Baby Step #2 - Pay off all your debts (except your home)
Today we're going to talk about Dave Ramsey's Baby Step #2....getting out of debt. This is the elephant in the room since, let's face it, we know we can't grow wealth and be financially comfortable with debt hanging over our heads!
The first step is to make a list of all your debts, by company owed, with the balance owed on each. Now put those in order from smallest balance to largest. The concept is to pay them off one by one using the "Debt Snowball," where you make minimum payments on each account but attack the one with the smallest balance with every extra dime you can squeeze out of your budget every month. Once you pay that one off, then you'll focus on the 2nd smallest, and so forth. The "snowball" means that as you free up your minimum payment on the 1st debt, then you can add that to your payment on the 2nd debt, so everything gets paid off sooner.
So what gets included in the debt snowball? Include everything that's a real debt, other than your home mortgage. This means your credit cards, student loans, car loans or leases, personal loans, and anything else in this category. Don't include your home mortgage as we have a special Baby Step #6 for that...later in the journey.
This step takes time...so lay out your budget and your snowball, get started, and be patient!