plonkee money an english-er's thoughts on personal finance

November 9, 2007

a Dave Ramsey success story: interviewing Steven

Filed under: credit and debt — plonkee @ 12:00 pm

When I posted that Dave Ramsey had given some bad advice, some readers defended Dave and his program. One of them, Steven, wrote the following:

We’ve had a $230,000 turn around, from the red to the black, in 4 years, primarily due to the information that Dave Ramsey provides in his book and radio show.
What is the worst financial position you’ve been in?

Intrigued by this, I contacted Steven to ask he would like to be interviewed by plonkee money and here are the results.

What is the worst financial position you’ve been in?

Toward the end of 2003, my wife Amanda and I had approximately $123,000 in consumer debts, plus a mortgage of $130,000 with zero equity. The debts consisted of $60K in student loans, $35k credit cards, 2 car notes combined $25K, and a 401K loan. All of this success with a combined annual income in 2003 of $120,000…

How did you end up there?

We can only blame ourselves. We bought into the concept that after college, we were supposed to go out, get married, get two new cars, and buy a new house. Combine this with the obvious overspending and lack of oversight, and I can now easily see how we became so deep in debt in about a three year time period.

What made you realise that you needed to change?

During 2003 we had started to pay attention to our finances. Amanda wanted out of her very stressful CVS Pharmacy store, and had an opportunity to go to a slower environment with a grocery chain. This required a $15K pay cut. It was frustrating to think that we couldn’t take the pay cut when it was just us two, with no kids. This got us in the mode of thinking that something was wrong with our finances. We moved some credit cards to lower balances, refinanced our home and started a system of paying more on the ‘largest balance/highest interest rate’ credit card. I read a couple of Suze Orman books, and listened to the Clark Howard show. In reality though, these steps were helping very little and some decisions were big mistakes.

I had an hour commute each way and I began listening to some talk radio in the afternoons. It used to be all sports, however as I had gotten older, I sometimes switched to news talk. I’ll never forget the specific call, this guy on the radio (Dave Ramsey) was ranting to this couple about how they made over $100K, and had nothing to show for it but debts over $100K. He was telling them they needed to sell their cars, have some garage sales, get on a plan, and they could clear it all up in 2-3 years. At first I was laughing, “2-3 years… this guy is out of his mind” and then you get that, whoa, wait a minute, that’s ME he’s talking to.

How did you go about improving your circumstances?

A few days after that call on the show, I saw The Total Money Makeover book at Wal-Mart. We were already in line, and I got the notion to run back and get it. As I bought the book I told the cashier, and Amanda as well, that this $19.99 was going to be the best $19.99 we had ever spent.

After reading the book, I was sold on the plan. It seemed too simple (common sense advice) and with our income I knew we could make it work. We both had humble backgrounds, and I knew we could really lower our standard of living. It was not easy to convince my wife, that we needed to try the Baby Steps outlined in Dave’s book. After she read the book, and I explained to her on paper just how far in the hole we were, she came around.

How did Dave Ramsey’s programme help?

In that edition of the book (by the way, we were actually included in the new 2007 edition) there was a Challenge to pay off the most debt, in relation to income, and the winners received a trip to the Bahamas. It was a win-win; even if we didn’t make it to Paradise Island, we would still win in the long run.

Dave talks in the book about 7 Baby Steps.

Step 1. The Baby Emergency Fund of $1,000. The $1,000 was rather easy for us – just staying home to eat, helped with half of this.

Step 2. The Debt Snowball. Now, this step is so controversial. The debate over psychology vs mathematics is a heated one. For us, it was indeed all about the psychological wins, of paying off the smaller balances. We had tried two other approaches before (highest rate and largest balance ratio) to no avail. We were able to knock out 2 or 3 small debts in one month. These were small gains, however you would have thought we had paid down $20,000, we were so pumped. We sold our 2002 Jeep Liberty, and bought a 1991 Jeep Laredo, that we nicknamed Penny. Family and friends thought we had lost our minds. It took us a little less than three years to pay off all of the $123,000 in consumer debt. All because we started acting like adults, began a plan, and followed through with it.

We’re currently on Step 3, the fully funded Emergency fund of 3-6 months of expenses. We’re close to finishing this out now.

Did you experience any setbacks or strokes of good luck?

My wife, had some medical conditions arise (back surgery). We were fortunate to have our 1st child, Danica. These were minor bumps in the road financially, as basically we stopped paying down debt for a period of time during the pregnancy, built up quite a bit of cash, and when all was fine, made a large payment on the next debt.

How far are you now in your path to financial freedom?

We live with little stress now, financially. We still have a mortgage, however we actually have a positive net worth of around $100k (not including any supposed equity that we may or may not have in our home). Amanda and I never have true arguments over money issues. We at times, have discussions, however it’s all quite calm and peaceful. Do we have true freedom yet? I guess not, we still owe on our home, however things are lot better around here than they used to be, that’s for sure.

What advice would you give someone in serious debt?

If you are married, get on the same page as your spouse. In our situation this was so crucial, as my wife is so task oriented and I’m such a free spirit. I was able to make radical changes easily and she had that initial challenge goal in front of her. Definitely, at least try Dave Ramsey’s Baby Steps outlined in The Total Money Makeover. I recommend reading the success stories first, you will no doubt find others that were in very similar situations. Finally, you can’t wander out of the debt, and you definitely cannot borrow your way out.

Is there anything else you’d like to add?

Thank you for the opportunity to share our story. I troll around the blogs, looking for stories about Dave Ramsey and/or people trying to get out of debt. It’s rewarding to help others who are having some of the same challenges that we faced.

I understand that with a lot of people, it’s a love-hate deal with Dave Ramsey. In our case, we paid his company the large sum of $19.99 and look how his information changed our lives. Is he correct on everything? Of course not and a lot of people waste a lot of time nit picking at his advice. However he is so right when he states that ‘if you will live like no one else, later you get to live like no one else’.

I’d like to thank Steven for providing an insight into success with the Dave Ramsey plan and of course for letting me interview him.

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