Baby Step #2

Once you have established your emergency fund and a good stockpile, move on to Baby Step #2. Dave Ramsey's Baby Step #2 is what he calls the "Debt Snowball." This is when you pay off of your debts starting with the smallest- like a snowball rolling down a hill. It starts out small, but then as it rolls more snow sticks to it and it will become a large snowball. Some may think to pay down the debt with the largest balance or the largest interest rate, but Dave says people need small victories in order to stay motivated (I am a perfect example of that). Once you have paid off your smallest debt, use the amount you used to pay per month (the minimum amount you had to pay) and put it towards the next debt in the snowball line.

Some may say that they only have enough money in their budget to pay the minimum amounts on their debts. This is where couponing comes in to play. You simply use the same concept as when you were building your emergency fund and stockpile. Whatever money you have left in your envelope at the end of the month, put towards your debt. This is a great way to pay off your debt without taking a hit in your budget. Kristin from Couponing To Disney adds to this. (Even though she is saving for a trip to disney, use her methods to help pay off your debt) She uses what she calls "Found Money" to help build her disney fund. Some examples of found money are: spare change, cash back from using ebates, a refund for a doctor's visit or some other copay, birthday money, money received from doing surveys, etc. Basically, any money you weren't expecting. Also, a coworker of mine has a friend who saves all $5.00 bills. I am not at the point where I can do this, but you can use this for $1s or other bills also.

This may be all good and dandy, but you cannot pay off your debt if you keep using credit cards. This is why it is so important to establish an emergency fund BEFORE  you start paying off your debt. Dave Ramsey also likes to add that it is just AMAZING how much debt is accumulated during the holidays. When done correctly, no debt should be accumulated. We know for a fact the Christmas will be celebrated EVERY year on December 25th. We should be saving for this as well. If you do not have any debt (kuddos to you!), have established your emergency fund, and have established you stock pile- why not save for Christmas or your child's birthday?