund

Now that you are debt free except for your house, you need to have a 3 to 6 month emergency fund in place. You need to be able to take care of all of your expenses for a significant amount of time. This will give you much more peace of mind in stressful times like these when you aren’t sure if your job is safe.

4. Retirement

After you have built up your emergency fund, you need to start funding your retirement. Dave suggests putting 15% of your gross pay into Roth IRA’s and 401k’s. No more and no less at this point.

5. Kid’s College

If you have kids or are planning to have kids, this is the point where you need to start saving for their college. If you don’t, you can move on to step 6, which is…

6. Pay off the House

Pile everything extra you have at this point into the mortgage. Pay it off as fast as you can. When you are done, you can scream “I’m Debt Free!” The grass in the backyard feels different between your toes when you own it.

7. Spend, Save, Give

Dave says money is for 3 things. It is for having fun, building wealth, and giving away. At this point you can now afford to do lots of all 3. Have fun with it, continue to invest it, and be generous with it.

I highly recommend The Total Money Makeover(aff) to everyone. I have read it about a half dozen times now and I am currently following these steps to becoming debt free and building wealth. They really do work.

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  2. kinoshi
    June 13th, 2010 at 23:52 | #2

    I appreciate the concern which is been rose. The things need to be sorted out because it is about the individual but it can be with everyone.
    Debt Free Seattle

  3. October 31st, 2010 at 22:59 | #3

    oh i wish to be debt free in the next few years and i wanna be a millionaire too “

  4. November 25th, 2010 at 01:37 | #4

    everyone would love to be debt free and have some financial freedom then become rich -”

  5. December 1st, 2010 at 17:42 | #5

    Yes, I wholly agree. If you cut up your credit cards, it reveals you changed your mind about your credit card debt. Of course, just not using credit cards isn’t sufficient, you’ve got to begin buying less too and start to pay down that debt. Often, it’s best to start by paying the debt you pay the least amount on, and so you remain motivated.

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