FAMILY
MATTERS
July 11, 2009
I’ve begun to seriously evaluate my family’s debt and devise a path to debt elimination using a guide available on the web-site www.ChristianPF.com. The PF stands for “Personal Finance.” Here, the creator of the site offers a seven-point attack plan to work toward reducing and ultimately eliminating debt. This week’s article is simply to give you an idea of the complex nature of debt elimination and to educate you in the fact that it is definitely going to take work and a whole lot of sacrificing. But in the end, nothing worth getting comes easy, and being debt free is obviously something worthwhile.
As I mentioned in my last article, Proverbs 22:7 is so true: “The rich ruleth over the poor, and the borrower is servant to the lender.” We give up more and more freedom the farther and farther in debt we go. That freedom we give up can be in the form of freedom to give as God commands us, or any extra offerings that He may lay on our hearts (missions, building fund, specific church ministries). We lose the freedom to volunteer for various work around the church in lieu of working because we have a minimum bottom line that must be met by our jobs. And the big one I mentioned last week…not heeding the call of God in your life because it won’t pay the enormous bills you have.
Whether credit cards and loans are neutral or whether they were devised from some diabolical scheme Satan conjured up one day is irrelevant. The fact is, with a little discipline and a little guidance, we can, with God’s help, gain the victory in our lives over credit and the debt that always ensues. Without debt, can you imagine the absence of anxiety and fear about being laid off from your job and having to find work at half your present salary. Imagine the joy of working a job you wanted to work instead of one you had to work. Financial freedom can be attained, but it needs to start somewhere, so we begin in step one…
The first step to eliminating our debt is to recognize that we don’t live in a bubble. The church is a dynamic living organism. It’s described as a body with each member serving a particular function and when one member causes the church to not be whole, the work of that church suffers. So if we can begin to recognize ways our bondage to debt has hampered our ability to faithfully perform our duties in the church and the work thereof, we can see that debt doesn’t only affect us, but it affects others. So Step One: “I need to get out of debt for God first, and myself second.”
In normal circumstances I would call that altruism at it’s finest, but in this case, I’m going to argue that getting out of debt is not an altruistic thing to do, but rather a step of growth in the Christian life. We are to bless others! “I have showed you all things, how that so laboring ye ought to support the weak, and to remember the words of the Lord Jesus, how he said, It is more blessed to give than to receive” (Acts 20:35). Besides, all the wealth we accumulate down here will do us no good once we die, but the wealth we give to God’s work on Earth will count in eternity: “Lay not up for yourselves treasures upon the earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven where neither moth nor rust doth corrupt, and where thieves do not break through and steal: For where your treasure is, there will your heart be also” (Matthew 6:19-21). So where’s our treasure? Is it with accumulating the toys of this world or is it with the work of God through the local church? One will get your money while the other will not.
Step Two
Since getting out of debt is a matter of spiritual growth in the financial lives of Christians, and since it’s not something that is naturally easy, we’ll need to get our minds into this. No longer can we live by our emotions (I want this…I want that…) but now we need to have reason take over. We need to be totally committed to this endeavor and that will require a whole lot of thinking, which will lead to decisions being made that we can hopefully be willing to put into practice. But these decisions we make, along with the subsequent actions we take to bring the desired results, will come with a cost.
We’re going to have to make sacrifices and give things up in the short term in order that we may actually gain in the long run. So we need to be open to the idea that we may not have all that we have right now, or not be able to do all the things we do now, and so on. But this rational change of thinking is necessary for the day when we finally do get debt free, because remaining debt free will require a long term commitment. It won’t be a “one-and-done” act. If you’re overweight and you diet and lose 100 pounds in the process, you need to quit eating improperly or you’ll gain it all back. So too, we need to learn to spend and manage money wisely before we are debt free in order for us to remain debt-free in the future. Remember, debt did not happen by accident, but by a series of poor decisions made one after the other over the course of time. So Step Two: Decide to get out of debt at all costs.
As you progress to the nuts and bolts of getting out of debt, consider your net worth. Basically it’s a value that is derived from subtracting your debt from all the things you own (assets). If your net worth is in the negative…you have debt. So the only way to increase net worth is to make more money, spend less money, or buy things that will increase in value over time. Some suggestions to increase net worth are acquiring things that will maintain their values (so fancy cars are eliminated immediately), but rental property may be an example of a way to increase net worth by gaining money in the form of rent. Things to avoid spending money on are things that are very temporary, such as concerts and ballgames, going out to eat often, and again, that expensive brand new luxury car. If you’re not going to do anything else with respect to debt elimination except to pay it off with extra income, don’t spend money on things that depreciate or are here for the brief moment and then gone the next day.
The reason to look at debt in terms of net worth is to gain a starting point from which to evaluate your progress. One person worked this program in one year and saw his net worth (assets – debt) grow from -$13,843 to $746.00. You say, what’s 746 dollars? Who is only worth 746 dollars? But as we’ll see in future steps, 746 dollars is a huge number when it comes to debt management. This is probably the most confusing part of it all, but there are websites that offer spreadsheets and downloadable programs to figure your net worth. Step Three: Do everything to keep the net worth growing!
If you are one who spends money like it’s water, you probably have made impulsive purchases that may have led to debt. If you take out loans or use credit cards to buy things, you break the fundamental rule of finances…spend less than you earn. Loans and lines of credit are the antithesis to this principle. The amazing thing is that no one is immune from this principal. How many multi-million dollar athletes file for bankruptcy because all they do is carelessly and impulsively spend money. We’re no different. You will sabotage all your future efforts to get out of debt if you can’t curb your spending.
Here’s another reason to learn to curb our spending habits. How will God entrust us with more money some day if we haven’t proven ourselves to be able to handle what He’s already given to us? Maybe we would pay off all our debt with a $50,000 grant from Heaven, but once all our bills are paid, and we get more relaxed and comfortable, we’ll spend to the level that we earn. If that sounds unreasonable, think about millionaires and billionaires. What kind of car do they drive? Do they drive a Ford Focus…or a Bentley, Mercedes, BMW, and so on? Do they live in a 900 square foot house…or a 12,000 square foot house on the water? There’s a principle of finance that says our spending will rise to the level of our income. Step Four: Stop the bleeding!
Once you commit to spending less, another aspect of debt management that is very similar, but slightly different is to cut expenses. How this is different than Step Four is that expenses may be bills for services that come in established monthly payments or the incidentals we spend money on. For example, electricity is an expense. Gasoline is an expense. Car insurance is required in most states and becomes an expense. It’s an argument for another time whether cell phones are a necessity to categorize as an expense, but a cell phone bill may be another example of an expense. Home phones and Internet charges can be expenses. Groceries are definitely an expense.
This is where focusing on the big picture and financial freedom down the road helps. Using energy saving light bulbs can reduce electricity costs. Driving more efficiently and keeping up on the maintenance of the car can help you get the optimum gas mileage for your particular vehicle, thereby reducing the amount of gas used and bought. Shop around for car insurance (Snoopy® vs. the Geico® Gekko). The same with cell phone plans (Verizon® vs. Cellular One® vs. a lesser known plan). And of course, with necessities like food and clothing, there are numerous ways to cut expenses. Step Five: Don’t be afraid to nickel and dime your expenses…those nickels and dimes will add up!
OK! Spending less in Step Four and the nickel and dime work in Step Five are now joined by yet another often not thought about method to attack debt…sell…sell…sell. Whether it’s yard sales, e-bay®, Craig’s List®, or a talent you have that can be sold, make money on the side. You probably have several hundred dollars worth of things you no longer use or need just sitting in the attic or basement…sell it. Are you gifted in a particular area…give lessons and charge for them (the laborer is worthy of his hire). Maybe pick up an extra shift at work here and there and take that extra money and put it aside until later. But for now, Step Six: Sell!
Here’s where all the hard work comes together. Take all your monthly bills that are true debt (loans, credit cards, etc.). Assuming you pay the minimum on all your loans and credit cards, here’s what you do. Make a list of the loan/credit card that you owe the LEAST on and put that at the top. Then, list the next…then the next…and so on. Remember now, assuming you’re paying the minimum on each, keep making those payments. Now, in addition to that, all the money saved in Step Four by curbing your spending desires, and all the money you were able to nickel and dime off your expenses in Step Five, and, using ALL extra income generated in Step Six, apply it ALL to the smallest balance. For example…
Let’s suppose a credit card has $5,000 left to pay it off. The minimum payment is 100.00 dollars a month. You apply the $100 plus everything you can come up with by repeatedly doing steps 4-6 each month. Some months you may be able to send a payment of $200, $300, maybe even $500 on a good month. That will eliminate that debt much sooner than sending $100 each month. Now, in the meantime, continue paying the minimum on each loan, and when the lowest loan/credit is paid off, take EVERYTHING you were applying to the lowest loan, and add it to the next lowest loan…and so on. As each loan/credit is paid off, the amount of money you have to pay off the larger debts gets bigger and bigger. Now you see why we need to curb spending as we get more and more “disposable income.” Take money that was already earmarked for earlier loans and keep on applying them to the next remaining debts and see how this system of parlaying the savings works.
God willing, between now and the end of December I will personally work through each of these steps in detail. Then, as the Lord leads, and in consultation with Pastor, I would like to work through this program with interested families in the church beginning in January of 2010. I am extremely convicted about my debt and how it has forced my hand several times. I’m sure there are numbers of families that could benefit from this program in a more detailed fashion and because it seems to be something that will be difficult, a group can be supportive of each other as we seek financial freedom. My desire is to meet in January and put the program in motion and meet quarterly for encouragement of each other and updates. We need to reduce our debt for God, our church, and our families…
