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Dave Ramsey’s 7 Baby Steps.

In March we announced that we were consumer debt free. Normally, after becoming debt free, most people begin Baby Step 3; 3-6 months of expenses in savings. We, however, took a little detour and paid cash for some things around our house that needed to be fixed.

It is now October and we are on Baby Step 2{b}.

Dave Ramsey does not have a Baby Step 2{b}, but that is what I am calling it for us. My husband and I were in a discussion most of the summer as to what step we needed to be on. I wanted to go onto BS3 because I felt like we worked really hard to get rid of all our credit card debt and car payment. It was time to build up the Fully Funded Emergency Fund {FFEF} because I wanted to see a lot-o-cash in the bank. Not that I just wanted cash, mind you. Every year for the last 3 years my husband has been faced with layoffs. With God’s grace and my husband’s relentless searching he was able to obtain employment right before each layoff was to take place. For me, the FFEF would be peace of mind just in case we faced a fourth year of a possible layoff.

My husband wanted to pay off the HELOC.

To me, the HELOC is a mortgage payment so I thought we should just lump that in with our regular mortgage payment and then head off to BS3. But, my husband listens to Dave Ramsey’s podcast and he happen to hear the exact question of the situation we were in and heard Dave’s answer.

Pay off the HELOC if it is less than half of your yearly salary.

Well, crap. We are just below that mark. Plus, our house has lost a LOT of value and if we pay off the HELOC we will be at an even point with our mortgage and house value.

In order to not feel defeated that we were technically still on BS2, I decided to call it Baby Step 2b just to feel like we’ve made progress. Don’t get me wrong, we have made progress. Ridding ourselves of $40K in consumer debt is a HUGE accomplishment. I just really wanted to be on the top of the hill rather than still climbing it.