Baby Step 2 - Become debt free!

Baby step 2 is to become debt free. The idea here is to list your debts from smallest to largest. These debts include everything from credit cards to car loans. The only debt that you should not include here is your home.

You may ask, "Why from smallest to largest and not list the one with the highest interest rate first." The answer is quite simple. A lot of people find themselves overwhelemed with the amount of debt that they have, and if they were to pay the debt with the highest interest off first, then they may find themselves discouraged because of all of the other debt that they have to worry about. Getting rid of your debt from smallest to largest gives you more of a sense of success because your small debts you can usually pay off quickly. It also helps keep your determination up. A lot of people may struggle with this issue, but you need to remember, this is a proven plan that has worked for hundreds of thousands of people (literally).

Once you have your debts listed, you will want to pay the minimum payment on all of your debts per month except for the one you are currently working on (which will be your smallest debt). You will pay extra on this payment until you get it payed off. After this debt is payed off, mark it off the list and start on the next one in the list. This is referred to as the debt snowball plan.

Dave suggests that you do everything you can to pay extra on these debts each month. Get an extra job if you need or work overtime (Pizza delivery jobs pay quite well. As a matter of fact, the pappa johns down the street from me now has a 'Now Hiring' sign for delivery drivers in front of it with a salary range of 14-18 dollars per hour! Not bad for just delivering pizzas!). Stop eating out every weekend and live on a budget! Make yourself control your money instead of letting the money control you. Remember to never buy on impulse and also to use cash or a debit card (preferably cash as people tend to spend more with debit or credit cards). Don't buy things that you can't offord. Remember, if you don't have enough cash in your bank to buy the item you want, you can't afford it!

This baby step should not take more than 18-24 months if you do it correctly. For some people this may take longer.