Top 4 Things I Love About Dave Ramsey Baby Steps (And 4 Things I’d Change)

Dave Ramsey has helped thousands of people around the world through the 7 Baby Steps for financial peace and freedom.

The process works.

His book titled the Total Money Makeover has had some impressive sales numbers. The book has sold over 5 million copies and has been on the Wall Street Journal Best-Selling list for over 500 weeks. (That data is from August 2017, over 4 years ago, so it’s sold more by now.)

So, we know that the 7 Baby Steps work. There’s a lot to love above the process, and we will address 4 of those attributes here. We will also cover 4 things that we think could be updated this year (as it has been almost 30 years since the Baby Steps were created).

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7 Baby Steps really do work. There are three great reasons why the plan actual works:

a. The Baby Steps Force You To Get Gazelle Intense When It Comes To Paying Off Debt

I’ll mention this later, but I really appreciate that Dave Ramsey keeps the emergency fund smaller to force you to be gazelle intense. Having such a small emergency fund of $1000 really does force you to get out of debt faster because having too much money in the bank can cause you to stagnate. 

b. Dave Strongly Encourages Your Behavior Modification

Too many financial gurus don’t give it to you straight. They may tell you that you need to invest in real estate or cryptocurrency.  It often feels like a lie that you can achieve financial freedom without putting in a lot of work.

Dave Ramsey comes off as blunt many times, but he forces people to confront that the debt is often our fault (with some exceptions). His bluntness, along with the Baby Steps, forces you to self-reflect.

c. The Plan Is Simple And Shows How You Need To Focus On One Step At A Time

I’ll mention this more below, but it’s evident that his focused intensity on the Baby Steps plan helps you stay focused on the task. You complete the first 3 steps consecutively and the following 4 steps concurrently in a prioritized order. 

You don’t have to multitask. Also, you don’t need to think about another step. You just need to focus on the step at hand.

2) Dave Ramsey Is Right That You Need A Plan

Dave Ramsey has many helpful quotes. One of my favorite of Dave Ramsey’s quotes is, “You must plan your work and then work your plan”. 

Too often we go through life without a plan, but we expect that everything is going to work out just fine. I remember the first time I budgeted.  I thought that I spent a certain amount of money on eating out each month, only to realize that number was much higher.

We need plans. It could be a debt payoff plan to stay on top of your debt. It could also be a budget to understand your income and expenses. Or it could be a plan to pay off your home early as per Baby Step 6.

Dave Ramsey understood that which is why the Baby Steps plan is so useful. You stick to the plan and you get out of debt. Voila.

3) The Baby Steps Get Progressively More Challenging

One thing I noticed early was that the Baby Steps seems to get progressively more challenging. This helps build momentum. It is much easier to save $1000 than to pay off your house early. By starting and taking baby steps, the baby steps themselves actually don’t feel very babyish. 

Paying off your home early per Baby Step 6 feels much more like a big kid step, but it’s still just a Baby Step like the others. It’s impressive how Dave structured these baby steps.

4) The Community Around Dave Ramsey Baby Steps Is Incredible

You don’t have to look far to realize that the community around Dave Ramsey is incredible. You can take a Financial Peace University class at your local church. These classes are excellent to encourage you and help keep you accountable while you eliminate debt. You’ll learn the baby steps inside and out with others in your community. 

You can also be a part of a vibrant Dave Ramsey Facebook Community. Personally, I am a part of many of these communities where I receive a ton of encouragement when sharing wins and losses in the process of debt elimination.

There’s a lot to love about the Dave Ramsey Baby Step method.

Now, let’s cover a few things that could use a refresh.

1) Can Creating A Budget Be Baby Step #1?

I am a budget fanatic. I would love to see a Baby Step dedicated to budgeting. Why? Because budgeting helps you understand where every dollar goes. I used “every dollar” like that on purpose because Dave Ramsey himself created a budget app called EveryDollar for that very purpose.

What better way to understand how much money you have to put towards your emergency fund than starting with a budget.

I am not sure why Dave doesn’t start with a budget, but I would be keen to start the Baby Steps with creating one.

2) Dave Ramsey’s Emergency Fund May Need A Refresh

Dave Ramsey’s emergency fund calls you to save $1,000 in Baby Step 1. Is $1,000 enough? It really depends. 

First, adjusted for inflation, $1,000 in 1990 is now worth $2,043.26 per the US Inflation Calculator.

Dave Ramsey's emergency fund needs to be larger due to inflation

There’s a plethora of questions you can ask yourself when considering whether the emergency fund is big enough, such as:

  1. How much debt do you have to pay off?
  2. Do you own a home?
  3. How old is your car?
  4. How many kids do you have?
  5. Do you have insurance?

Another question I like to ask is, “where do you live?”. Personally, my family and I live in the Bay Area, California where the cost of living tends to be quite high. $1,000 wouldn’t get us very far.

3) Is The Snowball Method The Best Way To Pay Off Debt?

As a refresh, the debt snowball method means that you line up your debts from smallest to largest and pay your monthly extra to your smallest debt first then snowball into higher debts. The debt avalanche method is where you line up your debts from the highest interest rate and use your monthly extra to pay off the highest interest first. The savvy debt method is where you pay off 1-2 of your smallest balances first via snowball before reverting to the avalanche method to save the most in interest.

Dave Ramsey loves the debt snowball method. It has worked for many people, so why wouldn’t he? He feels the opposite for the debt avalanche where he mentions that it doesn’t work.

The challenge is that you could lose thousands in interest if your smallest debts also have the smallest interest rates. This can be possible because higher debt amounts carry a higher risk to the lenders, meaning potentially higher interest rates.

You can see how much the snowball method loses in comparison through this debt payoff calculator which compares interest paid from snowball to savvy methods. For reference, we are comparing 4 debts: $23,000 at 22%, $18,000 at 19%, $12,000 at 9% and $8,000 at 7% interest rate. The monthly payment is $1,825.00

debt snowball versus other debt payoff methods

In this example, you would lose over $3,500 in interest by choosing the snowball method.

Does that mean that the snowball method is always worse? Absolutely not. The snowball method may provide the psychological benefit that you need to exterminate your debt.

You choose the debt payoff app and debt payoff method that is best for you.

4) Should You Follow Dave Ramsey’s Advice And Pay Off Your House Early Or Invest?

Dave Ramsey loves mutual funds and paying off your home early. My question is what if your mutual funds are making so much more in interest than paying off your home would save you?

Wouldn’t the prudent thing be to continue to pay off your home and then get the higher interest from investing in mutual funds?  It’s not a one size fits all solution, but it is something to consider.

There are also often benefits of not paying off your home early such as interest paid being tax-deductible. That said, you would really need to determine whether you would make more money from mutual funds than saving from interest payments to determine what’s best for you.

What Do You Think About The Baby Steps?

The Dave Ramsey Baby Steps have helped thousands around the globe. What do you like about the Baby Steps? Do you agree or disagree with what we would change in 2021?

4 things I love about Dave Ramsey's baby steps and 4 things I'd change

Top 4 Things I Love About Dave Ramsey Baby Steps (And 4 Things I'd Change)


Here’s How to Get $20 Worth of Free School Supplies Online

Holy cow, is it time for back-to-school shopping already?

Not only is it a pain, but it’s also expensive. The average parent spends nearly $125 on back-to-school supplies per kid per year, according to the National Retail Federation.

Here’s a good way to make it better: Get some of your kids’ school supplies for free.

That’s right, free. When you sign up for a cash-back app called Ibotta, you’ll earn 100% cash back on a variety of school supplies and snacks.

This back-to-school shopping promo is a more generous version of what Ibotta always does, which is earn you cash back when you buy things. Although it’s probably best known for getting you cash back on groceries, wine and beer at your local grocery store, Ibotta is offering this back-to-school bundle through Aug. 31.

The following items are free after rebates: a three-subject spiral notebook, a 12-pack of Ticonderoga No. 2 pencils, an eraser, a box of tissues, a Del Monte fruit cup and all the ingredients you need for peanut butter and jelly sandwiches.

The rebate items, which have a combined value of at least $20, can easily be purchased online via Ibotta through Walmart, Target, H-E-B or Shipt. You can also buy them in-store at Walmart.

To collect your $20 in free school supplies — a good deal no matter how you look at it — just download the free Ibotta app or browser extension. Your back-to-school offers should appear. Choose which of the four retailers you want to shop at.

You’ll get your 100% cash back within 72 hours of pickup or delivery.

It takes about 30 seconds to download Ibotta on your phone. What, you don’t need free school supplies?

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He buys school supplies for two kids.




5 Ways to Save on Extracurriculars for Your Kids

Extracurricular activities are great for children. They help kids learn new things and perfect their skills. They provide opportunities to bond with peers and a constructive use of time. They look great on college and scholarship applications.

But all that enrichment comes at a cost. And these nonessential additions to the household budget can be expensive to keep up with — especially when you have multiple children with multiple interests.

Huntington Bank and Communities in Schools’ 2019 Backpack Index estimates extracurricular fees average about $150 for elementary students, $250 for middle school students and $350 for high school students. Of course, there are parents who spend much more.

If the cost of after-school activities concerns you, consider these ways to make them more affordable.

5 Ways to Save on Extracurriculars This School Year

These money-saving tips will help you keep the kids happy without upsetting your finances.

1. Turn to Government or Nonprofit Programs

Before signing your kids up for private music lessons or a traveling sports league, check to see if there are similar offerings located at or sponsored by your local:

  • School
  • Church
  • Library system
  • YMCA
  • Boys and Girls Club
  • Police Athletic League
  • Girl Scouts/Boy Scouts
  • United Way
  • Salvation Army
  • City or county parks and recreation department
  • Community college

2. Ask About Discounts

Be thrifty and save where you can by asking the activity provider about discounts. Is there a trial period where your kid can take a class or two for free before signing up for the season? Can you get a discounted rate for being a returning participant, enrolling more than one child or recommending another family to sign up?

Some programs offer a reduced rate if you register before a certain date, if you sign up for a package of sessions or if you volunteer to coach. Others offer scholarships or set their prices on a sliding scale based on income. You might want to ask if the organization will allow you to set up a payment plan rather than requiring all the money upfront.

Pro Tip

Check discount sites like Groupon or Living Social for current deals on activities.

3. Reduce the Other Costs of After-School Activities

The cost to enroll your child in an activity is rarely the only expense you’ll encounter. Equipment, supplies, uniforms, fundraisers, travel and performance tickets can greatly increase your investment.

Find ways to lower these additional costs whenever possible. Arrange a carpool with team members. Buy secondhand equipment and attire. Limit the family members who attend smaller performances throughout the year, and save up so everyone can attend the major show at the end of the season.

4. DIY Your Extracurriculars

Your kid can get the benefits of participating in an activity without it being a formal program that you pay for. Consider your children’s interests and figure out how to pursue them on an individual scale.

If your kid is into music, hit up YouTube for free tutorials. There are tons of cooking blogs with detailed recipes for those who want to master baking. Your library may provide free access to software to learn a foreign language.

Tap into your network of family, friends and neighbors to expose your child to different pursuits. Commit to teaching their kids about a skill you’ve mastered in exchange. For example, your friend could teach your kids how to play the guitar while you give their kids cooking lessons.

It might be a bigger investment in time, but you can save a lot of money by creating your own means of developing your child’s interests.

5. Talk to Your Kids About Making Sacrifices

There may be times where you simply have to say no to your kid’s request to enroll in another extracurricular activity. If you don’t have the funds and you’d have to charge expenses on a credit card, you should reevaluate things.

Parents never want to put financial stress on their kids, but it’s okay to be up-front about the limitations of your budget. This might mean having your kids choose one sport to commit to rather than two, or asking if they prefer dance lessons over vacationing at the beach next summer.

If you have teenagers, get them to contribute to their extracurricular expenses with money from babysitting, mowing lawns or a part-time job. Depending on the activity, you can challenge your child to turn their hobby into an entrepreneurial pursuit — like selling handmade bracelets at local festivals or giving piano lessons to younger kids.

Not only will this help your teens afford the extracurriculars they want, you’ll also be teaching them a valuable lesson about personal finance that’ll hopefully carry on into adulthood.

Nicole Dow is a senior writer at The Penny Hoarder. She’s a parent who’s always looking for ways to save money.




What is APR? Info and Tips on Lowering Annual Percentage Rates

From credit cards to mortgages, APRs can be one of the most confusing aspects of securing a loan. While monthly or annual interest is rather straightforward, APRs encompass extraneous fees that aren’t immediately obvious. A higher APR can significantly affect how much money you owe, so isn’t it time to wrap your head around this slippery concept? Let’s take a closer look.

Have a specific question in mind? Use the links below to jump straight to what you want to know:

APR Definition

APR stands for “Annual Percentage Rate” and represents the rate of interest you’ll pay when you take out a loan. This could include closing costs, mortgage insurance, and any other expense associated with borrowing money. Essentially, it helps you understand how expensive it will be to take out a certain loan. The APR indicates some of the fees associated with the loan as an interest rate so you know what to expect in the long term life of the loan.

Let’s break it down even further. When taking out a mortgage, car loan, or any other non-credit card loan, the interest rate and APR are defined as two separate amounts. The interest rate refers to the percentage you’ll pay on a monthly or annual basis to borrow the money loaned to you. APR refers to the full cost per year of borrowing the money, averaged over the full term of the loan. Typically, the additional fees included in an APR are added to the principal loan balance and accrue interest over the term of the loan.

It’s common for borrowers to get enticed by low monthly interest rates when they go loan shopping. Who wouldn’t choose a 5% interest rate over a 10% interest rate? But if the loan with 5% interest has a high APR, that signals there are additional expenses associated with the loan that could actually make it a more expensive choice. With a higher APR, your annual interest payments will increase since all these extra fees you have to pay are tacked onto your original loan amount.

However, the terms of APRs vary depending on what type of money loan you’re taking out. Remember all those pre-approved credit card offers you get in the mail? You’ve probably seen the envelopes advertising 0% introductory APR as a way to entice you to sign up. The APR and interest rate are the same percentage for a line of credit because there typically aren’t any additional fees associated with opening a credit card. Even if you pay an annual fee or extra late fees, companies aren’t allowed to include those in the APR.

So to recap, when does APR really matter? Whenever you take out a loan that is not a revolving line of credit. Houses and cars are the most common example of when you’ll be tasked with sifting through various APR offers. Remember, APRs give a fuller picture of what you’ll pay in interest and associated fees in addition to the principal amount of money you’re borrowing.

How to Calculate APR

Under the Truth in Lending Act, lenders are required to display APRs so borrowers can easily compare rates while searching for a loan or credit card. Even though APRs should be clearly stated on all documents related to the loan, it’s still helpful to know exactly how they’re calculated.

Investopedia uses this example to explain how APR is calculated for a mortgage:

“If you were considering a mortgage for $200,000 with a 6% interest rate, your annual interest expense would amount to $12,000, or a monthly payment of $1,000. But say your home purchase also requires closing costs, mortgage insurance, and loan origination fees in the amount of $5,000. In order to determine your mortgage loan’s APR, these fees are added to the original loan amount to create a new loan amount of $205,000. The 6% interest rate is then used to calculate a new annual payment of $12,300. Divide the annual payment of $12,300 by the original loan amount of $200,000 to get an APR of 6.15%.”

What is Variable APR?

As you compare APRs, you’re guaranteed to see fixed APRs and variable APRs. The difference between the two options is rather simple: fixed APR is a percentage rate that does not fluctuate, while variable APR may change in relation to an index interest rate. The index your APR is based on can vary depending on the type of loan and the lender, but the Prime Rate drafted in the Wall Street Journal is one of the most common. This rate acts as a base number, and additional percentage points are added onto your APR from there depending on factors such as your creditworthiness, lender fees, etc.

The appeal of a variable APR comes with the idea that if the index decreases, so will your APR. For the past few years, the Prime Rate has increased steadily by .25% each quarter. Whether you choose a fixed APR or variable APR depends entirely upon personal circumstances and whether you are comfortable with the possibility of your loan payment fluctuating.

APR for Credit Cards

As we mentioned earlier, a credit card’s interest rate and APR are interchangeable terms. If you don’t pay off your debt every month and carry over a balance, you will be charged a percentage of that balance in addition to the total amount you owe. That percentage is the interest rate (or APR) and does not include any additional fees. Typically, credit cards will have a range of different APRs based on your creditworthiness. It’s crucial to read the fine print of a contract before signing up for a credit card because you may find yourself paying far more than the introductory APR offering.

Another common phrase you’ll see when applying for a new credit card is “prime rate.” Cards with a variable APR—one that can fluctuate throughout the life of the line of credit—often use the Prime Rate as a benchmark from which to set their APRs.

Types of Credit Card APRs

Depending on how you use your credit card, you might run into various types of APRs with different percentages. Make sure to take a look at all the different rates to ensure you won’t get hit with a payment that will take a significant financial toll.

Purchase APR

This rate is the standard APR that applies to all the purchases you make on your card if you don’t pay off your debt by the monthly due date.

Penalty APR

This rate could apply if your payment is more than 60 days past due or a payment has been returned. Be aware that these are typically higher than your purchase APR.

Cash Advance APR

This rate can come into play when you use your credit card to withdraw cash from an ATM or cash a credit card check. These usually are higher than purchase APRs and apply immediately to the transaction without a grace period.

Balance Transfer APR

Depending on your credit card, you may be able to get a balance transfer APR for a low rate or even a rate of 0%. However, many cards still carry a significant balance transfer APR. This applies to any balance you transfer from another card onto your current credit card.

How to Lower Your Credit Card APR

Despite credit card APRs being rather straightforward, it’s never a bad idea to try and negotiate the lowest percentages that you can. A study from the United States Public Interest Research Group found that 56% of consumers who called their credit card companies hung up the phone with a lower APR. However, there are risks involved when you ask for a lower APR. Your bank or credit card company may take another look at your account, and if they don’t like what they see, your line of credit has the potential to get docked as it could require a hard credit pull. Before you get on the phone, make sure you’re prepared with the proper material.

Know Your Credit

Before making any requests to change your APR, make sure you know where your credit score stands. Do you have any late payments? Any recent credit applications? How about high debt-to-credit ratios? You’re allowed to order a free copy of your credit report once a year from each of the three credit bureaus, or can get a bigger-picture look at your credit health using Turbo. While a credit score of 700 or above is considered good, the higher, the better. The higher your credit score and the cleaner your history, the more likely you’ll be able to negotiate a lower APR.

Gather Lower Rate Offers

A key part of the negotiation process is presenting competitive offers you’ve received from other credit cards. Translation? Show your current company that you’re serious about taking your business elsewhere if they won’t negotiate with you. Take a look at all the balance-transfer offers that are mailed to you or browse the websites of major credit card companies to find their best deals. Try to gather three to four rates that are better than your current card. Once you’re on the phone with a representative, be sure to mention these rates and how you’d prefer an APR similar to those offers.

Ask the Right Person

Persistence is key when negotiating a lower credit card APR. Call the customer service line on the back of your card and start the conversation. If the representative says they aren’t currently negotiating annual percentage rates, ask to speak to a supervisor. Sometimes, it’s all about talking to the right person. If you demonstrate to a manager your determination to get a better rate or take your business elsewhere, there’s more likely to be movement in favor of your request.

Remember, approach this conversation with a positive tone. Discuss how you’ve enjoyed your experience with this company and how your track record has proven your responsibility with handling a line of credit. Then it’s time to dive into how you could be getting better rates elsewhere but don’t want to go through the hassle of transferring balances. Even an APR reduction by a point or two could make a big difference and help you pay back your debt more quickly.

Be Prepared with Paperwork

While you’re on the phone, be sure you’re prepared to provide any additional paperwork your card issuer might want. This could include proof of income or past tax returns—any paperwork to prove that you are in a financial position to continue paying back your debt and deserve a lower APR. Even if these documents aren’t required, it’s never a bad idea to be overprepared.

How to Lower Your APR on Loans

Negotiating a lower APR for your mortgage, car loan, or other personal loan will likely take the route of refinancing instead of simply asking for a reduction. Refinancing is the process of transferring your current loan over to another lender or updating your terms with the current lender in order to take advantage of better terms and rates. A reduction in monthly payments could make a significant difference in paying off the loan or tamping down debt in other areas of your life.

Refinancing a Mortgage

Many homeowners choose to refinance their mortgages to take advantage of lower interest rates and APRs. The process typically follows these steps:

  • Determine your goals: Whether you want to switch from an adjustable-rate mortgage to a fixed-rate mortgage, tap into your home’s equity, or get a better interest rate, figure out what you’re looking for during this important financial process. Going into negotiations with a specific goal in mind will help keep conversations on track and the outcome in your favor.
  • Perform a credit check: Make sure there are no errors on your credit report that may jeopardize your ability to obtain a favorable loan. If you do find errors on your report, you can dispute them with the credit reporting bureau that provided your report to have them removed.
  • Know the value of your house: Determine your home’s current value, either through checking recent home sale prices in your neighborhood or getting an official appraisal. If your home is valued at or above the amount you want to refinance your loan for, it’s much more likely it will be approved.
  • Choose a lender: Check with the Consumer Affairs database to ensure you are refinancing through a qualified U.S. mortgage lender.
  • Shop around: Don’t choose your current lender for the refinance option alone; look at other rates you could acquire if you switch lenders.
  • Steer clear of fees: Understand what kind of fees and closing costs refinancing will require, and factor that into which offer you decide to take.
  • Lock-in your rate: Determine an interest rate that suits your needs and lock it in before closing to ensure you receive the refinancing terms you want.

Refinancing a Car

To get a lower APR on your car loan, the standard steps for refinancing include:

  • Performing a credit check: Take a look at your credit score to see if you’ll be able to qualify for a loan. A history of late payments could look like a red flag to lenders.
  • Revisiting paperwork: Read through all the terms for your current car loan and make sure you have a firm understanding of what you’re currently paying. Don’t go into a negotiation blind, otherwise, you won’t know what APR offer is better than your current APR.
  • Researching competitors: Shop around for other loans with better rates that fit your financial needs. It’s smart to leverage competing offers in order to bring the terms of your auto loan down to where you want them.
  • Applying: When you submit an application, the lender will pre-qualify you if you meet all the requirements for obtaining a loan.
  • Selecting an option: Depending on how many applications you submitted, you’ll be able to choose the refinancing option that works best for you.
  • Finalizing the refinance: Enjoy the benefits of new loan terms and APRs that help you manage your repayment schedule.

At the end of the day, understanding the APR on your loan or credit card can make a huge impact on your financial health. Negotiating a lower annual percentage rate is never an easy task, but there are tips and tricks that can make it more likely to fall in your favor. With a firm grasp on how an APR affects the repayment schedule of your loan or line of credit, reaching financial stability will be easier than ever before.

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