Paying past due bills first step to being debt free

Published: August 6, 2019

Dave Ramsey

Dear Dave,
I’ve had enough of living paycheck-to-paycheck. I’m going to start following your plan, but I have a question. Should I catch up on my past due bills before beginning Baby Step 1?
Simon

Dear Simon,
Go for it! You’re sick and tired of being sick and tired, and you’re going to get control of your money. I love it!

First, make sure you’re up to date with necessities -- food, clothing, shelter, transportation, and utilities. Next, get current or make payment arrangements for any other types of debt you have, including credit cards.

You mentioned Baby Step 1, which is getting $1,000 in the bank for a beginner emergency fund. Baby Step 2, the debt snowball, comes next. Start paying off all debts, except for your home, from smallest to largest. Then, in Baby Step 3 you’ll save more and increase your emergency fund to a full three to six months of expenses.

Now, you can really start looking at the future. In Baby Step 4, you’ll start investing 15 percent of your household income for retirement. College funding for the kids, if there are any, is Baby Step 5, and Baby Step 6 is a milestone -- pay off your house early!

But the real deal is Baby Step 7. This is when all your hard work, sacrifice, and smart financial decisions put you in a place where you can build wealth and give with outrageous generosity. At this point, you’re securing your family’s future and helping others in a big way!
—Dave

Dave Ramsey has authored seven best-selling books, including “The Total Money Makeover” The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms.