DH and I are trying to follow Dave Ramsey's Total Money Makeover, but having some trouble figuring out how much of his advice we are truly comfortable with. First, we will be done with Baby Step 1 (EF=$1000) on Thursday. We have already begun Baby Step 2, the debt snowball, and have some great projections. However, we are combining it with the YNAB buffer method of having 1 months income in the bank at all times to help with our cash flow woes, so funding that is happening concurrently with the snowball. Our buffer should be fully funded by the end of June and then we can attack the snowball even harder from there. Both DH and I are comfortable with this.
The part that is giving us trouble is the part about using all of our savings to blast the snowball. Right now we have about $15,000 in an annuity that we have been funding for the last 12 years. If we cleaned out this fund (or left just enough to keep it open), we would be able to pay off 1/3 of our overall debt, but when we even THINK about doing that it feels like a punch in the gut. This account is the only thing we have been doing RIGHT with our money since we got married and we both hate to un-do it. What do you think? Is this a necessary thing to really get us "on the program" or can we just look at it as already having Baby Step 3 done before we are done with BS2? Are we drinking enough of the Kool-aid to make it work?
How much "Dave" is the right amount?
February 9th, 2011 at 01:36 am
February 9th, 2011 at 02:26 am 1297218410
February 9th, 2011 at 02:56 am 1297220164
If you can make the snowball work without dipping into your savings and you feel good about...I say go for it!! Great job in making a plan.
February 9th, 2011 at 02:23 pm 1297261433
In your case, psychologically, you might be better to use the cash. Because it's hitting you where it hurts. I am also presuming the debt is high interest. You could pay off Cap 1 or Visa, and snow ball the other one very quickly. Maybe just pay off the Cap One, and keep $5k cash in the bank. Though I am BIG in having an ample cash cushion, the smallest amount I have ever had was $5k cash. If I were deep in debt, I think that would be more than ample. But I like the idea of $5k mini emergency fund more than $1k - particularly when you already have some cash.
Since it hurts so much to use that money, I think it's a good thing. You will be very motivated to build that savings back up!
But, all that said, you can reach the same end with 100 other methods.
February 9th, 2011 at 03:20 pm 1297264823
I would also have you to find out if there are any surrender fees to take the money out of the annuity. Some companies have changed and you need to find out if you can do this.
February 9th, 2011 at 03:51 pm 1297266675
February 9th, 2011 at 06:50 pm 1297277415
There is a great delphi forum dedicated to Ramsey ... No More Debt.
YNAB + DR is a great mix! If you haven't already, you may also want to take a look at Mary Hunt. Back in early 2000/2001 when I was sinking under debt, it was DR and Mary Hunt, and eventually YNAB that got me back on track breathing fresh air again.
February 9th, 2011 at 08:20 pm 1297282809
frugaltexan75 gave you good advice. There's alot that you can do to make extra money including adjusting your budget and maybe cutting down on some expenses, selling some items, etc.