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7 Steps to Get Out of Debt and Get Rich – Dave Ramsey


Many of you probably don’t know, but part of the reason I began this website was due to the simple lessons discribed within Dave Ramsey’s book, “Financial Peace“. With the proper education, anyone can get themselves out of debt and live a rich life!

1) Save Up an Emergency Fund of $1,000 – before you start paying off that debt in record time, you must first prepare yourself for the unknown expenses. You never know, your car could break down tomorrow, and if you don’t have any money set aside, you’ll start racking up debt on that credit card again!

We saved up our $1,000 back in January 2010 when we started paying down our student loan debt. Since we also budgeted for “unexpected expenses” we actually never had to dip into our emergency fund.

2) Pay Off All Debt (except the mortgage) – I think this is the toughest step for everyone. Somehow, no matter how much debt you have, you just assume that it will be a breeze to pay off. But, when you start, that debt doesn’t seem to budge! It’s easy to get discouraged, but if you follow the debt snow-ball method (explained on the site and in his book), those little payments will make a big impact!

Unfortunately, my wife and I are still in this stage of our 7 step plan. It seems like we’ve been paying down debt forever, but we can finally see the light at the end of the tunnel, and we’re starting to make plans for the next step! We should be out of debt by the end of March! 🙂

3) Save the Rest of Your Emergency Fund – now it’s time to save at least 3-6 months expenses for your emergency fund. You may want to save even more if you are uncertain about your job security. If you lose your job now, chances are that you won’t find one for quite a while!

4) Save 15% of your Gross Income in your Retirement Plan – This could be a 403(b), a 401(k), or a Roth IRA. I would even consider a rental unit to be part of this category. Basically, put 15% of your income toward some sort of investment that will be beneficial to your future.

Right now, my wife and I are actually investing about 4% of our gross income in our retirement plans (our 401(k) plans at work. I know we’re not on step 4 yet, but I feel like we should be contributing something. Plus, my work matches $0.50 for every dollar I invest!

5) Save for the Childrens’ College Fund – There are plenty of ways to save for thier education. Take a look at all of your options and choose the one that’s right for you.

We don’t have any children, so I figure we don’t need to save up for this category. We’ll probably choose to invest more in our retirement accounts.

6) Pay Your House Off Early – Since you are now debt-free, there should be plenty of excess cashflow to pay down that home mortgage. You’d be surprised how fast you could get rid of that loan!

If all goes exactly to plan, we’ll pay off our house within 3 years of our purchase. If it were a perfect world, we could do it in 2 years and 1 month, but we all know that things happen, so I just put a little cushion in there.

7) Get Rich and Give Money Away – Think about it. You have no debt whatsoever and you’re still making a consistent income (maybe even more than you did earlier in life). At this point, you’ll have plenty of money going into your investments. It’s time to give your money away! This would certainly be a fun stage to get to.

Give us about 4 or 5 years, we’ll be here, and I’ll make sure to share all of our experiences along the way. Stay tuned! 🙂

Are you following these steps? What do you think is the hardest step?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. This is a great post, I think people underestimate the importance of having an emergency fund so I’m glad you mentioned it, keep up the good work!

    • The emergency fund really is important! Without, we’ll inevitably throw ourselves back into debt. I’m glad you realized its importance!

  2. Congrats! if you get through step 2 you’ll be years ahead of most Americans

    • I can’t wait! I will be glad to get out of debt for two reasons: for one, it will surely be a free feeling! and two, I will be able to teach others how to do the same thing! 🙂

  3. I think step 2 is the hardest one, saving up the emergency fund is actually kind of fun… starting to funnel all your hard earned money to all that debt you worked so hard to accumulate is NOT fun, it’s a huge kick when you get one paid down though.

    I’m on this step as well, I hope to be moving to bs 3 by end of 2012. Dave states that on average it takes couples 7 years to work their way through the steps. That means I’ll be 32 by the time I get there, it seems a long time but when you put it in perspective… I’ll be 32 at that point. 😀

    • Andrea, step number 2 really does suck. I mean, not only do you realize that it’s taking FOREVER to get out of debt, you also realize how irresponsible you were to put yourself in that position (that’s how I felt anyway). Congrats on nearing step 3, I’m excited to be there as well! And yeah, to only be 32 and through all 7 steps? You are going to have people on your doorstep wondering how you did it! 🙂

  4. Great Post. Unfortunately my wife and I may be in step 2 for a very long time.

    • I know what you mean. My wife and I have been fighting to get out for over a year now, and we’re putting some big chunks of money into this debt “bowl”. I know that our debt may be small compared to most, but no matter how small or large your debt is, it’s still going to feel like forever before you pay it off! 🙂 Good luck to you!

  5. Paying off your mortgage is going to be the hardest! That’s one debt monkey that’s hard to get rid off!

    • I believe you. No matter how cheap the house is, you’ll still most likely have a lot of debt to pay off! Once my wife and I purchase our house, I’ll want to cancel that debt out pronto.

  6. While I don’t follow Dave’s advice to the letter, I’ve boggled my way through and ended up in nearly the same place. First, I have debt, but it’s slowly (very slowly) coming down. I’m refi-ing my house and should be closing on that shortly, which will save untold $$$ (cut from 30 to 20 year loan). My credit cards started out at nearly $15,000 in 2000, now down to $5500. I do have some funds saved up, but not the $1000 recommended.

    What’s really worrying me about the next step (which I plan to be at next January) is “Save 15% of your Gross Income in your Retirement Plan”. I caculated what that would be for me, and my eyes bugged out. I don’t know where that money’s supposed to come from. For me, $480 a month is near impossible to save. I tried increasing my debt repayment to $350/month but had to drop it back to $200 because I had NO money left after 3 months. And I’m supposed to be saving $130 above that? I guess I’ll see what happens after the CCs are paid off. Boy, will that be an awesome feeling!

    • Jenny, it’s true. In the beginning, that 15% may sound daunting because you are not yet on that step. Once you work your way through paying off your debt, you may find even more ways to save! The money that used to go toward your debts will be invested in your future!

      I would strongly recommend saving the $1,000 emergency fund. I realize that you may want to put this money toward your credit card debt, but if you have nothing to get you out of your bind, you will undoubtedly use that credit card again and start backtracking!

      Good luck on your future. I’m looking forward to hearing from you when you’re out of debt! 🙂

    • We also loosely followed the Dave Ramsey plan to getting out of debt without ever having heard of him. I think his advice is right on target. The only thing I would love if he changed is the size of that initial emergency fund. A thousand dollars is way too low, particularly if you’ve got a spouse and children or own a home. There are just too many emergencies that can come up. I would say at least 1500 per adult in the household is a more realistic initial fund before you start attacking your debt.

      We’ve been credit card and student loan free for several years now. We’ve been saving about 20 percent towards retirement and we’ve got our Suze Orman 8 month emergency fund, but over the years we’ve gradually cranked up our lifestyle to the point that I don’t think we’re really saving enough for future expenses – cars and tuition, specifically. This year we’re trying to get back on track, so we’re dialing back our lifestyle, eating more dinners at home, having the kids take advantage of the township parks and rec camps instead of the pricey private ones, etc.

      • Mom of Five, sounds like you and your family are doing a great job with your finances! I do agree with you on the emergency fund. If there are kids as well as a potential house expense, $1,000 is pretty low. Luckily, my wife and I currently rent and do not have children, so that $1,000 was perfect.

        Also, great job saving up that long-term emergency fund! That’s pretty necessary at this time, since it often takes 8 months to find a new job.

        Good luck on your future plans! I’m sure you’ll do great!

      • He tells you to save only $1,000 in step one so that you can focus all your extra money on getting out of debt. Sure there might be things that can’t be covered by $1,000 but having that little amount in the bank will cover most emergencies. If you use some of the emergency fund then you stop paying extra on your debts until you get the $1,000 saved again.

        • Great response Julie! Sounds like you know about the Dave Ramsey plan! I could use you around for some comments more often! 🙂

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