Want to Get Out of Debt? You Should Do This First, According to Dave Ramsey

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Dave Ramsey actually recommends a preliminary step before paying extra on your debt.


key points

  • Many people want to become debt free but struggle to know where to start.
  • Dave Ramsey has provided some helpful tips on how to start repaying debt.
  • He suggests saving a $1,000 emergency fund first before paying extra toward loans.

When you’re in debt, it can be frustrating to have to make payments every month and to see your hard-earned income disappear to interest charges. As a result, it’s natural to want to get out of debt ASAP.

Unfortunately, you may not know where to begin with your payoff efforts. If that’s the case, finance expert Dave Ramsey has lots of advice to make loan repayment easier. And Ramsey suggests that those who are interested in becoming debt free should take one key step in order to get started.

Ramsey believes this is the first step toward debt repayment

Surprisingly, the first step Ramsey suggests when you decide you want to repay debt isn’t to begin sending extra money to your creditors. Instead, he advises saving a small emergency fund with $1,000 in it.

Now, this might seem counterintuitive. In fact, his blog even acknowledges that this is not the advice most people think they’ll hear when they are trying to formulate a debt payoff plan. “You weren’t expecting that, were you?,” the blog states. “Why would anyone put money in a savings account instead of using it to pay off debt?”

But, as Ramsey makes clear, putting aside a small amount of money for unexpected expenses is crucial because “life happens,” and emergencies don’t stop just because you’re attempting to become debt free.

if you no have this money — which he refers to as a “safety net,” then you face a huge risk as you’re working on paying down debt. You could find yourself making progress on reducing your balances only to have to borrow more money when something comes up. Finding yourself deeper in debt once you’ve begun the process of paying it off can be discouraging — so much so that many people end up giving up on their debt repayment plan altogether.

Should you follow his advice?

Ramsey’s advice isn’t always right, but his suggestion to save up a $1,000 emergency fund as your first step toward debt repayment is a good one.

If you fail to take this step, then you can easily become trapped in a cycle where you pay down part of your credit card balance, then have to charge up your cards again when a problem arises. This can leave you feeling like you aren’t making any progress so any sacrifices you’re making aren’t worth it.

Now, the exact amount you need to save for your starter emergency fund before beginning to pay down your debt may not necessarily be $1,000. If you don’t make a ton of money and it would take you a really long time to save that much, then you may be better off setting the goal of saving just $200 or $500 or some smaller sum so you can be prepared for little emergencies.

If you have payday loans or other very expensive debt, you may be better off tackling those first and then switching to emergency savings just because the cost is so high.

But, it is a good idea to prioritize saving some money for emergencies before sending extra cash to creditors, so you can maximize the chances of sticking with your plans to become debt free over the long term. You should seriously consider this approach as you make your plans to deal with your debt for good.

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