Debt Reduction Success Story in Army Times
March 2nd, 2008 by Ana
Hubby brought home a copy of the Army Times Friday night, to show me one story in it: the story of how an E-7 and his wife have eliminated $95,000 worth of debt. Although the story doesn’t mention it until the middle, I knew after the first three paragraphs these folks had found Dave Ramsey (emphases mine):
On March 10, 2007, Sgt. 1st Class Reno Peterson and his wife, Lisa, made a rash decision. They decided to live on their income, within their means, and stop buying on credit.
They faced up to their $145,000 debt — including $40,000 in credit card debt, $25,000 in vehicle loans, $9,000 in student loan debt, a loan for a swimming pool, a loan against Reno’s Thrift Savings Plan and other debts.
Now, the Petersons, who live in the San Antonio area, are on track to wealth. In one year, they have paid off $95,000 in debt — including $15,000 of the credit card debt, the vehicle loans, the TSP loan and the student loan. They also sold a rental house and paid off the mortgage on that property, applying the $23,000 profit to their debts.
Let’s face it, only us folks who follow Dave Ramsey get *that* crazy and weird and accomplish that much that fast! It’s true: Of all the personal finance “gurus” only Dave Ramsey says to get your happy hide out of debt as quickly as humanly possible.
In the military, debt is more than just personal finance. It is a readiness issue! In fact, a military person can actually be discharged for being too far in debt with no way to repay given their salary, as I wrote back in a September guest post for CashMoneyLife. Debt can be a doubly-serious thing when you combine it with military service since it impacts your career as well as your home life.
Dave Ramsey’s company offers a military version of Financial Peace University, with discounts to military units who wish to run the class for their units. Hubby has passed a little of the information to his commander, since his company recently found out (through the “blotter report” of all things) that their soldiers are having money problems and money fights.
Hubby has also asked to borrow a couple of my old FPU videos to take in and show to his squadmates over lunch. He hears his buddies grump and gripe about the same problems we had before he went to Korea, and remembers the stress and strain of those money problems. This is the same husband of mine who still calls Dave Ramsey a cult leader! I find it amusing my semi-reluctant spouse has become such a proponent of the Dave Ramsey plan at work.
As for what can be accomplished when both spouses are totally into the Dave Ramsey plan: I think the story in the Army Times illustrates that beautifully. Debt reduction success stories are all-around motivating and inspiring!
Posted in Dave Ramsey, debt |
March 2nd, 2008 at 12:49 pm
Excellent…kudos to semi-reluctant DH. DR’s way works for ordinary people with ordinary financial problems, whereas most personal finance gurus skip over the ordinary problems and jump right into maximize your retirement plan at work!!! or leverage yourself to the hilt to get investment real estate!!!
I hope the FPU material really gets into the minds of the soldiers and starts making positive changes in their lives.
Keep up the good work, gf!
March 2nd, 2008 at 6:35 pm
I wouldn’t have called Ramsey a cult leader until I read this and see that you think that following him is the only way anyone could knock out a significant amount of debt in a short time
March 2nd, 2008 at 9:24 pm
I have read Dave Ramsey’s Total Money Makeover several times. Although, I agree on some level with DR ideas I cannot get my situation to fix his model for purging debt. I have approximately $140,000 in debt which includes $103,000 mortgage(4.875% fixed), $33,000 HELOC(5.5%) and $4,000 Credit Cards (0%). However, my networth is over $650,000 of which $427,000 is savings(401k, Roth etc). I contribute over $3,000 per month to maximize retirement and brokerage accounts. Following, Dave Ramsey’s plan would require me to stop 401k, Roth and brokerage contributions for at least 5 years. In my situation that would result in higher taxes and smaller retirement nest egg. If I continue under my current plan my debts will be gone in less than 9 years and I will only be 54 years old.
March 2nd, 2008 at 10:23 pm
PaidTwice, *is* there any other personal finance “guru” who advocates getting out of debt as quickly as DR? Is there any wannabe-”guru” who advocates working like a demon and selling things to get out of debt as fast as you humanly can? (Note: I dislike the misuse of the word “guru” but everyone else uses it…)
Often when someone makes the decision to turn their finances around in such a drastic way, friends and family think they’ve gone nuts or joined a cult. If you read the Army Times story you’ll see these two people made a drastic change in their spending habits almost overnight.
Karma: catch up on the current series of the Dave Ramsey baby steps. The mortgage would be baby step 6, which falls after 15% going towards retirement in BS4. (As for liz, she’s every bit as nuts as I am LOL and a fellow myTMMO-er)
March 3rd, 2008 at 12:22 am
I know the Baby Steps. I just don’t think my situation applies. For example, if I stop my contributions to my 401K, Roth etc for at least a 1 year I would not get my company match or lower my taxable income. Delaying my contributions would cost me at least $7,000 (compnay match and tax payments) in the first year in order to eliminate credit card and HELOC. Then I would need to build a 3-6 month emergency fund which would take another year to save $20,000 costing me another $7,000. After step 4, I could resume my 401K contribution but not my Roth because I would only contribute 15%. I could skip step 5 because I do not have children. However, I would not be contributing the same amount to the 401k and it would take another 3 to 4 years to finish off my mortgage. In effect, I would be lose the opportunity for 5 years to save and invest the more than $3,000/mo to 401k, Roth and Brokerage accounts.
March 3rd, 2008 at 5:24 am
Goodness knows that if Karma has nearly half a million in non-equity assets at 45, she’s doing great with her money. Also sounds like she has 60%-ish equity in her home.
It does seem to me to be sensible to have an emergency fund of 3-6 months of expenses, whatever the financial situation–especially when the market is as ugly as it’s been lately. It provides a good hedge against the possibility of losing a job and having to sell securities while they’re at a pathetically low price. Karma, could you move some of the securities in your Roth or non-retirement brokerage to a money market or similar? That way, you have a liquid account that you can access if necessary without tax penalty (depending on your contributions to the Roth, obv, but you probably have contributed $20,000? If you’re investing $36000 a year?) If you use Roth money, you could then build a fund at your leisure in non-retirement money and reinvest the mm into a better investment.
Ana, I think Dave Ramsey’s brilliant in teaching those of us who are, er, insufficiently clued how to deal with our money. He’s magic on debt reduction and the kind of psychological change that we need to make to become fiscally responsible (”it’s not math, it’s psychology”? Definitely.) I do think that he and others who consider debt an unmitigated evil are overstating the case somewhat, and Karma is in a situation where debt reduction doesn’t need to be a primary focus to have a healthy financial life.
I guess I look at Dave Ramsey as a doctor–great for those of us who are sick. Less important for those who are already financially healthy–soooooo not people I identify with, btw.
March 3rd, 2008 at 8:32 am
It’s sad to think debt could be endangering the readiness of our service personnel. I know here in the civilian world heavy debt loads can be grounds for denial (or loss of) for a security clearance. There is more and more evidence mounting that debt is just plain bad.
March 3rd, 2008 at 9:25 am
Susannah, you may have hit the nail on the head here. Karma, carry on!
FrugalDad, don’t get me started on what you find right outside the gates of Ft. Campbell….
March 3rd, 2008 at 9:46 am
Karma,
You do seem to be doing very well, although it doesn’t sound like you’ve got enough ready cash. In your shoes, I think I’d pay off the credit card debt right away, build up substantial liquid reserves, and then modify the Dave Ramsey plan by treating the HELOC as if it were the mortgage.
March 3rd, 2008 at 11:58 am
Ana, I don’t know - because I haven’t read very many (any?) “gurus” from the source. Dave sure inspires rabid fans though.
I think I would pay closer attention to him if his message boards were free. Honestly, that’s a huge turnoff to me. I know that’s bound to inspire much irritation among his legions of fans, but I have to tell my own truth. I really don’t like that at all and it has discouraged me from buying his book.
I like snowballs as long as I can play them my way
March 3rd, 2008 at 12:04 pm
Actually there is free DR message board at www.llnoe.com (Living Like No One Else) if you want to check that out.
March 3rd, 2008 at 7:43 pm
Thanks to everyone who has commented on my situation. Susannah, while it is true that I do not have a single account with $20,000, I can access up to $9,000 without resorting to a CC. In my Roth I have over $52,000 and Brokerage ($68,000). My problem is that I can’t get my situation to fit DR plan as much as I would like to say DEBT FREE any changes to my current plan will result in higher taxation and smaller retirement funds if I wanted to retire in the next 15 to 22 years.
March 3rd, 2008 at 9:21 pm
Great story! I LOVE that your hubby is now bringing the DVDs to the other guys - it is so adorable when your man jumps on board as if it’s nothing, and like he is the hero now and has all these great resources to share
My guy did the same.
I was talking about motivation and inspiration this morning:
http://www.antishay.com/?p=64
I even put a mp3 clip of Dave in there
March 4th, 2008 at 9:32 am
Military members and debt……… it is a sad situation. Because creditors KNOW that they make x amount of dollars every two weeks… and that amount is not going to go down (unless they get into trouble) but will go UP….. and that the service member is locked into the military contract for years…. (most of these loan services ask for a LES which has your ETS date displayed… and they know that if you DO NOT pay they can just call your commander and force payment…. it is wayyyyy to easy for servicemen and women to get in way over their heads. Add to the fact that the military itself does NOT do a great job in teaching these 18 and up members personal finance, and it gets even worse. Sure, each branch has a “Finance class” hosted through their community service outreach, but most do not see these people until they are in MAJOR financial trouble. Even then, it is just to do a budget and how to balance a checkbook… not much else.
With all that, military members are also shocked when they get out and realize that they can be making the SAME AMOUNT of money they made while in - but not have the same amount of disposable income. Once BAH, COLA, housing privilages and PX/NEX/Commissary privilages are gone, there is a big discrepency of income versus expenses.
At least that was true for me….. I was just thinking about how right before I was getting out of the Army I was paying 1,000 dollars or more a month towards debt… and now I am making the same amount of money but I do not have 1,000 dollars to snowball. Here is why: Before I got out, I was in Germany, living in Government quarters. I did not have to pay rent, electricity, gas, or water. (Germany is not on the civilian plan yet) Now, I have to pay all those things, which takes up a decent chunk of my income, which is actually 200 dollars MORE a month than what I was making in the Army.
The services need to get on the ball teaching these finance classes to their members. It should be part of Basic Training. Since it is a skill which keeps readiness up, it is paramount that they do something.
March 8th, 2008 at 9:02 am
Great story! I live outside a military base as well and it’s not hard to spot all the frivolous spending… the pawn shops, rent to own (on tires, no less)… I think the military, especially the younger ones, could all use a dose of Ramsey…
Keep up the good work!
Mike
March 16th, 2008 at 10:11 pm
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