A freedom debt management plan is any plan that is geared to wiping out ALL debt including the mortgage. If I did own a home (which I no longer do) it would be on the list of debts to pay off.
After getting together the $1000 emergency fund and a working budget, the next step in Dave Ramsey’s plan is to get rid of unnecessary toys that have a monthly payment tied to them. This includes cars, RVs, boats, time shares and so on. Sell them and start paying down the credit card debt. If you really want an RV, it can be paid for in cash once the freedom debt management plan has put you in a position to do so.
I did not follow this advice when it came to selling my car. I kept the $400 payment for a car that I know isn’t going to fall apart on me. It’s a Toyota, so once it is paid off it will last for many years to come. Our other car is also a Toyota – fully paid for and has never caused us any trouble. However, I do admit that selling a car to get rid of a large payment is good advice.
Next in DR’s freedom debt management plan is to put together a debt snowball schedule. This includes arranging debts in order from the smallest balance to the largest and paying them off one by one. Take the minimum payment for the smallest debt and add whatever amount you can to accelerate the process.
For instance, debts are arranged below from smallest to largest. We don’t care about interest rates in this plan:
- Amazon Store Card – $350
- Dell Financial Services – $1250
- Chase Visa – $3500
Let’s say the minimum payment for the Amazon card is $30. Now add $150 (or whatever you can) and pay $180 a month until the card is paid off.
Next add $180 to the $80 minimum payment on the Dell account to equal $260 a month. Once that is paid off, add the $260 amount to the minimum payment for the Chase account and so on.
Most snowball schedules in freedom debt management plans start with the highest interest rate account and end with the lowest which makes good sense. However, the DR method of lowest balance to highest is psychologically satisfying in seeing the debts disappear quickly one by one. You’re more apt to stick with the program in the long haul.
