Hi Friends,
Once we get that first $1000 saved up and set aside for the beginning of our Emergency Fund, the next mountain to conquer is any debt we may have, besides our mortgage. We want to free up our money, so that it is working FOR us instead of against us. Listen to this wise verse:
“Just as the rich rule the poor, so the borrower is servant to the lender.” Pr 22:7 NLT
We serve who we work for. I know we do not like to consider ourselves slaves, but the truth is, we are. For instance, sin keeps us bound in shackles to that thing that tempts us. It actually has a power over us so that we almost have no choice but to do that sinful thing. Almost. Praise God, if you are born again, we have the much greater power of the Holy Spirit to free us from that force! Now I am not saying that being in debt is sinful, but I am saying it is not wise. We become slaves to the credit card banks when we spend over and beyond our income levels. How? Well if you don’t pay them back, what happens? They will take the shirt right off your back! We have to keep on working to make our payments just so this doesn’t happen. The saying goes, “I owe, I owe, so it’s off to work I go!” We are not free to do as we please with our funds because we have to pay the piper, as they say. When we don’t have the freedom to do what we desire with our income, we are slaves. It is as simple as that. And here’s another truth, the money we make in our occupations is the best way to build wealth…but if we have to give it to all these other debts, then we are not only slaves, but we are not building wealth for our future either. It has been said that we are borrowing from our future when we choose to get into debt today. We will not be able to have the freer life we really desire, because we owe to some organization, and we have not been able to save for the life ahead. Debt may not be sinful, but we have to run from it as quickly and as much as we can.
Life can get complicated. Not everyone who is in debt has chosen this, of course. If someone becomes ill, the medical charges can add up really fast, I know this from personal experience. Also in trying to better ourselves, we often take on loads of school loans too. And instead of learning to save up for our cars, and perhaps buying certified used cars, we can get into all sorts of trouble here too. Then there are issues like those we witnessed this past year, where we have been taught the hard way, that our jobs are not as secure as we would hope. When someone loses a job, this can cause all sorts of financial obligations. Then there are things like gambling…this, my Friends, is an addiction which talks about a much deeper spiritual issue that must be healed, but it too can lead to financial disaster. Please, my Friends, get help if this is your temptation. Yet in all of these things that we might not have control over, we do have control over the one that causes the major problems, and that is credit card debt. It is so easy to pull out the plastic and worry about it when the bill comes in…but we should not cause situations where worry is even an issue. The reality is too many of us live way outside of our boundaries. This is not healthy in any area of our lives, and our finances is no exception. We must lean on the Holy Spirit to learn how to control ourselves, how to say, “No!” if things do not fit in the budgets, like we talked about last week. There is such incredible freedom in knowing that what comes in, is being used to go out in safe and helpful ways. No stress, that’s what getting out of, and staying out of debt, gives us. So how do we do this?
The Debt Snowball. This is the name for a systemized and simple method of getting out of debt that will give us relief and help us get back on God’s Plan for our finances. What we need to do is start by listing all our debts, besides our mortgage since we will tackle that in Baby Step 6. We ignore the interest rate, but list the owed bills from the smallest amount to the highest. (see the chart below) If possible, the idea is to always allot the same amount of money to go towards paying down all our debt each and every month. Once we have paid off the smaller bill, we add that minimum payment to the minimum payment of the next debt, and so, we increase the amount we put towards getting rid of the next bill, and decrease the time in which we do that. Just like a snowball rolling down a hill picks up more snow and gets bigger, our minimum payments get bigger and bigger too, helping us get out of debt faster and faster. See the charts below for an idea of how this works:
Month 1: start our debt snowball plan- list debts from lowest to highest amount owed and minimum payments required for each debt
| no. | Debts | Amount owed | Monthly minimum payment | New amount owed | New monthly payment |
| 1 | Macy*s credit card | 100 | 10 | 90 | |
| 2 | Medical test | 210 | 30 | 180 | |
| 3 | Mastercard | 400 | 50 | 350 | |
| 4 | Car loan | 5000 | 430 | 4570 | |
| 5 | Student loan | 10000 | 400 | 9600 |
Month 2: normal payments made, no extra money to put towards paying down debt
| no. | Debts | Amount owed | Monthly minimum payment | New amount owed | New monthly payment |
| 1 | Macy*s credit card | 90 | 10 | 80 | |
| 2 | Medical test | 180 | 30 | 150 | |
| 3 | Mastercard | 350 | 50 | 300 | |
| 4 | Car loan | 4570 | 430 | 4140 | |
| 5 | Student loan | 9600 | 400 | 9200 |
As we said two weeks ago here, what we must do is everything we can do to get rid of this debt, as fast as possible. This may mean sacrificing those cafe lattes for a while. This may mean selling all the extra stuff we have lying around our homes. Or this may mean getting a temporary baby sitting gig to be free of this burden. Whatever we decide to do, it is well worth it. Freedom always is! So let’s say, this month, we are able to sell off those extra pocketbooks we weren’t using anyway, and we made $150. In the chart below, you can see, with the regular minimum payment of $10 plus an extra $70 from what we sold, we can pay off that $80 bill from the Macy*s card completely, as well as have an extra $80 to put towards the medical bill. Then, for next month, we add the $10 minimum payment from the paid off Macy*s card, to the $30 minimum payment for the medical test bill, and now we have an increase in the minimum payment to $40 and can pay debt 2 off quicker than before. So month 3 will now look like this: (See chart below)
Month 3: sold extra pocketbooks for $150. Use $70 to pay off Macy*s credit card, plus $80 towards next bill and increase debt 2’s minimum payment to $40:
| no. | Debts | Amount owed | Monthly minimum payment | New amount owed | New monthly minimum payment |
| 1 | Macy*s credit card | 80 | 10 min payment + 70 extra = 80 | 0 | PAID OFF |
| 2 | Medical test | 150 | 30 min payment + 80 extra = 110 | 40 | 10 from debt 1 + $30 regular min payment = 40 |
| 3 | Mastercard | 300 | 50 | 250 | |
| 4 | Car loan | 4140 | 430 | 3710 | |
| 5 | Student loan | 9200 | 400 | 8800 |
Then we continue to work, intensely, seriously and focused on making as much extra income as we can, so that we keep crossing off each debt. Let’s say overtime at work this month gave us an increase of $200 that we can put towards this Debt Snowball. We can see the regular minimum payment will get debt 2, the medical test bill, paid off this month on its own, so we can add the extra $200 towards debt 3, that MasterCard bill, which means that one too will be paid off this month. So month 4 will look like this: (See chart below)
Month 4: by working some overtime, we made an extra $200. Medical test bill is paid off this month, so we can use the $200 towards the next bill which makes this debt paid off too!
| no. | Debts | Amount owed | Monthly minimum payment | New amount owed | New monthly minimum payment |
| 1 | 0 | 0 | 0 | PAID OFF | |
| 2 | Medical test | 40 | 40 | 0 | PAID OFF |
| 3 | Mastercard | 250 | 50 min payment + 200 extra = 250 | 0 | PAID OFF |
| 4 | Car loan | 3710 | 430 | 3280 | 40 from debt 2 + 50 from debt 3 + regular min payment 430 = 520 |
| 5 | Student loan | 8800 | 400 | 8400 |
Month 5 nothing extra:
| no. | Debts | Amount owed | Monthly minimum payment | New amount owed | New monthly minimum payment |
| 1 | 0 | 0 | 0 | PAID OFF | |
| 2 | 0 | 0 | 0 | PAID OFF | |
| 3 | 0 | 0 | 0 | PAID OFF | |
| 4 | Car loan | 3280 | 520 | 2760 | |
| 5 | Student loan | 8400 | 400 | 8000 |
And so on it goes until all the debt is gone and we are free from the lender! Note: once we pay off the car loan, debt 4 above, we can add that $520 minimum payment to the $400 minimum payment from the student loan, giving us $920 freed every month to go towards paying off that student loan. Even if we do not add any more extra money to this plan, we should be completely out of debt within one year! How sweet is that! And imagine what you can do with that extra $920 every month! But whoa, before we get ahead of ourselves, of course, we then go on to Baby Step 3 where we fully funding that Emergency Fund. And then we move on to steps 4 through 7, where we can really enjoy that extra freed money. Also note: I really hope I do not have to say this, but while we are engaging in this Debt Snowball, we are not creating more debt somewhere else! But just in case you are not sure though, I am stressing this fact here. The point is to get OUT of debt, not shift it into more trouble elsewhere. What’s the answer?
Cut ‘em up! The best thing we can do is cut up all our credit cards, so we are not tempted to pull them out when we are weak. I know that sounds painful, but believe me, the freedom it brings will feel so much more enjoyable. As a matter of fact, a huge part of living within our means is not having any credit cards at all. For the most part, debit cards work the same anyway, but these do not leave us in debt. In case you are not familiar with the debit card, we use the funds we have in our bank account, so we must be very careful and know how much we have in that account. Obviously, we cannot use more than we have in there, so use these with caution too. Banks make tons of money from overdrafts every year, so whether it’s those overdrafts or interest on credit cards, let’s not give them anymore than we already do. Make a commitment to cut up those credit cards today. In one of the sessions in Financial Peace University, Mr Ramsey calls this “plastic surgery” and it is one of the most fun classes I was able to coordinate! I actually brought in a pair of scissors and had the attendees cut up there credit cards right then and there. Of course, we cannot just cut them. My Friends, you have to pay them off, then call and cancel the account…and never, ever open it again.
To be free. This is what Jesus came to grant us, sweet Freedom, so we must do all we can to receive as much of this gift as possible. This includes getting that monkey of debt off our backs, once and for all. Using this Debt Snowball method will most definitely lead to more and more of this Freedom. Remember, we have to be intensely serious about not being a slave to the lender anymore, so do all you can, to get out of debt as quickly as you can. And of course, it is only by God’s Grace that we can do this. My Friends, Freedom feels so very good. I know I want that, how about you? Then won’t you join me?
Until we meet again, keep lifting your eyes to God, He’s closer than you think.
<>< Peace, Diane
