Before starting on a “gazelle intensity” towards debt repayment, Dave Ramsey advises you to save up $1,000 for an emergency fund so that when Murphy comes knocking on your door while you are trying to get out of debt, you will not have to go into more debt by charging the emergency to your credit card. And since getting gazelle intense—meaning taking all of your other savings to pay off debt, most of your income, extra job income, and basically “all money you have above and beyond the $1,000 in anything except retirement plans…”—leaves you financially vulnerable, then saving up an emergency fund is a good idea.
What happens if you need to dip into this $1,000 emergency savings? After paying for the emergency in cash, you temporarily suspend putting all money possible towards your debts, and build your emergency savings back up to $1,000. Then, you get gazelle intense again.
I love Dave Ramsey and his debt snowball philosophy (check out The Total Money Makeover). I think it makes good sense, and enjoy reading all of the stories from people like you and I who decide to get focused on getting out of debt and find themselves out of a $50,000 hole 13 months later. Truly inspiring. Paul and I are working on a few of our own debts, and are very excited that we will be rid of two of them by our wedding in April! We have sold extra televisions, books, game systems, my old laptop, etc. I have picked up extra income with some freelance writing, and trimmed our fixed bills down quite a bit in order to free up some more cash. Things are really working in our corner now. After April, we will only have our mortgage and the rest of my student loan left, which I have been whittling down pretty well over the last four years.
However, it occurred to me that if Paul and I started our debt-free journey with only $1,000 in emergency savings, right now we might be more in debt. If you remember, my car died after purchasing our first home together. Fortunately we had more than $1,000 in our emergency savings, and were able to find a replacement within two months by paying cash for a used car. Paul carpooled to work for about as long as he could, and we had moved further away from our jobs at that point so taking a bus or metro was much trickier. Granted, if both of us could have changed our work schedules permanently, then we could have figured out a way to carpool together until getting out of debt.
Perhaps that is what Dave Ramsey means by gazelle intensity and focus. If I am going to do a complete, fair review of the debt snowball, then I need to add in the extra things that Paul and I could be doing in order to be more intense in our efforts. We could be more intense about our debts, but our Number Two goal is to get married, and to do so without going into any debt whatsoever. So we are concurrently paying cash for our wedding to save us from going into more debt, and shedding these older debts. We could elope and put all of the wedding savings towards our debts (we thought about doing this, but in the end we both wanted our wedding day). Perhaps I could have figured out a way to carpool with someone else (I am carpooling right now, but it is with a coworker who tore his Achilles tendon, and thus cannot drive for a few months, so I am the driver). We could have postponed our purchase of a home and use our down payment money to pay off our debts, though the first time homebuyer’s credit was certainly a part of our debt-free plan, and we were planning on buying a home anyway at the time that we did. And we are definitely keeping more than $1,000 in our emergency savings account—without which I would feel too vulnerable—so technically, we could throw that money onto our debts as well. We could also temporarily stop contributing towards our retirement plans and use that money to pay off the debts. However, I am a very long-term thinker and planner (have you noticed?), and so I am not comfortable with this idea, especially since we see the end in sight.
All in all, Paul and I are satisfied with shedding most of our non-mortgage debts by April, having no wedding debts, and no honeymoon debts. And while we don’t completely agree with Dave Ramsey’s $1,000 emergency fund while paying down debts, he has certainly been a part of our journey towards this point.
Do you follow Dave Ramsey? How has your experience on his plan been? What are some debts that you are working on right now?