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!

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.

In Baby Step 1 we talked about saving up an emergency fund of $1000.  The most important reason you are saving up that money is so you do not go further into the debt hole by using your credit cards while you are paying down your debt.  As a review, here are the steps we have covered thus far:

Step 1 – Emergency Fund of $1000.

Baby Step 2:  Pay Off All Debt Using The Debt Snowball Method

This step more than likely will be one of the longest in the 7 step process.  If your dealing with alot of debt from student loans, credit cards, auto loans and other things, you might be at step2 for a couple of years or more.  Remember, the key here is to pay off your debts.  Bankruptcy should not be an option.

So how does the debt snowball work?

• Put all your debts in order from the smallest balance to the largest.
• After all your necessities (food, gas, utilities, etc.) are paid, make minimum payments on all your debts.
• Put any extra money towards paying off the debt with the smallest balance.
• Once you have paid off the smallest balance, you roll (snowball) all that money towards paying off the next smallest balance.
• Repeat until all your debts are paid off.

This may not be the quickest way to pay down your debt, but I know this works because I am using it with great success.  Using this method also gives you a great psychological boost from the quick “win” you achieve by paying off the smallest debt.

Do Not Go Into New Debt

The key to making the debt snowball method work, is to make sure you don’t go into new debt, while you are paying down the old.  Here are a few tips:

1. Quit borrowing more money.
2. Take your credit cards and put them in a plastic cup with water and freeze them at the back of your freezer.  This makes them very difficult to get to.  While they are thawing out you can really think hard if you need to use them.
3. Have a yard sale.  If your like me, you have a garage and house full of stuff you don’t even look at anymore.

Get serious about paying off your debts, and in no time you will be debt free!

Next Up:  Baby Step 3:  3-6 Months of Living Expenses in Savings