The Fastest Way to Pay Off All Your Debt

- 80% of Americans live paycheck to paycheck due to

debt

. So, let's talk about how to free

your

finances and

your

future. (upbeat music) Alright, this year we're going to do a series on each of the Baby Steps. So if you missed the last episode, we talked about Baby Step 1, which is saving a $1,000 emergency fund. In this episode, we'll talk about Baby Step 2, which is getting out of

debt

. So we're bringing in my dad, Dave Ramsey, who came up with the Baby Steps and has been walking people through them for the last 25 years. And then we'll talk to a couple who are working their way through the debt snowball and are in the middle of their debt-free journey.

It's great, because you're just starting to feel the freedom to take control of your lives, and best of all, guys, you have hope again. Now, many people think that debt is not bad. It's just a normal way of thinking. That's what society tells us. And in fact, 80% of Americans live with some type of consumer debt right now. Listen, you can't create a life you love while you're in debt. When you are in debt, it forces you to live life looking in the rearview mirror because you are chained to things from the past. So how to get rid of debt?

Well, it all starts with the debt snowball. Well, this is the best, most effective way to get out of debt. And this is the debt snowball: where you list all your debts, from the smallest to the largest, regardless of the interest rate, pay minimum payments on everything, and pay off the smallest debt first. And once it's paid off, you transfer all the payments, all the money that you were throwing away on the smallest debt, to the second smallest debt. Then, once it's paid off, you'll have the minimum payments on the smallest debt and the second-smallest debt to transfer to the third-smallest debt.

So it gets bigger and bigger and bigger. Your money continues to expand to start knocking down each debt. And I love this because what is needed is motivation. And once you pay off that smaller debt, motivation comes. Your behavior begins to change. Now, some of you might be thinking, "But Rachel, shouldn't you pay the highest interest rate first?" Yes, technically that would be mathematically correct, and that method is what they call the debt avalanche, which is terrible by the way. I mean, avalanche or snowball? Okay, snowballs are way more fun. I don't want to get caught in an avalanche.

No no no no. So stay with the debt snowball. But again, mathematically speaking, yes, debt avalanche might save you a few hundred dollars, mathematically speaking, but when there have been studies done of people doing the debt snowball versus debt avalanche, they actually come out of your debts faster using debt. snowball. Again, because it's about your motivation, it's about your behavior change. And a debt snowball has worked for millions and millions of people, and I promise it can work for you. But next I want to talk about something you need no matter what Baby Step you're in. (light piano music) So earlier this year I was at a live event, and before some of our live events we do these backstage experiences.

So you can buy these tickets and me and the other speaker will come back and answer questions and meet people backstage. And during one of these backstage experiences, this man came up to me and he was like six feet tall, like huge, he was tall, big, big, with a big beard. I mean this big man. And he asked me if he could talk to me for a second. And I said, "Yeah, sure." Then he took me aside and started crying. And it took her a second to console herself and even utter his words. But he started telling me that he and his wife were on the Baby Steps trip.

And they were working on his path, and she watched The Rachel Cruze Show to motivate herself, which is obviously a lot of fun to listen to, I've always loved it. And I could still see, obviously, by the sadness of his tears and the way he spoke, that something happened. And so, as he began to tell me his story, three months before that live event, he and his wife were in a car accident and she ended up passing away, leaving him with his three young children. And so at the time I was newly pregnant, and I mean, you just put yourself in that situation and I'm like, that's the absolute worst thing that could happen, and that happened to him and his family.

I mean, it's unimaginable. And then he started telling me that he had bought term life insurance, him and his wife, and that they had it. And then he would say, "Rachel, this is not the way to get to the Seventh Baby Step, but thanks to term life insurance, I don't have to work, our house is paid for, everything is taken care of. What if we hadn't?" achieved, this entire grieving process would be very different. And at that moment I thought, man, this is why we do it, guys. We talk about term life insurance all the time on this show, and you know Winston and I use Zander insurance, I talk about it all the time.

And you might be thinking, "Okay, that's great. Maybe I'll get it someday." But listen, things happen to you and you want to make sure you and your family are taken care of. And I was so grateful for him and his story that money didn't have to play a role in his grieving process. All that was solved. And again, that's not the way you want to get to Baby Step 7. But man, how much more stress, heartache, and heaviness of life that family would have if they didn't have life insurance. So if you don't have term life insurance, visit zander.com and start getting a quote today, because they will find you the best rates and take care of you and your family.

Again, if something were to happen, having term life insurance is one of the best safety nets you can have for your family. Alright, next I want to talk to my dad, Dave Ramsey, and we'll talk again about getting out of debt because this is a place that can free your family too. But debt in general has changed over decades. And so, we'll hear everything from big Dave's perspective when it comes down to it. (musical tone) Alright, you're back. - Am. - Here you are on "The Rachel Cruze Show." - Almost as if he worked here. - (laughs) Almost, more or less.

You're kind of wired, I guess. Well, this episode is about Baby Step 2, and you've been known as the guy who gets out of debt for decades. So I'm curious on your part, you get radio calls every day, what has changed regarding debt in 25 years? For example, questions from people: Have you seen a difference between the debt of 25 or 30 years ago and that of today? - I think there are different ones, we have gone through different ebbs and flows whose type of debt is the crisis of the day, the flavor of the day. When we started, everyone was talking about credit card debt, how bad and horrible credit card debt is, and we still think it is. - Do you think that people have more credit card debt, that it has become more normalized than 30 years ago?

What do you see around that topic specifically? - 30 years ago people signed checks. - Yes. - And then, it was a big problem. - The piece of the credit card. - You would run into that thing. - Do you know what I always think about? Home Alone 2, when he's lost in New York, and he has to give it to the guy, and they take him out, tear him up, and he goes into the Plaza Hotel. That's always my thought about credit cards back then. - It's like taking out Jerry McGuire's cell phone that's that big. The same thing.

Shows you how old the movie is, right? So, credit cards, what happened with them is that the debit card first eclipsed the check, and now checks have practically disappeared. And then the debit card has become so normalized and we have helped with this. We have made it very, very popular as an alternative to the credit card. So the credit card now looks a bit like the debit card's dirty, crazy cousin. - The crazy thing is that Millennials, studies show, are actually taking on less credit card debt than their parents. - Because they have that option and they have considered it.

I mean, people are starting to realize that the credit card is the cigarette of the financial world. It used to be cool, and all the movies had it, in the '50s everyone smoked everything, right? And then people start saying, "Hey, this kills you." And then the surgeon general came out. And then we put it in the elementary schools and said, "Oh kids, don't smoke. It'll kill you." - I WILL GIVE. Programs appeared everywhere. - And that's gradually what's happening with the credit card, only on a more adult level, to where the Millennials are getting, hey, this credit card didn't work for our boomer parents.

This screwed them up. We are not playing. But today it is not at the forefront of society's mind. Then we went through this thing where we went from car payments to car leases. Car companies realized they could make a lot more money on leases than they could on regular auto loan payments, and so they started pushing. And today, 78% of the cars that come off a new car lot are fleeces, and the reason is because they make more money on them, but we went through a phase because it was something new and it was hot. And then, of course, we move on to the epic plague of student loans, because it has grown.

Has exploded. - But the difference between student loans 30 years ago and today is huge, probably more than auto loans and credit cards combined. - Just because of the volume, the amount of dollars. And there is a small change in stigma. You know, from my generation to the next generation, those are the two before today. If they took out a student loan, they did so holding their nose. And now everyone says, well, that's what you do. And just like that, the stigma is gone. The fear that surrounded him is gone. But now this epic plague is bringing back the fear.

Which is good news because it's waking people up and this isn't working. - So, debt has changed a little, the conversations around it have changed in 30 years. But the way of going out and the mentality around it has not changed in the sense of the things that need to be done. So, we talk about budgeting all the time on the show, about being intentional, and it's the best step you can take to not only get control of your money, but also get out of debt. So do you still believe that's true, that budgeting is still a key part of getting out of debt? - Well, because you have to control the fuel with which you have to get out of debt, and the fuel is money.

And money, the way fuel is controlled, is the budget. You have to raise it and lower it. And you say, okay, we'll lower this one, this one, this one, so that more can come this way. And so we are cutting back on our lifestyle because we are sick and tired of being sick and tired. We are really angry. We are really scared. We really have had it. We are really going to change. And we're not going on vacation. And we're not going to a restaurant. And we will dress the children in consignment clothes. And really, over the next 18 months, the next 36 months, whatever it is, we're really going to sacrifice deeply, and that shows in the written plan.

It's not just a series of random decisions. - Yes very good. And then also, take responsibility. When you look at your life and the mess you've made, not to be ashamed, but to say, okay, I've done this. But at the same time, I have the power to be able to clean up this mess. Do you think this is still a great step to get out of debt? - Absolutely, the power and dignity of making your own decisions. And, you know, and really realizing that no one is coming. The Lone Ranger is not coming. No matter what, all the pioneers are surrounded, are being attacked or whatever, and the ordeal doesn't come.

And so, you are the problem and you are the solution. And that is wonderful and terrifying news at the same time. - Yes absolutely. And then the third is a tool that you've been teaching for decades: Financial Peace University. And we talk about this, but signing up, taking that course, being around like-minded people, is a big step to help accelerate your journey. -In a much more intense situation, if you are dealing with someone who has an addiction, there are two things he does. One is that they stop hanging out with their friends who drink, if they have a drinking problem, because you will become the person you hang out with, it's just nature.

And you know this because you don't let your children hang out with people, children who misbehave, because they will misbehave like that child. Therefore, you can't go out with your drinking buddies if you want to stop drinking because you have a drinking problem. And guess what else you do? You join a group of people who are figuring this out, called 12 Steps. And then you go to Alcoholics Anonymous, you sit down and you say, "My name is David and I have a problem." That is a much more extreme situation. That's one more burden.It's tougher than simply changing your money behaviors, but it's exactly the same equation, just in a lighter form.

And so, you can't hang out with your broke friends who are shoving things in your face on Instagram all the time that you can't afford, and that they can't afford, and you can't keep hanging out at the bar, if you're drunk, with drunks And you need to be part of the group of people who exert positive pressure on your church and on your 12 Steps that are going to change this with you. And then you surround yourself with a group of people who say, hey, this is now, in this group, being weird is normal. - Yes and walk with it.

So guys, if you haven't checked it out, do it. Because again, those are the things, besides the debt snowball and the tactical side of getting out of debt, that will really help change the mindset while you're in Baby Step 2. - It's a very unusual person who has enough character and enough nerve to completely change their lives on their own and not have like-minded people around them, and not receive continuous content and input of new lessons. If you could just sit in a corner, in the dark, and change your life, you probably would have done it by now. - That's a good point, very good.

Always wonderful. (applause) Thank you for coming. - Good times. - Very funny, very funny. Alright, then Micah and Chelsea are here. They are in Baby Step 2 and we get to see what life is like for them in this step. (musical tone) - Before we decided to get out of debt, we were left frustrated with our finances, frustrated with each other constantly. - I was really confused about how much we had, neither of us knew. - Every time we received a check it was a relief because we thought, okay, finally, another band-aid to solve the problem a little.

We both grew up with money always being a huge stress, and to start our family, when we got married, I didn't want that same environment. I didn't want the inheritance to be frustration. - Especially for our marriage and, therefore, for our children. -I had heard about Dave Ramsey when he was in his early 20s and knew he had written a few books, and that was it. Something about paying for something and then moving that money to the next account. - I found the app through a friend, but I didn't know it was Dave Ramsey's app, a few years ago.

And he had shown it to him, but we had seen so many budget apps together, I think I caught him at the wrong time and he said, yeah, we're not going to do an app right now. It took me finding it and saying, look at this, and for us to sit down together and really play with it. - I think the aha moment for us was probably the same as most people's when they first budget: you see what's left over. She showed it to me and I said, "No, that's not right, you miscalculated." And there's an incredible amount of peace in having every dollar and having everything under control, and you're in control of it. - I tell people all the time that I think it's actually liberating.

It keeps us on the same page all the time. We don't have to fight, I don't have to ask. - It's good for your finances, but it's also good for your marriage and teamwork. There is a transparency that is necessary in a marriage. It's not just when you're debt-free, but while you're in debt and budgeting. It is brilliantly titled Financial Peace. It's something really comforting. - Very good, Micah, Chelsea, thank you very much for being here. - Thank you for having us. - That's why we always talk about how you can get into debt, but you can't get out of it.

And Baby Step 2 is difficult because you have to be completely committed. And you can't just follow the plan. We call that people like that. And so, you would say you were kind of a weird person before you fully committed. So tell me your story about that. - Yeah, so before we really dove into it, I guess we were as crazy as possible. I knew how to spell Dave and that was it. - There you go. - I knew Dave Ramsey. I knew he had written a book and that's what I knew. We had some friends who were hosting FPU, and one night we went to his house and bought a cute little binder, and we said, great, we'll order water when we go out to eat.

And we went to a class and didn't come back. And I also didn't realize it was something you regularly attended. That's how Daveish started, and we always knew, at least I always knew, that credit cards were bad and that snowballs existed. And then we said we snowballed, but maybe we would have done it once or twice. So, we don't rule out debt-free travel until we actually start budgeting. We just wandered around in the dark and were confused and frustrated. - Yes, Chelsea, what was marriage like when you were on that season? - It was okay, but we just avoided it and/or I wouldn't even say arguing, just constant frustration and lack of communication. - Yeah, you guys too, so you felt like you didn't really have a plan, it was kind of here and there.

So what was the catalyst? What was the point where you thought, okay, something has to change, something has to be different? - Every time I went shopping it was... - Those were discussions. - Well well. - We feel good because we had good intentions, but we did not meet any type of budget. So we feel like it's almost like, I think I'll start a diet, and feeling good for myself, I thought I'd go on a diet. (Rachel laughs) I already feel thinner. - I think I'm going to be a runner, that feels good. (Group laughs) - So that was the mentality.

We were just left frustrated because there was always confusion. But as the income increased, we started to see that I'm earning more so we can pay more, we can do more. And that was a difficult part when we initially started and we thought we were going to do it, I had been laid off and she had gotten pregnant. And I started working and I was making $800 a month, and that's what we had, and there was no way to survive. - Income was the problem in that situation. - And so, just promotions and job changes, he kind of led and grew quickly, and then we saw that we had enough to get to where we can really go.

And that's always Dave's thing. If it's not a debt problem, it's an income problem. And that's how it was initially. -So, what really helped them get out of debt? - The budget application. - The budgeting app, EveryDollar, is fine. So tell me about that? What was it like doing it for the first time? - I mean, it took us a few months to really get into the rhythm and start watching, but even just the first month he was like, what? I finished and thought we can put this amount towards debt. He said, no, I don't even make that much.

Are you sure you did everything? And it was really liberating to see how much we could do as quickly as we could. - And when we started or learned about Financial Peace, I kept thinking, financial peace is when you are free of debt, but part of that peace is having structure. - Even in the process, yes. - And that budget brought peace. I mean, we're having our budget meeting on the way home, and that was the turning point. - So compare your budget conversations before doing EveryDollar and all that with the ones after, because it sounds like night and day. - Oh yeah.

It used to be, he would write it on a piece of paper, and sometimes he would do it, and we do very different math, so he would show me what he did and I would say, what? - How did you get there? - And vice versa, we did exactly the same thing, and neither of us even understood the way the other did mathematics. And then we'd end up not talking about it because you'd be like, you know what? No, we can not. Either we're going to argue or we're just not going to talk about it, so a lot of times we don't talk about it. - And now it's the opposite because you are on the same page.

So would you say that we talk, especially with couples, that working together and making a budget eliminates so many fights and financial problems within a marriage? Would you say that's true for you? - Oh yeah. - And not even that, I think it's building relationships. It's more than just putting something out. It's adding up. The way we think about it has changed a lot. - Within marriage, and then also, obviously, with paying off debt, because budgeting is a big part of Baby Step 2, getting out of debt. So what did you guys start with? How much debt did you start with? - Well, we didn't really know, and that was a terrible feeling, not knowing.

And unfortunately, for about a year we got another letter in the mailbox saying, "Hey, your ADS loan has been bought out by so-and-so and now you owe us this with this interest." So ultimately, overall, once we figured it all out, it was between $80,000 and $85,000. - Okay, and how much do you have left? - $5,000. - $5,000. You're like, right there. How do you feel? Because, I mean, I know you're not technically debt free, you have one more month, you have to get that paycheck, but emotionally it's there. So how do you feel? - It feels good to know that our money is going green, it is going towards something, something that is really positive.

And that alone is exciting. - So good. Okay, so what encouragement do you have for people watching who say, okay, I've got my $1,000, I'm about to embark on Baby Step 2 on this journey, and I think I'm engaged, could I be? . But what encouragement would you say to fully commit to this process? - I would just say, especially if you're a couple, be really open to talking about it, get started and trust each other. It helps a lot to be on the same page and you'll be surprised how much you can do, even if you have a fairly small income. - A friend asked me, how do you do this?

And my response, he took it as an insult, but I just said, well, self-control. And that's what we don't have as Americans, as people blessed with everything we have. If we want to get it, we can go get it. Ultimately, I think it's just self-control and patience. And that is the most difficult thing to have, to pray and simply to manage. - Well, you guys are amazing, I mean, seriously, the amount you've paid, and that you're so close, and that you're working together as a team. I mean, it just transformed, I know, a lot of different parts of their lives.

So I'm so grateful that you came and shared your story. - Thank you. - Thank you all so much and I can't wait for you to be debt free next month. - Yes, thanks. - So exciting, so exciting. Thanks for coming. - I appreciate it. (upbeat music) I love your story. And for you, I highly encourage you to get out of debt. And I hope this episode has motivated you to do so. Thank you so much to all my guests for coming on this episode and thank you all for watching. Now to get everything we talked about in this episode, be sure to click the link in the description.

And I always want to hear from you and answer your questions. So, I set up a new voicemail just for you. You can call, leave your message, and I may answer your question in a future episode of the show or podcasts. So, simply call 844.944.1075 and ask. If you haven't subscribed to my YouTube channel or podcast, make sure you do so so you don't miss anything new from me. And as always, make sure you take control of your money and create the life you love. (musical tones)