Baby Step 6: Paying Off Your Mortgage the Dave Ramsey Way

While the benefits of paying off your mortgage as soon as possible are numerous, very few people ever accomplish this feat during the early part of their working careers.

Instead, many families chose to either move into bigger and more expensive homes as their financial situation improves, or continually refinance their homes to “cash-out” equity to purchase other things.

Enter Dave Ramsey and His Seven Baby Steps to Financial Freedom…

A few weeks back I wrote an article on Dave Ramsey’s 7 Baby Steps to Financial Freedom and how these steps helped my family and I pay off over $90,000 of non-mortgage consumer debt.

It is actuallyBaby Step #2 in Dave Ramsey’s plan where people pay off all of their non-mortgage consumer debt utilizing the debt snowball method and this is precisely what my family and I did.

Like most individuals and families working their way up Dave’s Financial Baby Steps, I found Baby Step #2 (The Debt Snowball) to be very challenging.

Even with a decent household income, it took my family and I over 3 years to work our way through our consumer debt which included student loans, credit cards, a car loan, motorcycle loan, a personal loan, and a loan against my 401k.

It was a long three years filled with many sacrifices and hard work but in retrospect, it was probably the best thing my family and I could have done in preparation for our future.

The one nice thing about Baby #2 is that each individual debt you pay off gives you a sense of pride and accomplishment. This is one of the reasons Dave Ramsey recommends you pay off your debt with the smallest balance first.

While Baby Step #2 is challenging, the biggest hurdle people on Dave’s Plan face is completing Baby Step #6 (Paying off the mortgage).

Unlike Baby Step #2, there are no obvious milestones as you slowly pay down your mortgage. The “quick wins” you experienced as you worked through your smaller debts are long gone as you are now faced with a seemingly insurmountable debt that threatens to consume you.

This is the position that I find myself in today. While paying off $90,000 in non-mortgage debt was challenge, the real test in our resolve to reach financial indepenence is staying motivated to pay off our mortgage at a faster pace than is required by the terms of our 15 year fixed-rate loan.

Most people following Dave Ramsey’s Program complete baby step #6 about 7 years after initially starting the plan (assuming you already had a mortgage when you started).

So how do we stay motivated during Baby Step #6 when there are so many other financial temptations to indulge our discretionary income on?

Create Your Own Milestones: No matter how large your mortgage, try setting milestones for every ten, twenty, or fifty thousand dollars you pay off. Reward yourselves with a fancy dinner, mini-vacation, or other indulgence as you reach these individual goals.

Focus on the Benefits: Write down all of the benefits of paying off your mortgage and the freedom you will enjoy at that point. Perhaps your goal is to buy a vacation home some day, or take a cruise around the World. Think of how much easier those dreams will be to obtain if you get rid of that burdensome mortgage!

The Art of Reflection: No matter how focused we become on a financial plan, there are always times when we are tempted to deviate and fulfil a selfish desire that will have detrimental effects long term (a new car, luxury vacation, etc.). Ask yourself how these desires will affect your goals down the road. If I buy this new boat today will I be able to retire when I want? Will I need to wait before I can buy that dream house? Etc…

The trick in personal finance is finding a balance were you can enjoy yourself today and protect yourself for the uncertainty of the future. It is important to live in the moment while still planning for your hopes and dreams. I believe Dave Ramsey’s financial plan allows people to accomplish this goal.