Many years ago, my husband and I faced what we thought was an insurmountable hurdle–six figures of non-mortgage debts.
These were loans that we knowingly took on and looked great on paper, but they became a weight on our shoulders. Stressed out, we ventured into Dave Ramsey’s online Financial Peace University home course for help.
Prior to FPU, we thought we were doing well financially and never considered that we had too much debt. We didn’t carry over credit card balances, we paid off our car notes early, and the interest rate on the student loan was at a low 2.75%. We thought we were doing really well.
But Dave Ramsey’s view of debt is very different.
“Debt is Dumb and Cash is King.”
“…and the borrow is the slave of the lender”, Proverbs 22:7.
At that time, we didn’t consider all debt to be dumb. We agreed that credit card debt wasn’t very smart, but a car loan? That’s a necessity. A student loan? It was for my husband’s career. A business loan? It was to pay for the necessary equipment.
Yet after listening to Dave’s approach, I knew I didn’t want to be anybody’s slave and if I was being honest with myself, the total amount of debt payments we made every month was ridiculous. There were a lot more fun and purposeful things we could have done with that money than pay the lender.
After the FPU class, we looked at our debts differently. Becoming debt-free became very appealing and the idea of being able to give more, save more, and live more was the direction we wanted to go.
But we needed a plan–our own plan.
Dave Ramsey has a plan and it has worked for millions of people. He calls it his 7 Baby Steps. He makes it really simple and you should Google it if you haven’t heard of his steps.
We felt we needed to modify his steps to OUR lifestyle. We are self-employed small business owners and felt that our business needed to be included in our plan. Our personal finances are so interwoven with our small business finances that we view them as one.
We also didn’t feel comfortable with Dave’s suggestion of a $1000 starter emergency fund, which is his step #1. The point of the starter emergency fund is to get you through until you pay off your non-mortgage debts, at which point, you build a more extensive fund. But $1000 was not nearly enough money to cover sudden emergencies in both our home and business. His suggestions were a good starting point, but we came up with our own number.
And as you’ll see below, we also added a few more steps that he probably wouldn’t suggest or approve of, but there’s a reason why this is called personal finance.
A guiding light!
We chose the name, Our Debt Freedom Plan, and we referred to it often when we needed to make financial decisions. It was a reminder of our priorities. At times the plan felt intimidating, but it also changed the direction of our finances.
Something happens mentally when you WRITE down your goals and plans for execution. Our plan gave us clarity and direction, and instead of spreading ourselves too thin and trying to do everything at once, we focused on one step at a time.
Listed below is our original debt freedom plan that we wrote back in 2013. A lot has changed since we wrote this plan. At that time, our kids were 8 & 6, and now they’re both teenagers and wrapping up ninth & seventh grades.
Number 4 was knocked out in 2019. Paying off our six figures of non-mortgage debt was one of the happiest days of my life, and really is the defining step of this entire plan. It took us six long years from the time we made this plan a priority. I felt like a failure at times. To stay motivated I would listen to the debt-free screams on The Dave Ramsey Show. If others could knock out debt, we could too.
We sent our very last payment to my husband’s student loan in September 2019, the same month I turned 50. I cried for two days–lol!
We celebrated both occasions with a family cruise that we paid for with cash. It was such a treat and at that time, we were excited by the prospects of more extensive travel. During our debt payoff mode, we camped and went on beach trips with extended family, but never left the country…honestly, we never left the east coast. In January of 2020, we made summer plans (and bought airline tickets) to go see friends who moved to Europe. Well, you know how that ends…someday, we’ll travel extensively.
Currently, we’re working on steps 6, 7, and 8 simultaneously. This list needs to be updated and we need to add additional steps of paying off a sudden car note and saving for some other high ticket items. However, I suspect we will be working on these steps for many years to come.
Our Debt Freedom Plan – written in 2013.
- Save a Home Emergency Fund – Dave suggests starting at $1000, however, being self-employed, ours was much higher, but nowhere near 3-6 months of expenses. The purpose is to cover any sudden expenses so that we didn’t go into more debt when dealing with them. | DONE 2013
- Increase business emergency savings. | DONE 2014.
- Cash flow necessary business expenses. The 10-year-old server in our office had reached capacity. Unfortunately, they’re not cheap. We also had some building repairs that we needed to cash flow. | DONE 2015.
- Pay off all Non-Mortgage Debt. Our non-mortgage debt was in the six figures and included a student loan and business loans. We used Dave Ramsey’s debt snowball method. | We originally (and naively) estimated that we would be done by end of 2016, however, 2016 was not been kind to us, and we moved this goal into 2017. Update: DONE Sept 2019!!
- Once Non-Mortgage Debts are paid, cash flow a FAMILY TRIP TO DISNEY. | DONE November 2019. Once the time came, as a family, we decided on a cruise over Thanksgiving instead of Disney.
- Increase our emergency funds for the home & office to 3 – 6 months worth of expenses.
- Save 15% of gross income in retirement plans. We took a break from our retirement contributions during step #4. Read about it here: How We Paid off Six Figures of Debt
- Start college funds for our two girls.
- Pay Off Mortgage Debt. We still have a mortgage, so we’re not truly debt-free. We’ll eventually get to this step, but we have much to do with steps 6, 7, and 8. Finishing those steps is our priority at the moment.
- Cash flow a FAMILY TRIP TO HAWAII. The location could change by the time we get to this point, but the trip will be EPIC.
- Cash flow a FAMILY TRIP TO DAVE RAMSEY in Nashville to scream, WE’RE DEBT FREE! | To be honest, this doesn’t appeal to me as it once did. Yes, I’d like to visit Nashville, but going down to scream at DR isn’t really a goal anymore.
- Breathe & Invest…and Retire!
How to Create your own Debt Freedom Plan
1. Join forces with your spouse.
If you’re married, you must discuss debt freedom with your spouse so you’re both on the same page. Marriage and money don’t always align, but if one spouse is working towards debt freedom while the other spouse is racking up the credit cards, you’ll be on a treadmill that will never stop. Begin by both of you reading Dave Ramsey’s book, The Total Money Makeover(affiliate link), as this book was definitely instrumental in directing us along. You can choose to explicitly follow Dave’s 7 baby steps, however, we modified them to address our needs and lifestyle. If you read his book or are familiar with his steps, you’ll see the difference.
2. Know your numbers!
It’s time to know your numbers, and of course, I’m going to suggest you create your family’s balance sheet ;). Do you know how much you own and how much do you owe? It’s a simple equation, but you need to gather some information. I offer a FREE family balance sheet Excel spreadsheet to my email subscribers.
3. Understand your WHY.
What’s your motivation for debt freedom? Is it peace of mind? Is it to get creditors off your back? I wrote a post years ago about our WHY. I reread it recently and sobbed like a baby. Those girls remain our WHY to this day.
- Related Reading: WHY We Wanted to be Debt Free
4. Brain dump!
If you’ve created your balance sheet, you now have a list of all your debts. Next, make a list of your current needs, such as home repairs, medical needs, or educational needs. Also, allow yourself to dream about your wants. So often, we don’t dream about our financial goals, because we are so entrenched in our challenges.
An emergency fund is a must and you may choose to follow Dave’s advice on a $1000 starter fund, but personally, we chose to have a bit more.
After we determined how much our starter emergency fund would be, we looked at pressing needs at that time, such as a new server for our office and we had a leaky roof and broken HVAC that simply couldn’t wait until after our debts were paid off.
Once those needs were out of the way, we could focus on paying off our debts, starting with our non-mortgage debt. This included 5 loans. We used Dave Ramsey’s snowball method and listed our loans on our balance sheet from the smallest to the largest.
Our smallest debt was a credit card that had a $600 balance. We found extra money within our budget and applied it to that first loan while making the minimum payments on the other 4 loans. When that smallest loan was paid off, we put that minimum payment, plus extra money we were able to find, and applied it all towards the next smallest loan. When that loan was paid off, we put that full amount towards the third loan and this continued until September 2019. It turned out that our last loan was also the loan with the smallest interest rate, so the math nerds can relax.😉
Once we paid off our non-mortgage debt, we had wiggle room to work on the next steps and our list of dreams, such as travel.
6. Include celebrations in your plan.
We were pretty stoked about paying off six figures of non-mortgage debt–and we wanted to celebrate. When we first wrote our plan our girls were 8 & 6 and we thought about a trip to Disney. Once the time came, we settled on a family cruise and had a fantastic time. We knew while working on step 4 that a family trip would be waiting for us at the end. This helped us get through the rough times.
7. Track your success.
After you write YOUR plan, keep it in a visible location. Talk about it, pray about it, and stay focused on your WHY. Celebrate with CASH, not credit! Also, update your Family Balance Sheet every month, so you can see the reductions in your loan balances.
Paying off debt is not fun. In fact, it sucks! I can think of many fun things to do with the money instead of sending it to the creditors every month. That’s one reason why we included celebrations in our Debt Freedom Plan. They gave us something tangible to look forward to along our way to debt freedom.
8. Be flexible.
You can have the best plans, but things happen. Kids need braces, cars need parts, and medical emergencies will happen. We paused our plan a few times to cash flow other urgent needs. You learn to roll with the punches. Recently, we made the decision to take out a small car loan–I will never say my finances are perfect. They will always be a work in progress.
9. Lastly, roll your sleeves up and get to work!
If you’re just starting your journey to debt freedom, you’ll be frustrated, annoyed, and angry along the way. You’ll want to scream and hide under your bed, or in my case, eat cartons of ice cream. Sending debt payments to creditors is not fun.
However, when you’ve completed your debt journey, you will feel the release from that burden on your shoulders. I stated above that I cried for two days after we paid off six figures of debt, and that is not a joke. I had built up so much shame and regret on those loans and the making final payment was overwhelming for me.
Creating your own Debt Freedom Plan is just the beginning of a long road, but it is one worth taking.