With 2015 now here, and many families still facing a holiday hangover of thousands of dollars of credit card bills, we turned to a man who has helped millions of Americans get out from under credit card debt: money man Dave Ramsey.
The man is a superstar to millions of people who are suffering from debt.
Nashville-based Ramsey has gone from bankrupt salesman to financial guru in 20 years, with a media empire that includes 500 radio stations and millions of book sales.
Ramsey, with his daughter Rachel at his side, now preaches what he learned in those dark days. So he agreed to speak with us during a recent stop on his latest book tour.
'Taking Baby Steps'
"The biggest thing about getting out of debt is really getting angry about it," Ramsey said. "You've got to get ticked off about living your life in such a way you're going to retire broke and that you work too hard to be this broke."
Ramoud Lewis is the type of person Ramsey wants to help. He was thousands of dollars in debt and too embarrassed to even try to get help.
"It was like the worst five years of my life," Lewis said. "I really didn't want to sit down in front of anyone."
Ramsey said his plan can help. He shared with me some of his best tips, or "baby steps" as he calls them, for getting out of debt.
Ramsey’s step-by-step plan
The first tip is the most painful: Stop shopping and sell what you don't need.
"You gotta' sell stuff, you gotta' get in attack mode. You gotta’ sell so much stuff the kids think they're next," Ramsey said.
Tip two: Cut up the credit cards.
"Most people struggle with credit cards," Ramsey said. "Very few people handle them well, so I just don't suggest them."
He said a debit card, or plain old cash, will make you think twice about every purchase.
"When you start spending real cash, you feel it," he said. "If you carry Uncle Benjamin Franklin around for a while, he becomes part of the family and when you put him out for adoption, it hurts."
Tip three: Skip the big car loan. Ramsey's advice: only buy as much car as you can comfortably afford, with a very small payment, or ideally no monthly payment at all.
"I'd ride a bicycle before I have a car payment," Ramsey said. "The average car payment in America is $478 a month over 84 months. If you invested that from age 30 to age 70 instead of paying a car payment, you'd have 5.6 million dollars."
Tip four: Stash away some cash for emergencies.
Ramsey said "the most important baby step is to save $1,000 as your starter emergency fund, to get started." When you can expand it, without going hungry, he says try to build it up.
That way you won't be financially devastated by a trip the emergency room for a cut or kid's broken arm.
Tip five: Then pay off those credit cards, starting with the one with the smallest amount of money on it. That way you will see immediate progress: you pay off the card with $2,000 on it, then shut it down or tuck it away for good.
If you have two cards with roughly the same amount of money on them (one with $4,500 and one with $5,000), then pay off the one with the highest interest rate first.
Attack that department store card with 26% interest before you pay down the Visa card that comes with just an 8 % interest rate.
Once you pay off your cards come tips 6, 7, and 8: College, Mortgage, Charity
Save for the kids college, try to pay off your mortgage in 15 years, and give some to charity.
Many of Ramsey's 8,000,000 followers may not get that far, but his advice gives them a path.
Have hope
And more importantly, the final tip he shares, is to have hope that things will get better.
"When people have lost their hope they've lost their energy. When they think the only light at the end of the tunnel is an oncoming train, they don't believe."
By helping restore hope, he helps people like Ramoud Lewis and millions like him get back on track.
Learn more about Dave's "baby steps" and his course, "Financial Peace University" on www.daveramsey.com.
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