8 Truths About Debt
- Debt is not necessarily sin.
- Debt always mortgages the future in order to pay for the present.
- Debt always results in an overall lower standard of living for your family because you will have less discretionary income.
- Debt decisions must make economic sense. Economic return of debt must be greater than the economic cost of debt. In other words, never borrow for depreciating assets or for lifestyle expenses.
- There needs to be a guaranteed way to repay the amounts borrowed, not a hope or a wish.
- Borrowing may deny God the opportunity to provide for our needs.
- Debt may strain marriages if spouses are not in full agreement before borrowing.
- Cosigning a loan will put you in unnecessary financial risk. (Prov. 11:15, 22:26)
Get to the Heart of the Matter – Debt Elimination Starts Here!
- Consumer debt can be a symptom of a deeper spiritual issue.
- We must treat the root cause, not just the symptom. If you are just focusing on fixing the debt without addressing the cause that got you into debt, you’re not going to fix the problem.
- How we spend our money demonstrates where our ultimate allegiance lies. (Matt. 6:21) – For where your treasure is, there your heart will be also (ESV)
- Student and medical debt isn’t necessarily sinful, but still mortgages the future.
- If sinful choices or patterns have contributed to your debt problems, seek forgiveness, seek godly counsel, and make the needed corrections.
Creating a Debt Elimination Plan that Works
- The A.S.S.E.T. plan for debt elimination – Pay off your debt to start building your assets!
- Assess: Determine where you are financially.
- List all debts and assets in detail.
- Complete and implement your budget.
- Stop going into debt! Stop the financial bleeding!
- Start using a disciplined debt-repayment plan.
- Establish accountability.
- Time: Be patient and consistent over time.
Implementing a Debt Repayment Plan
- Reduce your expenses
- Cut out luxuries and be willing to make sacrifices today so that you can enjoy a freer lifestyle in the future.
- Don’t stop giving to your church while getting out of debt. (Mal. 3:10)
- Bring the full tithe into the storehouse, that there may be food in my house. And thereby put me to the test, says the Lord of hosts, if I will not open the windows of heaven for you and pour down for you a blessing until there is no more need. (Mal 3:10 – ESV)
- “God will give to you…if He knows that He can give through you!”
- Be strict about following your budget. As Dave Ramsey says, “If you will live like no one else, later you can live like no one else.”
- Increase your cash flow. Consider getting a part time job, reducing your tax refund, or liquidating unneeded assets.
- Work your “Debt Snowball”
The debt snowball method is a debt reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.
Step 1: List your debts from smallest to largest, regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt. When the smallest debt is paid in full, you roll the money you were paying on that debt onto the next smallest balance. ($250 extra paid on debt – top of slide)
Step 4: Repeat until each debt is paid in full.
Consumer debt is first and foremost psychological before it’s ever mathematical. The biggest problem in debt elimination is that people are using the “shotgun” approach to paying off their debt. They are spreading all of their debt destroying power (their income) out to all their debts and never making progress. The best way to destroy your debt is with laser-focused intentionality. It’s not about the math, it’s about psychology! People feel debt when you wake up in the morning. The only way to win the war against debt is to get quick psychological victories. This will allow you to see the light at the end of the tunnel and keep you motivated to see your debt snowball through to the end. And that is the power of the debt snowball.
Wouldn’t paying the largest interest rate first save me money?
Some people may want to focus on paying off the largest interest rate first in order to save money in the long run. The problem is that they did not “math” their way into debt. They allowed feelings to drive their purchase decisions. We firmly believe that if you follow the Debt Snowball approach, you are more likely to win the war against debt.
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