If you are a fan of Dave Ramsey or have just heard of him in passing, you are probably aware of his baby steps. His baby steps are set up to help you get out of debt and then live a great financial life. He advises to do one step at a time. Baby step #1 is building an emergency fund of $1,000. Baby step #2 is paying off debt. This is the debt snowball that you may have heard of (throwing everything you have at your small loans, paying it off, then paying everything you had been on the next smallest loan, paying that off, etc.). There are five more baby steps after these involving investing in retirement, paying off your mortgage, and giving back.
I think this plan is awesome and works really great for most people. But I can never seem to do them fully in order. Every, single time I get the $1,000 emergency fund built up, we have to drain it for something like a water heater that blew up or a car that broke down. We could spend nine months building the emergency fund, have two months to start adding to paying off debt, then be right back at having to re-build the emergency fun in month twelve.
It’s a vicious cycle. For that reason, we have decided to do both at the same time. There are months where we have to focus on building the emergency fund. But most months we are able to at least put an extra $10 towards paying off debt. When we come into a large amount of money such as when my husband makes a bonus at work or our tax refund, we are able to save a large chunk and are often able to throw a bunch at the debt as well.
Since our marriage in 2008, we have been able to pay off two of the smaller student loans, two vehicles (about to be a third), large amounts of medical bills (emergency c-sections cost far more than a typical birth), and other miscellaneous loans. By this time next year we should also have another of the student loans paid off. It does not always feel like it as we are still in quite a bit of debt but we are now treading water, not drowning.Why to do baby steps one and two at the same time #getoutofdebt Click To Tweet
By doing both baby step one and baby step two at the same time, we are able to make headway with both. Whereas if we did them in the proper order, we would still be in quite a bit of debt. For us and our situation, it makes a lot of sense.
If you are also in the vicious cycle of one step forward, two steps back when it comes to your debt payoff, I suggest you try to build your emergency fund and your debt snowball at the same time too.
(Please note: This is not the typical way to work the baby steps. If you can do it the traditional way, I suggest you do it that way as is recommended.)
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