- 80% of Americans are living paycheck to paycheck because of debt. So, let's talk about how to free up your finances and your future. (upbeat music) All right, this year we are doing a series on each of the Baby Steps. So, if you missed last episode, we talked about Baby Step 1, which is saving a $1,000 emergency fund. In this episode, we're gonna talk about Baby Step 2, which is getting out of debt. So, we're gonna bring on my dad, Dave Ramsey, who came up with the Baby Steps and has been walking people through them for the last 25 years.
And then we're gonna talk to a couple who are working their way through the debt snowball, and they're in the middle of their debt-free journey. It's great, because they're just starting to feel the freedom in getting control of their lives, and best of all you guys, they have hope again. Now, a lot of people think that debt is not bad. Like, it's just a normal way of thinking. That's what society tells us. And in fact, 80% of Americans are living with some form of consumer debt right now. Listen, you cannot create a life you love while you're in debt. When you are in debt, it forces you to live life looking through the rearview mirror because you are chained to stuff in the past.
So, how do you get rid of debt? Well it all starts with the debt snowball. Okay, this is the best way, the most effective way, to get out of debt. And this is the debt snowball: where you list out all of your debts smallest amount to largest amount, regardless of the interest rate, pay minimal payments on everything, and pay off the smallest debt first. And once that's paid off, you roll all the payments, all the money you were throwing at the smallest debt, to the second smallest debt. Then once that's paid off, you have the minimal payments of the smallest debt and the second smallest debt to roll over to the third smallest debt. So it gets bigger, and bigger, and bigger. You're money continues to expand to start knocking down each debt. And I love this because what this takes is motivation. And once you pay off that smallest debt, motivation comes.
Your behavior starts to change. Now, some of you might be thinking, "But Rachel, shouldn't you pay off the highest 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 way more fun. I don't want to be caught in an avalanche. No, no, no, no. So, stick with the debt snowball. But again, mathematically speaking, yes, the debt avalanche could save you a few hundred bucks, mathematically speaking, but when studies have been done of people who do the debt snowball versus the debt avalanche, they actually get out of debt faster using the debt snowball.
Again, because it's all about your motivation, it's all about your behavior change. And a debt snowball, it has worked for millions and millions of people, and I promise, it can work for you. But up next, I wanna talk about something that you need no matter which Baby Step you're on. (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 purchase these tickets and me and the other speaker will go back, and answer questions, and meet people backstage. And during one of these backstage experiences, this man came up to me, and he was like six foot something, like huge, he was tall, big, big, big beard. I mean just like this burly man. And he asked me if he could talk to me for a second. And I was like, "Yeah, sure." And so he pulled me aside, and he just started crying. And it took him a second to kinda console himself to even get his words out.
But he began to tell me that him and his wife were on the journey of the Baby Steps. And they were working their way through, and she actually watched The Rachel Cruze Show for motivation, which is obviously so fun to hear, I always love that. And I could still see though, obviously the sadness from his tears and the way he was talking that something happened. And so, as he began to tell me his story, three months prior to that live event, him and his wife, they got in a car wreck, and she actually ended up passing away, leaving him with their three young children. And so, at the time I was newly pregnant, and I mean, you just put yourself in that situation and I'm like, that's the absolute worst thing that could possibly happen, and that happened to him and his family. I mean, it's unimaginable. And then he began to tell me though that he had purchased term life insurance, him and his wife, and they had it in place.
And so, he was saying, "Rachel, this is not the way to get to Baby Step 7, but because of term life insurance, I don't have to work, our house is paid for, everything's taken care of. And if we had not gotten that, this entire grieving process would look so different." And in that moment, I was like, man, that's why we do it, you guys. We talk about term life insurance all the time on this show, and you know that Winston and I, we use Zander insurance, I talk about it all the time. And you might be thinking, "Okay, that's great. Maybe I'll get it one day." But listen, stuff happens you guys, and you want to make sure that you and your family are taken care of.
And I was so thankful for him and his story that money didn't have to play a role in their 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, and heartache, and life heaviness would be on that family if they didn't have life insurance. So, if you do not have term life insurance, go to zander.com, get started on a quote today, because they will find you the best rates, and they're going to take care of you and your family.
Again, if something were to happen, having term life insurance is one of the best safety nets that you can have for your family. All right, up next I wanna bring on my dad, Dave Ramsey, and we're gonna get back to talking about getting out of debt because this is one place that can free up your family as well. But debt in general, it's changed, you guys, over decades now. And so, we're gonna hear all from big Dave's perspective when it comes to that. (musical tone) All right, you're back. - I am. - Here you are at "The Rachel Cruze Show". - Almost like I work here. - (laughs) Almost, sort of. You're sort of connected, I guess. Okay, so this episode's all about Baby Step 2, and you've been known as the get-out-of-debt guy for decades now. So I'm curious from you, you take calls on the radio everyday, what has changed about debt in 25 years? Like, peoples questions, have you seen a difference from 25, 30 years ago with debt to today? - I think there's different, we've gone through different ebbs and flows of which kind of debt is the crisis of the day, the flavor of the day.
When we first started, everybody was talking about credit card debt, how evil and how horrible credit card debt is, and we still think it is. - Do you find that people are in more credit card debt, it's become more normalized than even 30 years ago? What do you see around that subject specifically? - 30 years ago people wrote checks. - Yeah. - And so, it was a big deal. - The chunk-chunk of the credit card. - You would run across the thing. - You know what I always think about? Home Alone 2, when he's lost in New York, and he has to give it to the guy, and they pull it out, and they chunk-chunk, and he gets into The Plaza Hotel. That's always my thought of credit cards back then. - It's like pulling out the cell phone in Jerry McGuire that's this big. Same thing. It shows you the age of the movie, right? So credit cards are, what's happened with them is, the debit card has eclipsed first the check, and now checks have just about 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 the credit card. So the credit card kinda looks like the dirty, crazy cousin of the debit card now. - The crazy thing is that Millennials, studies are showing, are actually getting into less credit card debt than their parents were. - Because they have this option, and it's been put forward.
I mean, people are starting to realize the credit card is the cigarette of the financial world. It used to be cool, and all the movies had it, in 1950's everybody's smoking everything, right? And then people start talking about, hey this stuff kills you. And then the surgeon general came out. And then we put it in the elementary schools and said, "Oh children, don't smoke.
It will kill you". - D.A.R.E. programs popped up everywhere. - And that's what's happening gradually with the credit card, only in a more adult level, to where the Millennials are coming along going, hey, this credit card didn't work for our boomer parents. They got screwed by this. We're not playing. But it's not at the forefront of society's mind today. Then we kinda went through this thing where we went from car payments to car leases. Car companies realized they could make a lot more money on leases than they could on regular payments on regular car loans, and so they start pushing. And today, 78% of the cars that roll off a new car lot are car fleeces, and the reason is they make more money on them, but we went through a phase because it was kinda new and it was faddish.
And then of course we moved into the student loan epic plague, because it has grown. It's exploded. - But the difference though, of 30 years ago with students loans and today, is massive, probably more so than car loans and credit cards combined. - Because of just the volume of it, the number of dollars. And there's a little bit of a stigma shift. You know, my generation to the next generation, those are two previous to today. If they took out a student loan, they kinda did it holding their nose. And now everybody's like, well that's just what you do. And so, the stigma has gone away from it.
The fear around it has gone away from it. But now this epic plague is bringing the fear back. Which is good news because it's waking people up going, this is not working. - So, debt has somewhat changed, shifted the conversations around it in 30 years. But the way to get out and the mindset around it hasn't changed in the sense of the things you need to 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 just get in control of your money, but to get out of debt. So, do you still find that to be true, that budgeting is still a key part of getting out of debt? - Well, because you have to control the fuel that you have to get out of debt with, and the fuel is the money. And the money, the way you control the fuel, is the budget.
It's you turn it up, turn it down. And you go, okay, we'll turn this one down, this one down, this one down, so that more comes over here. And so we're cutting back lifestyle because we're sick and tired of being sick and tired. We're really angry. We're really scared. We really have had it. We're really going to change. And we're not going on vacation. And we're not going to a restaurant. And we're gonna dress the kids in consignment clothes. And we're really, for the next 18 months, the next 36 months, whatever it is, we're really gonna sacrifice deeply, and that shows up in the written plan. That is not just a random series of decisions. - Yep, so good. And then also, taking responsibility.
When you look at your life and the mess you've caused, not to put shame, but to say, okay, I've done this. But then at the same time, I have the power to be able to clean up this mess. Do you see that as still a huge step in getting out of debt? - Absolutely, the power and the dignity to make their own decision. And, you know, and really the realization that no one's coming. The Lone Ranger's not coming.
Whatever's happening, the pioneers are all surrounded, they're being attacked, or whatever, and the calvary is not coming. And so, you are the problem and you're the solution. And that's both wonderful news, and it's scary news. - Yes, absolutely. And then, the third is a tool that you've been teaching for decades now, is Financial Peace University. And we talk about this, but getting signed up, going through that course, being around like-minded people, this is a huge step to help accelerate your journey. - In a much more intense situation, if you're dealing with someone who has an addiction there's two things that they do. One is, they quit hanging out with their friends who drink, if they've got a drinking problem, because you're gonna become who you hang around with, it's just nature. And you know this because you don't let your kids hang around people, the kids that are misbehaving, because they're gonna misbehave like that kid. And so, you can't hang out with your drinking buddies if you want to quit drinking because you have a drinking problem.
And guess what else you do? You get in a group of people who are solving this, called 12 Step. And so, you go to Alcoholics Anonymous, and you sit down, and you go, "My name is David, and I've got a problem". Now that's a much more extreme situation. That's a heavier burden than just simply changing your behaviors on money, but it's exactly the same equation, only on a lighter form.
And so, you can't hang out with your broke friends who are putting stuff in your face on Instagram all the time that you can't afford, and that 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 in the group of people who are positive peer pressure in your church and in your 12 Step that are gonna turn this around with you. And so, you get around a bunch of people who are going, hey, this is now, in this group, being weird is normal. - Yes, and walk with it. So you guys, if you haven't checked it out, do it. Because again, those are the things, besides just the debt snowball and the tactical side of getting out of debt, that's really gonna help the mindset shift while you're in Baby Step 2.
- It's a very unusual person that has enough backbone and enough chutzpah to completely change their lives by themselves and not have people like-minded around them, and not have continual content and input from new lessons coming at them. If you can just sit in the corner, in the dark, and change your life, you would've probably already done it. - That's a good point, so good. Always wonderful. (hand clap) Thanks for coming in. - Good times. - So fun, so fun.
All right, coming up next, Micah and Chelsea are here. They're on Baby Step 2, and we get to see what life is like for them on this step. (musical tone) - Before we decided to get out of debt, we stayed 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 kinda fix the problem.
We both grew up with money being a huge stress always, and to start our family, when we get married, I didn't want that same environment. I didn't want the inheritance to be frustration. - Especially for our marriage, and thus for our kids. - I'd heard about Dave Ramsey when I was early 20s and knew he had written some books, and that was about it. Something about pay something off and then roll that money to the next. - I had found the app through a friend, but didn't know it was the Dave Ramsey app, a few years back. And I had shown him, but we had looked at so many budget apps together, I think I caught him at the wrong time and he was just like, yeah, we're not gonna do an app right now. It took him finding it and being like, look at this, and us sitting down together and really playing with it.
- I think the ah-ha moment for us was probably the same as most people when they do the budget for the first time, is you see what's left over. She showed me, and I said, "No, that's not right, you miscalculated". And there is an unbelievable amount of peace to having every dollar, and having every thing in control, and you're in control of it. - I tell people all the time, I think it's actually freeing. 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's a transparency there that is necessary in a marriage. It's not just when you're debt-free, but it's while you're in debt and budgeting. It's brilliantly titled Financial Peace.
It is a really comforting thing. - All right, Micah, Chelsea, thank you so much for being here. - Thanks for having us. - So we always talk about how you can wander your way into debt, but you cannot wander your way out. And Baby Step 2 is tough because you have to be fully committed. And you can't just be on the plan-ish. We call that ish people. And so, you would say that you were kind of ish people before being fully committed. So kinda tell me your story around that. - Yeah, so before we really dove into it, I guess we were as ish as it could be. I knew how to spell Dave and that was about it. - There you go. - I knew Dave Ramsey. I knew he had written a book, and that was about what I knew. We had some friends that were hosting FPU, and we went to their house one night and got a cute little folder, and we were like, great, we'll order water when we go out to eat. And we went to one class and didn't go back. And also didn't realize it was a regular thing you attended.
So it was, that started Daveish, and we always knew, at least I always knew, that credit cards were bad and snowballs were a thing. And so, we said we snowballed, but we might had done it once or twice. So we don't count out debt-free journey until we really started the budget. We just wandered in darkness and was confused and frustrated. - Yeah so, Chelsea, what did marriage look like when you guys were in that season? - It was okay, but we just either avoided and/or I wouldn't even say argued as much as just constant frustration and miscommunication.
- Yeah, so were you guys, so you felt like you didn't really have a plan, it was kinda just like here and there. So what was the catalyst? What was the point that you were like, okay, something has to change, something has to be different? - Every time she grocery shopped it was— - Those were arguments. - Okay, okay. - We felt good because we had good intentions, but we didn't follow through with any kinda budget. So we felt like, it's almost like, I think I'll start a diet, and feeling like, good for me, I thought about having a diet. (Rachel laughs) I feel thinner already. - I think I'm gonna be a runner, that feels good. (group laughs) - So that was kind of the mindset. We just stayed frustrated because there was always confusion. But as income increased, we start to see, I'm making more so we can pay more, we can do more. And that was a hard part when we initially started and thought we were gonna go at it, I had gotten laid off, she had gotten pregnant.
And I started a job, and I was getting $800 a month, and that's what we had, and there was no way of surviving. - The income was the problem at that situation. - And so, just promotions and job changes, it kind of led and grew quickly, and then we saw we have enough to where we can really go at 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 guys get out of debt, would you say? - The budget app. - The budget app, EveryDollar, okay. 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 in the groove and really start seeing, but even just the first month he was like, what? I got done and it was like, we can put this much towards debt.
He was like, no, I don't even make that much. Are you sure you did everything? And it was really freeing to see how much we could get done as quick as we could. - And when we had started or knew about Financial Peace, I kept thinking, financial peace is when you're debt-free, but part of that peace is having structure. - Even in the process, yeah. - And that budget brought peace. I mean, we're gonna be doing our budget meeting on the way home, and that was the turning point. - So compare your budget conversations before doing EveryDollar, and all of that, to after, because it sounds like night and day.
- Oh yeah. It used to be, I would write it down on a piece of paper, and sometimes he would, and we do math really differently, so he'd show me what he did and I'd be like, what? - How did you get there? - And vice versa, we'd do the exact same thing, and neither of us even understood the way each other did math.
And then we'd end up not talking about it because you'd be like, you know what? No, we can't. Either we're gonna argue or we're just not gonna talk about it, so a lot of times we didn't talk about it. - And so now, it's so opposite because you're on the same page. So would you say, we talk about, especially with couples, that working together and doing a budget eliminates so many money fights and money problems within a marriage, would you say that's true for you guys? - [Micah] Oh yeah. - And not even just that, I think it's relationship building. It's more than just taking out something. It's adding. It's changed so much of the way that we think about it. - Within marriage, and then also, obviously, with paying off debt, because doing a budget 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, we didn't really know, and that was a terrible feeling, is not knowing. And unfortunately for about a year we would get another letter in the mailbox saying, hey, your ADS loan has been bought out by so-and-so, and now you owe us this with this interest. So ultimately, overall, once we figured it all out, it was about $80,000–85,000. - Okay, and how much do you guys have left? - $5,000. - $5,000. You're like, right there. How does it feel? Because, I mean, I know you're technically not debt-free, you've got one more month, you've got to get that paycheck in, but emotionally it's there. So like, how do you feel? - It feels good to know that our money's going toward the green, it's going towards something, something that's really in the positive. And that alone is exciting. - So good. Okay, so what encouragement do you have for people watching that are like, 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, I might be ish.
But what encouragement would you say to be fully committed to this process? - I would just say, especially if it's a couple, just really be open to talking about it, and getting started, and trusting each other with it. It just helps so much to get on the same page, and you'll be shocked at how much you can get done, even if you have a fairly small income. - I had a friend ask me, how are you doing this? And my response, he took it as an insult, but I just said, well, self-control. And that's what we don't have as Americans, as just people blessed with so much that we have. If we wanna get it, we can go get it. Ultimately, I think it's just self-control and patience. And that's the hardest thing to have, to pray for, and to just manage. - Well you guys are incredible, I mean, seriously, the amount that you've paid off, and that you're so close, and that you guys are working together as a team. I mean, it just transformed, I know, so many different parts of your lives.
And so, I'm so thankful that you came and shared your story. - Thank you. - Thank you guys so much, and I can't wait for you to be debt-free next month. - Yeah, thank you. - So exciting, so exciting. Thanks for coming on. - Appreciate it. (upbeat music) I just love their story. And for you guys, I'm so rooting for you to get out of debt. And so, I hope that this episode motivated you to do that. Thank you so much to all of my guests for coming on this episode, and thank you guys for watching.
Now to get everything that we talked about in this episode, make sure to click the link in the description. And I always want to hear from you and answer your questions. So, I 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 the 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 that so you don't miss anything new coming out from me.
And as always, make sure to take control of your money and create a life you love. (musical tones).