The root of the problem

So what if someone wrote you a check to pay off all of your debt today? Wouldn’t that be exciting? You wouldn’t have to put up with the extra job, the time away from family and friends, the strict budget and all the other annoyances with getting out of debt. It would be a cause for celebration if you learned your lesson.

Getting out of debt is meaningless if you never addressed the reasons you got into debt in the first place. If I’m walking through my house and I step on a nail, I would immediately clean my foot and put a bandage on the wound. However, if I don’t remove the nail from the floor, the next time I walk that way, I will step on the nail again. It is the same way with debt, we have to address and correct the real problem or we will continue to financially hurt ourselves. The real problem isn’t debt, debt is only the symptom of various other issues that may need to be addressed.

Here are a few root problems that may need to be fixed so you can stay out of debt:

• Not being prepared – this is the point in building up your savings; things will happen and if you are prepared it dramatically decreases your chances of having to borrow money.
• Greed – The excessive desire for more of something than is needed. There is nothing wrong with desiring increase but not at the expense of submitting yourself to financial bondage. We must learn to be more patient to get things. Luke 12:15 says “beware, don’t be greedy for what you don’t have…”
• Overspending – We can’t afford it but we buy it anyway.
• Health Insurance – Many people don’t have credit card debt but they don’t have health insurance so one unexpected sickness can put them thousands of dollars into debt. I know its expensive but if you can afford it, definitely get it.
• The Jones’ – The old cliché “keeping up with the Jones’.” However, if we take an in depth look at the Jones’ income and compare it to how much goes out in living expenses we will clearly see they have no money and no savings. They are broke!
• Impulse spending – We don’t take the time to think before we buy. We just see it, we want it so we get it right there on the spot. Proverbs 13:16 says “wise people think before they act…”

Many people have paid off debt, only to end up in debt again a couple years later. It’s because they didn’t correct the root of the problem.

Debt consolidation help?

Does debt consolidation really help? Many people seek out these agencies for help with their mounting debt payments. Debt consolidation companies combine your multiple monthly payments into one single payment with the lowest possible interest rate. People are attracted to this because it’s all the payments that are stressing them out and steadily ripping away pieces of their hope with each passing month. The thought of one payment eases your mind, calms your emotions and brings you a sense of peace.

My thoughts are “wait, step back, take a deep breath and think about it.” While it’s easy to give all the control of an out of control situation to a debt consolidation company, it’s possible you may be trying to solve the problem without treating the symptoms of the problem. The problem is the debt but the symptoms could be overspending, greed, discontentment, the approval of peers or lack of discipline; if left uncorrected, consolidation will not help because within two years you will be in over your head with debt problems again.

Bankrate.com has a very informative article on the deceptive practices of debt consolidation companies that everyone should know before signing up with them. Some of the interesting points are:

• More and more Americans are walking away from debt-counseling companies unsatisfied. Some leave with deeper financial wounds than when they started.
• Mounting complaints allege that companies mislead consumers into paying higher fees, buying high cost credit counseling services and operating with deceptive practices.
• Some agencies charge upfront fees as high as 3 percent of a consumer’s total debt; other agencies pocket the first month of credit payments for themselves. So right off the bat, you’re a month behind. The result? Your credit accounts get slammed with late fees and penalty interest rates.
• Some agencies fail to make payments to their clients’ creditors on time or at all, resulting in more late fees and penalties for consumers.

While I understand the enormous pressure debt can put on your life, I still believe you can resolve your debt woes without possibly being ripped off. The majority of these type of companies are in the business to collect money from stressed, hopeless people who are vulnerable to dishonest practices. Dealing with these companies could put you in a worse financial situation than your present. “A prudent (wise) person foresees the danger ahead and takes precautions. The simpleton goes blindly on and suffers the consequences.” (Proverbs 27:12)

The deception of debt

Deception is the act of deceiving which can mean “to give a false impression.” It deceives because the consumer feels he has gained but anytime we sign our future earnings into the hands of a lender, we have enslaved ourselves. Proverbs 22:7 says “the borrower is servant to the lender.” So what makes debt deceiving?

Debt tells you this is your special day and your wedding should be perfect so you must have everything that will make you happy. You put things on credit cards, take out lines of credit or maybe borrow from family. What it doesn’t tell you is that once the honeymoon is over a stack of bills will be waiting on you. Most of us know that but the power of debt convinces us that everything will be ok. The problem is most couples spend more time discussing the day they will be married rather than their finances once they get married. The false impression is that if you have everything you want on your wedding day your day and your marriage will live happily ever after.

Debt tells you that you have endured four years of undergraduate school. You have worked hard, maintained a respectable GPA and finished with the other 51% of college students who graduated from a four year institution. You deserve that new car and new wardrobe or whatever your heart desires. What it doesn’t tell you is that 65% of 4-year undergraduate students graduate with some debt and the average student loan debt is nearly $20,000 or more and this does not include car note, credit card payments or lines of credit that may have been opened. Debt levels are rising year after year and starting salaries are not keeping up. The false impression is that once you have graduated you deserve to “treat” yourself to a better life because of your new accomplishment.

Debt tells you that you work hard for your money. You deserve to splurge. Who wouldn’t want a new car, bike, boat, furniture for the living room or bedroom set? You have already talked with the lender and he explained 0% financing, 90 days same as cash or no payments for six months. You don’t necessarily need something new, you have just been using what you have for so long, it’s going to drive you crazy. The false impression is that if it’s newer it will make you feel better and satisfy an emptiness that has been nagging at you for a while now.

Debt tells you to get a rapid refund loan. You could really use the money for a variety of things that need to be done. It’s a great way to file your taxes and get the check in your hand instantly. What a deal, right? Wrong, the false impression is that you can get your money right away without the hassle of waiting weeks. You can get your money within a couple of days but the interest they charge is ridiculous. Not unless your kids are starving or there is an eviction notice on your door, these loans are a bad financial choice. Example…a taxpayer with a $600 refund would pay about $75 in finance charges, plus $50 in tax prep fees just to get a check for only $475 nine days sooner. The annualized interest rate would be about 450%! I think its worth it to wait.

You can choose not to be deceived by thinking clearly and using wisdom with your purchases. I don’t just think about the “right now” purchase but I also think about the long term consequences. Why become a slave of men when you can practice delayed gratification and be free of financial bondage. I like to remember, my income is my most powerful wealth building tool so who do I want to make rich, myself or lenders? Is your income making someone else rich?

Don’t be deceived, if you are making payments, the lender has the upper hand plus interest!

Diligence destroys debt

Ask me how we have been successful with paying off the amount of debt we have within the time period we have done it and a certain word comes to mind, that word is diligence. A steady, earnest and energetic effort. It takes diligence to pay off debt and completely change your mentality and programmed behaviors concerning debt and money management.

Diligence isn’t sporadic moments of motivation, it’s a steady process of continuing to do the right things the right way even when you are frustrated and weary. It’s easy to quit because of discouragement but the diligent keeps moving. Most things in life are done that way, putting one foot in front of the other, continuing to walk. Those who achieve debt freedom are diligent, careful about managing their money and focused on walking through the process one step at a time. They realize that slothfulness leads or keeps you in debt.

Proverbs 13:4 says “…those who work hard will prosper and be satisfied.” Do we expect everybody to do for us without doing anything for ourselves? When we don’t diligently take the steps toward financial success we are refusing the to go through the pain necessary to reach that success. The lazy are always hoping to receive an easy way out of their difficult situation.

We know this because Proverbs 12:11 tells us “he who works his land will have abundant food but he who chases fantasies lacks judgment.” It’s wise for us to work hard, manage our finances and be willing to take the pain of sacrifice to achieve what many are unwilling to work towards, debt freedom. It’s unwise to think someone will write us a check or the government will bail us out because “he who chases fantasies lacks judgment.”

“Lazy hands make a man poor but diligent hands bring wealth.” (Proverbs 10:4)

Help! How Do I Get Out of Debt

It’s a common question. How do I get out of debt? I wish I could say there was a magic pill or a special juice you can drink to make your debt go away. The truth is it takes hard work, diligence, focus and a willingness to be free from financial bondage.

There is no magic formula. You can’t wish upon a star or give to your local church and believe that is all that’s involved in getting out of debt. You can’t spin around three times while thinking positive thoughts, say positive words, go to sleep and wake up debt free. It takes more. Believing and continuously reminding yourself you will be debt free lays a psychological foundation of acquiring that goal. However, there is more you must do.

You begin with a plan or a blueprint, commonly known as a budget. This is your first step because it outlines how much money you bring in compared to how much money is going out each month. It tells you where you can cut back to increase your discretionary income which is the amount of income left after all basic expenses have been paid. How important is it to raise your discretionary income? Well, this is the weapon you will use to beat your debt with. The bigger your weapon, the quicker you can eliminate your debt.

Your next step is assembling a list with all of your debts from smallest to largest. This is to prepare you to begin paying off debt by using the Debt Snowball System. This is the technique where you make minimum payments on all of your debts; any excess income, you pay on the smallest debt until it is paid in full. Then, you take the minimum payment from that debt and any extra money you can find, pay towards the next smallest debt on your list. You continue this routine and your snowball will grow as it rolls down your list of debts.

Before you begin your debt snowball you should establish a start-up emergency fund. Depending on your income, this fund should be between $500-1,000. The purpose of this fund is to cover any unexpected events that may come up while you are working to pay off debt. If you have to use your emergency fund for any reason, you must rebuild it before you restart your debt snowball.

If you want to get out of debt you have to stop creating more debt. Only thinking about being debt free will accomplish nothing, you have to take action. You must stop using credit cards, borrowing from family, friends and the bank and become intense about escaping the debt trap.

Proverbs 22:7