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The Fastest Way to Pay Off All Your Debt

May 30, 2021
- 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, who 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 Baby Steps and has been leading people through them for the last 25 years. And then we're going to talk to a couple who are snowballing their way through debt, and they're in the middle of their debt-free journey.
the fastest way to pay off all your debt
It's great, because you're just beginning to feel the freedom to take control of your life, and best of all, guys, you have hope again. Now, many people think that debt is not bad. Like, it's just a normal way of thinking. That is what society tells us. And in fact, 80% of Americans are living with some form 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 rear view mirror because you are chained to things from the past.
the fastest way to pay off all your debt

More Interesting Facts About,

the fastest way to pay off all your debt...

So how do you get rid of debt? Well, it all starts with the debt snowball. Well, this is the best way, the most effective way, to get out of debt. And this is the debt snowball: where you list all your debts from smallest amount to largest, regardless of interest rate, pay minimum payments on everything, and pay off the smallest debt first. And once it's paid off, it transfers all the payments, all the money that you were throwing down to the smallest debt, to the second smallest debt. Then, once it's paid off, you have the minimum payments on the smallest debt and the second smallest debt to move to the third smallest debt.
the fastest way to pay off all your debt
So it gets bigger and bigger and bigger. Your money continues to expand to start breaking down each debt. And I love this because what it takes is motivation. And once you pay off that smaller debt, motivation kicks in. His behavior begins to change. Now, some of you might be thinking, "But Rachel, shouldn't you pay the higher 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 so much more fun. I don't want to get caught in an avalanche.
the fastest way to pay off all your debt
No no no no. So stay with the debt snowball. But again, mathematically speaking, yes, the debt avalanche could save you a few hundred dollars, mathematically speaking, but when studies have been done of people snowballing debt versus debt avalanche, they actually get out of debt 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 you 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 something like six feet, like huge, he was tall, big, big, with a big beard. I mean like this burly man. And he asked me if he could talk to me for a second. And I was like, "Yeah, sure." Then he pushed me aside and started crying. And it took him a second to comfort himself and even say the words to him.
But he started telling me that he and his wife were on the Baby Steps trip. And they were working their way up, and he actually watched The Rachel Cruze Show to get motivated, which is obviously a lot of fun to listen to, I always love that. And she could still see, though, obviously the sadness in his tears and the way he was talking that something had happened. And so, when he started telling 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.
So at the time she was newly pregnant, and I mean, you just put yourself in that situation and I'm like, that's absolutely the worst thing that could happen, and it 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 they had it on his place. And so, he was saying, "Rachel, this is not the way to get to Step 7, but because of the term life insurance, I don't have to work, our house is paid for, everything is settled. And if we hadn't gotten that, This whole grieving process would look very different." And at that point, I was like, man, that's 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 that all the time. And you might be thinking, "Okay, that's great. Maybe I'll get it one day." But listen, things happen to you, and you want to make sure that you and your family are taken care of. And she was so grateful for him and his story that money didn't have to play a role in his grieving process. Like, all of that was taken care of. 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 would it be for that family if they didn't have life insurance. So if you don't have term life insurance, go to zander.com, get started with a quote today, because they will find the best rates for you 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 bring 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, guys, for decades. So, we're going to 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. - (Laughter) Almost, more or less. You're kind of connected, I guess. Okay, so this episode is about Baby Step 2, and you've been known for decades as the guy who gets out of debt. I'm curious about you, you take radio calls every day, what has changed regarding debt in 25 years? Like, people's questions, have you seen a difference from 25, 30 years ago with debt to today? - I think it's different, we've been through different ebbs and flows of what kind of debt is the crisis of the day, the flavor of the day.
When we started, everyone was talking about credit card debt, how evil and horrible credit card debt is, and we still think it is. - Do you think that people have more credit card debt, has it normalized more than 30 years ago? What do you see around that topic specifically? - 30 years ago people wrote checks. - Yes. - And so, it was a big problem. - The piece-piece of the credit card. - You'd run into the thing. - Do you know what I always think about? Alone at home 2, when he gets lost in New York, and he has to give it to the guy, and they take him out, and they tear him up, and he walks into The Plaza Hotel.
That's always my thought on credit cards back then. - It's like taking out Jerry McGuire's cell phone that's that big. The same thing. It shows you the age of the movie, right? So are credit cards, what has happened with them is that the debit card has first eclipsed the check, and now the checks have almost disappeared. And then the debit card has become so normalized, and we've helped with this. We've made it very, very popular as an alternative to a credit card. So the credit card now looks a bit like the dirty, crazy cousin of the debit card. - The crazy thing is that Millennials, studies show, are actually taking on less credit card debt than their parents. - Because they have this option, and it has been raised.
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 1950s everyone smoked everything, right? And then people start talking about, hey, this kills you. And then the surgeon general came out. And then we put it in elementary schools and said, "Oh children, don't smoke. It will kill you." - I WILL GIVE. Programs appeared everywhere. - And that's what's slowly happening with the credit card, only on a more adult level, as far as Millennials are going, hey, this credit card didn't work for our boomer parents.
They fucked with this. We are not playing. But it is not at the forefront of the mind of society today. Then we go through this where we go from car payments to car leases. The car companies realized that they could make a lot more money on leases than regular car loan payments, so they began to push. And today, 78% of the cars that come off a new car lot are car fleeces, and the reason is they make more money out of them, but we went through a phase because it was kind of new and kind of cool.
And then, of course, we move on to the epic plague of student loans, because it's grown. It's exploited. - However, the difference between student loans 30 years ago and today is huge, probably more than car loans and credit cards combined. - For its volume, the amount of dollars. And there's a little stigma shift. You know, my generation to the next generation, that's two before today. If they took out a student loan, they did it holding their nose. And now everyone says, well, that's what you do. And so, the stigma has disappeared. The fear around you is gone.
But now this epic plague is bringing fear back. Which is good news because it's waking people up, this isn't working. - So, the debt has changed a bit, it changed the conversations around it in 30 years. But the way of dating and the mindset around it hasn't changed in the sense of things you should do. 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 control 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 the money, the way you control the fuel, is the budget. It's you turn it up, turn it down. And you say, okay, we'll go down this one, down this one, down this one, so more will come through here. And so we're cutting back on lifestyle because we're sick and tired of being sick and tired. We are very 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're going to dress the kids in consignment clothing. And really, for the next 18 months, the next 36 months, whatever it is, we're really going to sacrifice deeply, and that shows up in the written plan.
That's not just a random series of 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 did this. But at the same time, I have the power to be able to clean up this mess. Do you still see that as a big step out of debt? - Absolutely, the power and dignity to make your own decision. And, you know, and really realizing that nobody's coming. The Lone Ranger is not coming. Whatever happens, the pioneers are all surrounded, they are being attacked, or whatever, and Calvary is not coming.
And so, you are the problem and you are the solution. And that is wonderful and terrifying news. - Yes absolutely. And then the third is a tool that he's been teaching for decades, is Financial Peace University. And we talked about this, but signing up, going through that course, being around like-minded people, this is a huge step to help speed up your journey. - In a much more intense situation, if you're dealing with someone who has an addiction, there are two things they do. One is to stop hanging out with your drinking friends, if they have a drinking problem, because you will become the person you hang out with, that's just nature.
And you know this because you don't let your kids hang out with people, kids who are misbehaving, because they're going to misbehave just like that kid. So, 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 get into a group of people who are figuring this out, called 12 steps. So, you go to Alcoholics Anonymous, you sit down, and you say, "My name is David, and I have a problem." Now that is a much more extreme situation. That's a heavier burden than simply changing your behavior withmoney, but it's the exact same equation, just in a lighter form.
So, you can't hang out with your broke friends who are putting things in your face on Instagram all the time that you can't afford, and they can't afford either, and you can't keep hanging out at the bar, if you're a drunk, with drunks And you need to get into the group of lobbyists in your church and in your 12 Steps that are going to change this with you. And so, you surround yourself with a lot of people who say, hey, this is now, in this group, being weird is normal. - Yeah and walk with it So guys, if you haven't checked it out, check it out.
Because again, those are the things, plus the snowballing of debt and the tactical side of getting out of debt, that will really help change the mindset while you're in Baby Step 2. - He's a very unusual person who has enough backbone and enough chutzpah to completely change their lives for themselves and not have like-minded people around them, and not have ongoing content and input of new lessons coming their way. If you could just sit in the 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 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 got a check it was a relief because we thought, okay, finally another Band-Aid to fix the problem. We both grew up with money being a big stress always, and to start our family, when we got married, I didn't want the same environment.
He didn't want the inheritance to be frustration. - Especially for our marriage, and therefore for our children. -I heard about Dave Ramsey when he was in his early 20s and I knew he had written a few books, and that was it. Something about paying for something and then passing that money on to the next. - I found the app through a friend, but didn't know it was Dave Ramsey's app, a few years ago. And I showed 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 him to find it and say, check this out, and we sat down together and really played with it. - I think the ah-ha moment for us was probably the same as most people when they first budget, see what's left over? She showed 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, I think he'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 there that is necessary in a marriage. It's not just when he's debt free, but while he's in debt and budgeting. It is brilliantly titled Financial Peace. It's really comforting. - Very well, Micah, Chelsea, thank you very much for being here. - Thank you for having us. - So we always talk about how you can wander the path into debt, but you can't wander the way out. And Baby Step 2 is hard because you have to be totally committed. And you can't just be on the plan-ish. We call that people. So, you would say you were a bit of a people 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 can be. He knew how to spell Dave and that was it. - There you go. - I met Dave Ramsey. I knew that he had written a book, and that was all I knew. We had some friends who were hosting FPU, and we went over to his house one night and bought a nice little folder, 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 a regular thing you attended. That's how Daveish started, and we always knew, at least I always knew, that credit cards were bad and snowballing was one thing. And so, we said we snowballed, but we could have done it once or twice. So we don't rule out the debt-free trip until we actually start budgeting. We just wandered in the dark and were confused and frustrated. - Yes, Chelsea, how was the marriage when you were in that season? - It was ok but we just avoided and/or I wouldn't even say we argued as much as the constant frustration and miscommunication. - Yeah, you too, so you felt like you didn't really have a plan, it was like here and there.
So what was the catalyst? What was the point where you were like, okay, something has to change, something has to be different? - Every time I shopped at the supermarket it was... - Those were arguments. - Well well. - We feel good because we had good intentions, but we didn't meet any kind of budget. So we thought, it's almost like, I think I'll go on 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 way of thinking.
We just got frustrated because there was always confusion. But as the income went up, we started to see, I'm making more so I 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 fired, she had gotten pregnant. And I started a job, 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, kind of led and grew rapidly, and then we saw that we had enough to really do it.
And that's always a Dave thing. If it's not a debt problem, it's an income problem. And it was initially. - So what was the one thing that really helped you get out of debt, would you say? - The budget application. - The budget app, EveryDollar, is fine. So tell me about that? How was that, doing it for the first time? - I mean, it took us a few months to really get into the groove and really start to see, but even the first month he was like, what? I finished and it was like, we can put this amount towards the debt.
He was like, 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 possible. - And when we started or learned about Financial Peace, I kept thinking, financial peace is when you are debt free, but part of that peace is having structure. - Even in the process, yes. - And that budget brought peace. I mean, we're going to do our budget meeting on the way home, and that was the tipping point. - So compare your budget talks before you do EveryDollar, and all that, with after, because it sounds like night and day. - Oh yeah.
It used to be, he'd write it down on a piece of paper, and sometimes he'd do it, and we do math very differently, so he'd show me what he did and I'd say, what? - How did you get there? - And vice versa, we did exactly the same thing, and neither of us understood the way the others did math. And then we'd end up not talking about it because you'd say, you know what? No, we can not. Either we're going to discuss it or we're just not going to talk about it, so many times we don't talk about it. - And now, it's so opposite because they're on the same page.
So would you say we talk, especially with couples, that working together and budgeting eliminates so many fights and money issues within a marriage? Would you say that is true for you? - Oh yeah. - And not even that, I think it's building relationships. It's more than just getting something out. It is adding. It has changed so much the way we think about it. - Within the marriage, and then also, obviously, with debt repayment, 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, actually we didn't know, and that was a terrible feeling, it's not knowing.
And unfortunately for about a year we would get another letter in the mailbox that said, hey, your ADS loan has been bought by so-and-so, and now you owe us this at this interest. So ultimately, overall, once we figured it all out, it was around $80,000 to $85,000. - Well, and how much do you have left? - $5,000. - $5,000. You're like, right there. How does it feel? Because, I mean, I know technically you're not debt free, you've got another month, you've got to get that paycheck, but emotionally it's there. So how do you feel? - It feels good to know that our money is going to the green, it is going to 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 committed, it might be ish. But what encouragement would you give him to fully commit to this process? - I would just say, especially if it's a couple, to be really open to talking about it, and getting started, and trusting each other. It just helps a lot to be on the same page, and you'll be amazed at what you can do, even if you have a fairly small income. - I had a friend ask me, how are you doing this?
And my answer, 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 much of what we do have. If we want to get it, we can go looking for it. Ultimately, I think it's just self-control and patience. And that's the hardest thing to have, so pray and just handle it. - Well, you guys are amazing, I mean, seriously, the amount that 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 thankful you came out and shared your story. - Thanks. - Thank you guys 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. (upbeat music) I love your story. And for you, I highly encourage you to get out of debt. So, I hope this episode has motivated you to do just that. Thank you very much to all my guests for coming to 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've 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 just call 844.944.1075 and ask. If you haven't subscribed to my YouTube channel or my 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 a life you love. (musical tones)

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