Another Dave Ramsey girl here – I’ve been following his teachings for 8+ years and can’t tell you what wonders they have worked in my life.
The baby steps are:
Step 1: $1000 in the bank as a “baby” emergency fund
Step 2: Pay off all debt in order of smallest to largest
Step 3: 3 – 6 months expenses as a fully-funded emergency fund (EMERGENCIES ONLY! Not new furniture, not a vacation, not anything except emergencies)
Step 4: 15% of your income to retirement savings, not including what any employers contribute
Step 5: College savings for kids, if applicable
Step 6: Pay off the house
Step 7: Build Wealth & Give
So I have to recommend those steps, meaning dropping your savings to $1k (but only if you’re really going to get intense about paying off debt, you don’t want to have that low of savings for long), paying off the smallest loan, then throwing the rest at the next loan and just going crazy paying it all off.
We have three paid for cars (two of them being luxury/sports cars), a BIG emergency fund as well as a car-replacement fund, plenty of money to pay for our wedding, absolutely no debt, and tons of financial peace. Our big goal after the wedding is to save cash to pay for our first home – and we are on track to do it in 3 – 4 years (and wouldn’t buy before then anyway because of some moves we have planned).
There are some misconceptions about Dave’s plan, and some legitimate criticisms. Yes, going by interest rate may save you a bit of money, but studies have proven that those who go smallest to largest (snowball) are more likely to pay it all off.
If you’re at all interested in it, I’d recommend checking out his website. It was a life-changer for me. Fiance and I took Financial Peace University together this past summer and it has set us up to be on the same page about finances and successful in that area like you wouldn’t believe.