Bye, Bye Debt—Hello, Freedom
Today is a glorious day for my wife and me! After 41 long months of intentional, aggressive debt reduction we are free of credit card debt for the first time in a long, long time (the weary memory is very foggy). We are so thankful to the Lord for the perseverance and encouragement He has given us and the sound, biblical counsel from others who are wiser than we have been. Though written after we began our debt reduction plan, the financial counsel given in John Temple’s small booklet, HELP! I’m Drowning in Debt, is identical to that given to me by a fellow church leader to whom I made myself accountable. By following this counsel we have begun to experience what I call “phase-one freedom” that will, Lord willing, increase in the years to come as we get more and more of our financial house in order.
John’s Story: Here’s how John begins the booklet.
Some years ago, a postgraduate student won a scholarship to fund his studies in another country. The home country was not aware of the cost of living in his new country, so the scholarship awarded was wholly inadequate. As a foreigner, his wife was unable to take a job, so the couple took in a boarder to help spread their accommodation costs. The student also took on two teaching jobs, despite putting his registration as a full-time student at risk. They lived frugally, but none of this averted the need to borrow money to survive. Eventually, the student completed his studies and returned home. Setting up a home, buying a car and feeding a wife and, by now, two children was not easy. There was no possibility of paying off the loan and, now that the studies were complete, the interest started to pile up. The only solution was to borrow more money to pay for the interest! Does this sound familiar? It is very familiar to me because I was that postgraduate student. In short, my family was drowning in debt.
Some debt may be unavoidable and even justifiable. The situation that we found ourselves in may have been such a case. The debt was incurred despite every attempt to avoid it, and we certainly kept it to a minimum. It was also incurred for a good cause—education—the outcome of which should have helped us repay it. Maybe you are in a position similar to the one I faced. If you are concerned about debt—whether because you wish to reduce your own debt, you want to learn how to avoid it, or you want to help others who are sinking in debt—this booklet is for you.
Our Story: Until this blog post the author of the booklet and I, the editor, were the only ones who knew that the following testimony in his booklet was actually written by me.
“My wife and I have been drowning in debt for many years. As the Lord has convicted me … I came to realize that one of my chief sins is self-sufficiency … By not trusting in the Lord with all my heart (Proverbs 3:5–6) during the early years of our marriage … and the first ten years at our church, which was very small and unable to pay me a full salary the first few years (I worked many outside jobs), I believe borrowing became a way that ‘I’ could solve our problem … Unfortunately, my pride led to bigger problems. Pride that says, ‘I made this mess, I can clean it up,’ or the pride that manifests itself in being silent about one’s legitimate needs. I chose the ‘drowning’ metaphor because it fits how I have felt for a long time.”
Even though this family’s debts were probably justifiable, the pastor’s confession is that he tried to tackle the solution on his own and got into deeper trouble in the process.
4 Practical Steps to Getting Out of Debt
Please don’t make the same mistake I made. Don’t allow your pride to keep you trying to dig out of deep debt alone. Get help from others. In the final chapter of John’s helpful booklet, he asks, “Having taken the above steps [determining assets, liabilities, and a family budget], how then can you get out of debt and stay out of debt?” Here’s the counsel that we applied.
- Stop Saving. Yes, stop saving, even for such noble causes as your children’s college education. It is futile to save and borrow at the same time. You are merely enriching the banks. Use whatever savings you do have to clear some of your debts. If not, you are borrowing at a high interest rate (say 6 percent) and saving at a lower rate (say 4 percent) and, in effect, borrowing your own money back and enriching the banks by at least 2 percent in the process!
- Decide Which of the Debts Listed in Your “Statement” Are Justifiable. Justifiable debts (see Chapter 1) might include the mortgage on your home, which can be seen as no debt at all because the loan is simply set off against the value of the house. In reality, you are slowly buying the house that you are renting from the bank. You own only the difference between the marketable value of the house and the mortgage, known as your “equity.”
- Pay off Debts Costing You the Most Interest. Assuming that you have been able to make some cash available to pay off some of your debts, first pay off those that cost you the most interest. But there is a catch. Many debt contracts specify that you cannot pay them off early; if you do, you will get no reduction in interest, or may even pay a penalty.
- Pay off Debts that Will Incur no Penalty. Do this as quickly as you can. What if you have no lump sum with which to repay debts? Your only hope is to work your way out of the problem as soon as you can. See my book Family Money Matters (reviewed by Tim Challies here) for a worked example.
Now that our credit card debt is obsolete our intention is to only use plastic wisely and pay off the balance each month. Our repayment attention is now turned to the next item in my cross-hairs—our auto loan—to which I hope to also say Bye, Bye very soon. Please pray for us as we strive to become more faithful stewards of God’s resources.