If seems like every day, someone calls Dave Ramsey’s Show complaining about the amount of debt that they have. Usually, the first thing Dave asks is ‘how much do you owe on the car’? Nine times out of ten, the amount is absolutely ridiculous. Don’t get me wrong, you need reliable transportation. You just don’t need to spend $475 a month for the privilege of doing so.

It is virtually impossible to get wealthy purchasing assets that go down in value. You would never buys stocks if you knew they were going to go down in value, would you? When you finance a new car this is exactly what you are doing. In fact, a good rule of thumb is to sell anything that you cannot realistically pay off in 18 months or less. Honestly, I just do not understand how anyone can justify spending $475 a month for a car when you can save for a few months and buy a decent used car in 6 to 10 months. My wife and I cannot afford to spend $475 a month on food, much less a car that is becoming less valuable every single day.

If you are in debt and cannot afford to pay your mortgage, sell the car. If you are late on paying your electric bills, sell the car. If you want the life you deserve, sell the car. Millions of American’s debt issues could be solved by following three simple words – SELL THE CAR!

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Dave Ramsey has helped millions of people get out of debt. To be honest with you, I love hearing people call his radio show streaming “We’re DEBT FREE”! Most likely, my wife and I will be those cheese balls one day. And why not? It is hard work getting out of debt.

To recap, the baby steps are as follows:

1. Establish a $1,000 baby emergency fund
2. Pay off all your debts using a debt snowball
3. Fully establish your emergency fund to cover 3 to 6 months worth of expenses
4. Invest 15% of your household income into Roth IRAs
5. Fund you children’s education
6. Pay off your mortgage early
7. Build additional wealth and give it away

$1,000 Baby Emergency Fund

At one time, we had our baby emergency fund fully established. Of course Murphy took most of it from us, so we need to increase this back to the $1,000 minimum amount required. As I have stated before, having this small amount really makes my wife feel more secure. As such, this is a top priority for me.

Pay Off All Your Debts Using a Debt Snowball

Many people argue against using this technique simply because the math does not work in your favor. I realize that you will pay a bit more in interest using a debt snowball, but this does not bother me at all. Using it, I have paid off all of my debt except for my student loan and our mortgage. Once I establish my baby emergency fund again, I am going to attack Sallie Mae and show her no mercy.

Fully Fund a True Emergency Fund

This is my ultimate goal for 2010. It may be a bit unrealistic, but I would love to have three to six months worth of expenses covered should something happen to my job. Six months of expenses would allow me to either find a replacement career or start a new business of my own. Either way, my wife and I would feel a lot more comfortable.

The Remaining Baby Steps

Unfortunately, the remaining baby steps are probably out of reach until at least 2011. I am fine with this as long as we are making progress towards being debt free. Not saving for my retirement, however, is absolutely killing me. A such, this is probably where I will break from the strict interpretation of Dave’s Baby Steps and dabble a bit in investing. Most personal finance blogs talk about snowflaking their debt with any extra money each month. With the passive income I earn each month from various sources like eHow and affiliate marketing, I have decided to try investing in DRIPs again. With the stock market falling every day, or remaining flat, I see this as good a time as ever to dollar cost average my way to a decent portfolio. If I could continue to invest this way until retirement, I should have more than I do now (at the very least).

Are you following Dave Ramsey’s plan? What step are you on?

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In case you did not know, I am a huge Dave Ramsey fan. This guy simply understands what it takes to truly become debt free. A few months ago, my wife and I attended Dave Ramsey’s Financial Peace University!, and really learned a lot. During one of his lecture, he mentioned the fact that since he does not use credit, he could not get someone to finance his purchases even if he wanted. At the time I really did not reflect on just how powerful that statement was. I just did not understand how a multimillionaire could not qualify for financing.

I understand how the credit reporting bureaus calculate your credit score (or credit worthiness). In fact, I have written a few articles on eHow on this very subject (See How to Improve My Credit Score and How to Raise Your Credit Score for more details). So you can imagine my surprise when I was turned down for financing last week!

Our house is around 25 years old. It is in really good condition but, like all houses its age, repairs are needed from time to time. In our case, the water pressure coming into our house is 120 psi when the maximum allowed by code is 80 psi. When the pressure is too high, it can lead to other problems such as leaky faucets and busted valves. As such, we decided to start the year off by having a plumber come out and finally do something about it.

The first guy came out gave us a quote of around $750 to fix everything that needed repairs. We had the cash but the company offered us 12-month same-as-cash financing available. Sweet…$62.50 a month instead of $750 all at once. I could keep my cash in the bank earning interest and then pay these guys once a month. Not a bad deal…..

That is until we were denied credit!

Let me just say that I was a bit irritated. My credit score is somewhere north of 800 (well it was in March of 2008) so how the heck did I get turned down. The plumber had no idea since his company uses GE Finance. So I called GE. Due to privacy laws, GE could not tell me anything other than that they use Equifax to determine credit worthiness.

I immediately called Equifax. I really was worried that I had become the latest victim of identity theft. While I was on hold, I learned that if you are ever denied credit, you can receive a free copy of your report even if you have already received your free copy this year (which I had). So I went online and downloaded my report.

I could not find anything that would cause me to be denied. Perfect payment history, no negative reports, nothing. What the heck was going on?

After reviewing each and every line item of that stupid report I still had not discovered what was wrong, so I closed the report and threw it on my desk, feeling pretty angry. While sitting there stewing in my own anger, I noticed a credit summary on the front page of the report. Well damn! There was the answer right in front of me.

Mortgage = $$$$ Paid as Agreed

Student Loan = $$$ Paid as Agreed

Revolving Debt = $70,000 available credit ($22 used – I think I bought a book on Amazon)

Yep, our credit card debt is $22. I guess this makes us bad Americans. After all of the research I have done, I have been able to determine that the credit bureaus really frown upon having so much AVAILABLE BUT UNUSED credit. I guess the theory is that I could go out and “borrow” $70,000 worth of crap tomorrow. This simply made my day.

Well, since we were turned down for credit I asked the plumber if he gave “cash discounts”. Of course he said no, so I had another company come out and give me an estimate to do the same work. Not only did the second company come in $200 cheaper, they gave me a 10% cash discount. Ahhhhh, the power of cash. I guess it was a blessing that we got turned down for credit (since it saved us $219).

The moral of the story is that if you want to keep your credit score high, you must use your credit on a monthly basis. Myself, I prefer to get turned down again. That really makes me happy and saved me hundreds if dollars!

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