Managing Money God’s Way

I ask myself that question quite often as I sit down to pay my bills.  Yes, I still have credit card debt.  Yes, I am working on paying it off using the debt snowball method.  So I thought these 10 steps would be a good idea to go through.

Ten Steps to Paying Off Credit Card Debt

1. Save three months of expenses in an emergency fund.  You may be saying, “why is this on the list of steps to take to pay off my debt?”  You need this fund for when unexpected expenses come up, like when your air conditioner breaks, or your car breaks down.  This will keep you from using your credit cards to pay for this stuff.
2. Take an inventory of your debt.  In this step you list all of your credit card accounts.  Include the account number, current balance, interest rate, minimum payment, credit limit and contact number.  This may shock you when you see how much you really owe.
3. Contact each credit card’s customer service number.  What you are going to do here is explain that you are in the process of consolidating cards and would like them to review your account for a lower interest rate.  If they decline, ask to speak to a supervisor and repeat your pitch.  If that fails, thank them ad hang up.  Whatever you do, DO NOT close the account at this point.
4. Consolidate balances to credit cards with the lowest interest rate.  Move as much and as many of your high interest debt to cards with the lowest rates.
5. Get real angry.  I mean get really really angry and the debt staring back at you.  Take a look at it and remember all the nights it has kept you up, or all your dreams that have been put on hold.
6. Cut up all but the card with the highest available credit.  You are in a hole and you need to stop digging it deeper.  Get your scissors out and start cutting.  Take that card you kept with the highest available credit, put it in a plastic cup of water and freeze it.  You will only need it in case of an emergency.
7. Reorder your list of debts, putting the smallest debt at the top.  Put a big #1 next to that sucker.
8. Put every single dime you can find at debt #1.  You want every single extra penny you can scrape up to go to paying this debt off.
9. Snowball to the next smallest amount.  When the balance reaches zero and you have paid off the entire balance, you will then take the monthly minimum you were paying on that card along will every extra penny and begin to pay off the next credit card balance.  You will rinse and repeat this step until all your credit card balances are paid off.
10. Celebrate.  I think it is time to celebrate a great victory in your life.  Do something good for yourself.

If you are like me, you have probably been accumulating debt for years.  It is time to get it paid off and start living a life debt free!

I have often recommended that people give up their cable TV in an effort to decrease their monthly expenses and help pay down their debt.  The usual response is “No way!”.  I can completely understand why they feel this way.  Watching television has almost replaced baseball and the national pastime.  Now with HD television, large screen plasma panel and more channels than anyone can possibly watch in a lifetime, it is very easy to understand why so many people feel like they couldn’t live without it.

What about you? Ready to give up cable TV for the benefit of your kids and your wallet? If not, why not? Leave a comment and let us know how much you are spending each month on cable TV and all of the extras that go with it.

The majority of households today use some form of automatic bill payment.  Whether you have an automatic draft taken directly from your checking account or use your credit card to automatically pay a few bills, the convenience of not having to write a check for every single bill is great.  However, with every good thing there is usually a downside. How can there be a downside to not having to write a check and find a stamp and remember to take it to the mailbox? Glad you asked.

The convenience of getting an email that says your bill has been paid is great, but you need to take the next step and actually look at the bill that has just been paid.  To often the bill you just paid will include some unexpected fee that you didn’t know would be there, or maybe that credit card account now has a higher interest rate, but you didn’t know they were raising the fee because you didn’t review the statement when they said you had 30 days to opt-out of the rate hike.

This is what I like to call Bill Creep.  Like a cluttered garage, often times our monthly expenses get cluttered with things that we continue to pay for, but probably no longer need.  Other things that can wreck your month without you knowing about it are things that at one time sounded like a good idea, but because of changes in your life, now just aren’t practical.  One example is a gym membership.  When you made that New Year’s resolution to get into shape you signed up for the two-year membership because of the New Year’s special they were running.  Good deal you thought – ‘best value’.  However, do you really need to pay extra each month for a personal trainer and massage?  Sure it makes you feel good, but is the value really worth the extra amount you are paying?

What can you do to combat the ‘Bill Creep’?  First, commit to reviewing each and every bill that you receive.  If there are new services or fees being tacked onto your account, call the customer service rep and kindly ask them to be removed.  Surprisingly, during this economic downturn, most companies are willing to work with customers rather than lose them.  Also, determine if you really need all the extra services that you may have agreed to.  Do you still need all three of those movie channels?  What about your cell phone?  Does the service provider now offer a better package that includes the same (or more) minutes that you just didn’t know about?  A few minutes of diligence can save you a lot of money over the period of a year.

With unemployment at its highest rate in years, many people are finding themselves unable to make ends meet.  They have gone from having a steady stream of income to not knowing how they are going to pay their bills.  In California, the unemployment rate has reached 12.2%.

During a time of unemployment, people look for ways to lower their expenses, but because of the urgency of the situation they often make bad long-term decisions that could be prevented if they only think before they act.  One of the most often used ‘financial planning strategies’ for people who are desperate is to take out a debt consolidation loan.  In the very short-term, the consolidating of debt from many cards or loans into a single payment seems like a great move.  The loan officer will explain to you the feeling of freedom you will experience with having only one payment, how your credit will improve because you will be able to manage the single monthly payment and how that payment will be smaller.  First, a debt consolidation loan simply moves debt from one place to another, and in almost every case the monthly payment is lower only because the length of the loan is so much longer.  The longer term of the loan guarantees you will pay more interest over the life of the loan.

The most dangerous aspect of a debt consolidation loan is the false sense of satisfaction that you have actually accomplished something.  In reality you haven’t eliminated any debt, and the feeling of satisfaction is short-lived because unless you begin living within your means you will uncover the bigger concern.  If you haven’t corrected the over-spending problem that got you into debt in the first place, you will now be faced with all of those credit cards that were maxed out, that you had vowed to never use again, sitting there calling out to you to use them.  If you haven’t corrected your behavior, and you can’t find employment quickly, in just a short period of time by living off of your credit cards, you will have recreated your credit card problem and be right back where you started only now you have a debt consolidation loan and a credit card problem.  Research shows that over 70% of the people that consolidate debt end up going deeper into debt within a very short period of time.

So what should you do to if you find yourself unemployed with a mountain of bills to pay? First, realize that you can’t borrow your way out of this problem.  Let’s be honest, if you had no debt and you lost your job you would be bummed, but you wouldn’t be desperate.  Borrowing is what got you here, so let’s stop using that plan of action.  Next, realize that until you get back on your feet you are going to have to do some things that may be uncomfortable. Below is a list of things that you can do to help you stay afloat until you can begin financially meeting your responsibilities.

1. Determine if you are eligible for unemployment benefits.  Now is not the time to be prideful.  You need to make sure you can take care of your family and for a short period of time you may need to accept government help.
2. Calculate how long your severance and savings will last.  If you have no savings, don’t beat yourself up, but make a mental note to address this issue as soon as you are able.
3. Eliminate all unnecessary spending from your budget.  Now is the perfect time to see if you really can survive without cable.
4. Be willing to take a job that others may feel is beneath you.  You would be surprised at the number of people that won’t take a job, simply because they feel they are over-qualified.  Remember this is a short-term problem and unless you received a multi-month severance package, generating income has to be your first priority.
5. Determine if it is time to make a career change.  Is there anything you have always wanted to do? Now may be the time to try and determine what you would like to do with the rest of your life.  Taking a class or two may open up a lot of additional career opportunities for you.

Losing your job is never an easy thing to deal with, but as long as you have a plan and a desire to succeed you can overcome even this obstacle.  Take this time to really evaluate your situation and focus on what you can do to come out on top.

Happy Friday to all of you!  Here are some of the best articles I have read this week.  Hope you all enjoy.

One thing I have been struggling with for a while is how much and should I give my kids an allowance.  Over at The Digerati Life you can read about Your Kids Allowance:  How Much to Give Your Child.

At My Dollar Plan you can read about Putting Off til Tomorrow What you can Spend Today.

Cash Money Life has a good article explaining Multi Level Marketing (MLM).

Get Rich Slowly talked about 11 Ways to Spice up your Emergency Fund.

Enjoy!

The first six principles we have discussed have focused on changing the way you think about your money and building a plan that will help you begin living within your means so you can get out of debt and begin saving money.  The final block in building a strong Biblically based financial plan is by design the most rewarding.

1. Understand God’s Ownership (Psalms 24:1)
2. Learn to Save Money (Proverbs 21:20)
3. You Must Live on Less Than You Make (I Timothy 6:7-8)
4. There is Life After Debt (Proverbs 22:7)
5. Establish an “On-Purpose” Cash Flow Plan (Luke 14:28-30)
6. Prioritize Your Plan Around the Four Walls (I Timothy 5:8)
7. Giving is the Goal to Financial Freedom (II Corinthians 9:7)

We all know someone that at sometime in their life has needed financial help.  Maybe it was your elderly next door neighbor, or the single mom you pass in the grocery store, or maybe you yourself have been that person.  There is nothing wrong with needing help, but have you ever been in the position to be the person that helps?

Why Should I Help?

Some feel that helping others will only encourage the bad behavior that got them into the current situation.  While that may be true, they still need some help.  I feel that we should be discerning in our giving.  The first principle we talked about reminded us that everything we have belongs to God.  Would you be OK with someone frivolously giving away your money?  In the same way, we should not frivolously give away God’s money.  We should try to determine why the person needs help.  If it is because of bad behavior, the best help you could give them would be to teach them some good behavior.  Help comes in various forms – teaching a man to fish is always better than simply giving them a fish.

The Strong Should Help The Weak

If you determine that financial help is warranted you must look at your own situation.  Can you afford to help financially?  If you find yourself in a position that you have extra money to help others, then you are in a position of strength.  The strong can help the weak, but if you are also in the middle of a financial crisis don’t make it worse by giving money you don’t have.

Get Ready For The Change

“So let each one give as he purposes in his heart, not grudgingly or of necessity; for God loves a cheerful giver.” II Corinthians 9:7

One part of your budget should be designed specifically for giving.  As Christians, we should desire to align our character with the character of God.  God was a giver and as we systematically begin the process of cleaning up our financial life and start giving,  some wonderful things begin happening in our life.

• We become less selfish.
• We become content with less stuff.
• We see opportunities within others

All of these changes will not only make us a better person, but if we teach our children sound financial principles, we are building a legacy that will continue for generations.

Deciding to get your financial house in order is a great first step, but for most people actually getting a budget that works is a little more of a challenge.  The sixth Biblical Financial principle will help you decide what is important when creating your “on-purpose” spending plan.

1. Understand God’s Ownership (Psalms 24:1)
2. Learn to Save Money (Proverbs 21:20)
3. You Must Live on Less Than You Make (I Timothy 6:7-8)
4. There is Life After Debt (Proverbs 22:7)
5. Establish an “On-Purpose” Cash Flow Plan (Luke 14:28-30)
6. Prioritize Your Plan Around the Four Walls (I Timothy 5:8)
7. Giving is the Goal to Financial Freedom (II Corinthians 9:7)

One of the biggest deterrents when it comes to creating that first budget is a fear of the unknown.  Let’s face it, for the most part, our schools aren’t teaching good sound financial principles.  When the average student graduates from high school they know very little about budgeting and even less about saving.  Then they head to college with a new sense of freedom and it is easy to understand why so many college students graduate with a mountain of debt and no real plan to effectively get rid of the debt.

Commit your activities to the LORD and your plans will be achieved. (Proverbs 16:3)

You wouldn’t begin to build a house without a good plan, and the same should be true in building your financial future.  You must have a plan that is prioritized around the things that are important.  For Christians and non-Christians alike the most important things in your plan should center around taking care of your family.

But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever. (I Timothy 5:8)

Dave Ramsey defines the four walls as food, shelter, transportation and basic clothing.  If you are taking care of these things each month then you can get up and start the day knowing that you are taking care of your family.  When you begin your budget these items need to be near the top of your list of priorities.

When you write your budget the first time, it is going to seem very cumbersome and unrealistic.  That is to be expected, after all, did you ride your bike the first time you climbed on the seat.  Probably not.  It will take some time to get used to having control of your finances, instead of your finances having control of you.  Don’t be afraid to look to others for help.  Just be careful not to take advice from anyone that you wouldn’t want to change places with.  In other words, if you seek advice, look for someone who is already where you want to be.  Those are the people that you should imitate, not the guy that is just as broke as you.

Hey everyone Paul here.  Just want to say Happy Friday!  Once again I have put together a list of articles from other personal finance bloggers I thought you might enjoy reading.

Over at The Digerati Life there is a great article on Retirement planning, or what I plan to do when I retire.  It really got me thinking about my own retirement planning.

PT Money has a good article on How does your spouse help financially.

Bible Money Matters has a great article explaining ROTH IRA’s.

Have a great weekend everyone!  Be back posting on Monday.

Do you know that feeling you get when you put your hands in the pocket of your favorite pair of jeans and you find money?  That is awesome isn’t?  The crucial part of this new find is deciding what to do with it.  Some would go and spend it on a cup of coffee.  Maybe it was a 20-dollar bill and it will help offset another pizza night this month…or you could save it or use it to help pay off debt.

If you could find extra money each month, what would you do with it?  Deciding to ‘Establish a Cash Flow Plan with purpose is the fifth Biblical Financial Principle in our series.

1. Understand God’s Ownership (Psalms 24:1)
2. Learn to Save Money (Proverbs 21:20)
3. You Must Live on Less Than You Make (I Timothy 6:7-8)
4. There is Life After Debt (Proverbs 22:7)
5. Establish an “On-Purpose” Cash Flow Plan (Luke 14:28-30)
6. Prioritize Your Plan Around the Four Walls (I Timothy 5:8)
7. Giving is the Goal to Financial Freedom (II Corinthians 9:7)

Finding extra money is something that is almost guaranteed when you start working and living on a budget.  How is that possible?  When you decide ‘on-purpose’ where your money is going, you gain control of how your money is spent.  You won’t be wondering where that money in the jeans came from, because you are now going to be the boss of your money, instead of the other way around.

(Luke 14:28-30)
“For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it – 29 lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, 30 saying, ‘This man began to build and was not able to finish.’ ”

From the scripture passage above, you can see that a successful financial plan, really has two parts.  The first, sitting down and actually putting the plan together.  The second, implementing the plan.  If you have never put a successful budget together, there are many different ideas about what you need to do.  Whether you use a software package, a spreadsheet, or paper and pencil, the process is basically the same.  Take your income and allocate it (or spend it) until it is gone.  The goal is to have all your necessities covered first and then if there is anything left over, start applying it to other areas of your life.  The two most important areas would be savings and debt.

In my next post, we will look more closely at the nuts and bolts of developing a working, successful budget

One of the greatest myth’s people have bought into is the benefit of bankruptcy.  This idea brings us to the fourth Biblical Financial principle, which is the understanding that there is Life after Debt.

1. Understand God’s Ownership (Psalms 24:1)
2. Learn to Save Money (Proverbs 21:20)
3. You Must Live on Less Than You Make (I Timothy 6:7-8)
4. There is Life After Debt (Proverbs 22:7)
5. Establish an “On-Purpose” Cash Flow Plan (Luke 14:28-30)
6. Prioritize Your Plan Around the Four Walls (I Timothy 5:8)
7. Giving is the Goal to Financial Freedom (II Corinthians 9:7)

It is unfortunate, but a lot people feel that they can simply use bankruptcy as a way to walk away from the debt they have accumulated.  As Christians, the Bible is very clear that we are responsible for the repayment of our debt.  Even for non-Christians, the idea of following through on your promise is something that everyone should understand is a good thing.

Personal Control? Lost or Given Away?

When you sign your name on a contract, a loan agreement or even on a credit card receipt, you are promising to pay back the money that is being extended to you.

Proverbs 22:7
“The rich rules over the poor, And the borrower is servant to the lender.”

When you borrow money, the lender gains a level of personal control over you.  When you have borrowed yourself up to your financial limit, you have lost almost all control of what you can do with your finances.  You have sacrificed your financial freedom.  When we think of the sacrifice that Jesus paid on the cross to free us from the bondage of sin, we get a small picture into what God thinks of His children being in bondage, and yet for the thrill of the moment we are willing go out and tie ourselves to stuff.  We need to understand that debt cannot be a long-tern way of life, however, no matter how deeply in debt we are, there is a way out.  It is not going to be easy, but there is life after debt.

Sick and Tired of Being Stuck

Before you can get out of debt you have to get sick and tired of living the way you are.  Maybe you are tired of seeing all of your money go out with no real enjoyment from all the ’stuff’.  Maybe there are bigger things you want to be doing, but because of the debt you can’t move toward your dreams.  Whatever the reason, deciding to get out of debt is the first step.

When you look at the new bankruptcy laws, things are a lot tougher now than they used to be.  Each state is a little different, but the one thing that is common, is that it will cost you to file and declare bankruptcy.  In addition to the big black mark on your credit, most states will force you to liquidate things to help pay off the debt.  You can no longer just walk away from the problem.  If it is going to hurt to go through bankruptcy, you might as well go through some pain and get out of debt the old fashion way; pay it back.

Getting out of Debt

There are a lot of differing opinions on how a person should start paying off debt.  Some think you should always payoff the debt with the highest interest rate first.  Others thinks you should start with the smallest balance and pay them off smallest to largest.  This is the method Dave Ramsey suggests and I think it works very well.  It isn’t the most efficient mathematically, but it will give you positive satisfaction and will provide the results that will keep you motivated.

There is still one problem.  Where are you going to find the money to start paying off your debt?  That is a great question, and if you missed it, I answered that question in the third Biblical Financial principle.  Make sure you check it out.  In the next principle we will look at establishing a budget that will help you live on less than you make.