My family paid off $71k of debt in less than 3 years on a single income. We started by following Dave Ramsey’s baby steps, but over the course of our journey we switched a few things up! Today I’m going to share with you 4 Dave Ramsey rules we broke during our journey to debt freedom!
Dave Ramsey is the king of debt payoff, and reading his book The Total Money Makeover is what originally got us fired up about paying off debt! Dave has a really simple but strict set of rules called the Baby Steps. These 7 steps are meant to help you become debt-free and then wealthy over time. He is pretty firm about his steps, rarely wavering from them when he advises people on his radio show.
When we started our debt-free journey we had two kids. We ended up having another along the way, and were living on my husband’s income alone, so it was definitely not easy! It was faithful budgeting, sacrifice and hard work that got us debt-free. You can read my full report about our journey here.
During the first year of our journey, I felt super dogmatic and strict about following the baby steps to a T. I feared we would fail if we didn’t do things exactly the way he said to. We were super gazelle intense and paid off a lot of debt, maybe $35k, that first year. However, somewhere along the way I realized that there was more than one way to be successful at our financial journey!
I realized there might even be some better practices for my unique family circumstances.
So, I started listening to other personal finance professional opinions and expanded my horizons. We decided to break a couple of the Dave Ramsey baby step rules we had been following because we felt it was right for our family at the time, and I still have no regrets to this day. Here are the 4 baby steps that we broke, and why!
4 DAVE RAMSEY RULES WE BROKE ON OUR DEBT-FREE JOURNEY
1. Contributing to our 401k while on Baby Step 2
Dave Ramsey suggests you stop all 401k and retirement contributions while you are completing Baby Step 2, pay off all debt except the mortgage. He recommends putting the amount you were investing into retirement toward your debt instead. He has a couple of stipulations, like to keep contributing if you are 45 or older, but in general, he stands by this rule, even if you have a company match.
We decided not to follow this rule the entire time. After stopping 401k contributions for the first year of our journey (while we were insanely dogmatic and gazelle intense) we started contributing to my husband’s 401k again. He gets a 6-7% match, and that was just free money we were passing on! Insane.
I get why Dave Ramsey says to do this. Sometimes, it’s really hard to get the momentum going and find extra money to pay toward debt. In turn, you give up on debt freedom and your interest keeps robbing you of your income and freedom!
That’s why I don’t regret the year we stopped contributions. I do think it helped us stay the course, gain momentum, and pay off a ton of debt! But I’m also glad we started contributing again. We successfully paid off all our debt and were able to get thousands more saved into retirement at the same time.
2. Keeping More Than a $1000 Starter Emergency Fund
Dave Ramsey recommends you save $1000 fast as Baby Step 1, before paying off debt, as your starter Emergency Fund. Once you are debt-free, you will increase this to 3-6 months worth of expenses.
We broke this rule toward the end of our debt-free journey because we didn’t feel that $1000 was enough. Dave reasons that if you keep any more in there, you are pointlessly hoarding money that should be going toward paying down your debts. It makes sense. $1000 was perfect for the first year and a half of our journey when we were renting, had a good income, had 2 working cars, and very little risk. It started to feel way too small after we purchased an older home, our cars were getting older, we were adding a baby to the family, and so many more other factors. After we purchased our home, we kept $3-5000 in our Emergency Fund for the remainder of our debt-free journey.
3. Purchasing a home while paying off debt
Dave Ramsey recommends you not purchase a home until all your debt is paid off (Baby Step 2) and you have an emergency fund in place (Baby Step 3). This makes saving for a down payment on a home Baby Step 3b (save 10% for a downpayment on a home).
We did not follow this advice! It’s not bad advice, it’s just that our way made more sense for us. We were taking a new job in a new city and moving about four hours away. The new company was paying for professional movers to move all our stuff to our new place! We also got a sum of money from the new job offer that we’d be able to use on a downpayment. We could have used that money to pay off the remaining $20k or so of our debt. But I didn’t want to pay off our debt, move into an apartment, and then 6 months later have to move again (by ourselves) after saving enough money for a downpayment on a house. We decided to do the house first out of convenience and tackle the remaining balance on our debt afterward. I don’t regret this at all!
I do think it’s wise to postpone buying a home until you are financially ready. For some people with unique circumstances like us, that could be before all debt is paid off.
4. Using credit cards
Dave is VERY against credit cards, and for good reason. The average American has over $8,000 in Credit Card debt! We never had large amounts of credit card debt, and started our journey to debt freedom just 9 months after getting our first card. There was only one month where we didn’t pay off the balance, and that was actually what freaked me out and inspired me to pay off all our debt like a madwoman in the first place.
About a year into our journey I learned about travel hacking (using credit card sign up bonuses and points for travel), and we decided to go for it! Now, we use credit cards responsibly and pay off the balances every single week. We get lots of free travel this way!
I do not recommend credit cards to people who are just starting out paying off debt or people who are new to budgeting. That first year of our journey not using credit cards, getting a month ahead on all our money (earning before spending), and learning to budget properly without credit cards was essential for our success. Take a break until you are well established in your habits and budgeting. You won’t regret it.
Some people should never use credit cards ever again. If you have a history of large amounts of credit card debt or can’t be trusted with them, cut them up and throw them away for good!
However, if you’re committed to paying off the balances every single month and have a handle on budgeting, you might be ready to try your hand at travel hacking too.
And that’s it! I think Dave Ramsey gives generally good advice, but sometimes it can be too limiting and strict for people who are good with money and dealing with complex decisions. I believe all personal finance decisions are nuanced and what’s right for one person might not be right for another. There is more than one right way to become wealthy. In fact, there are unlimited ways and paths to take!
I am incredibly grateful that we decided to become debt-free! I do still like the Baby Steps in general and recommend them to pretty much any beginner. Just take them with a grain of salt, and when you become really smart and money savvy, you might find you want to change a few things up! Don’t be afraid to do your thing!
I hope you enjoyed this post about the 4 Dave Ramsey rules we broke while paying off our debt. I hope it inspires you to continue your own journey, even if that means paving your own path to meet the needs of your unique circumstances!