Paying off debt is not fun, so I want to provide you with a clear and simple strategy for getting out of debt. The Bible warns that debt can lead to slavery. So, it is important that we do our best to avoid debt and if we find ourselves in that position, we should endeavour to rectify the situation as quickly as possible.
As with most financial planning issues, it is best to apply a simple process to achieve your goals. For debt reduction, I recommend the process outlined below:
Step One: Pray
As Christians, we are told to take all things to God in prayer. As obvious as this may sound, it’s best to begin by committing yourself to God in prayer.
Debt does not just affect you. It affects all the members of your household, your relationships with them, your level of stress and your health.
Ask God for His wisdom, His blessing and peace as you begin this process.
If your debt has been so large that it has led to sin, e.g. not being able to fulfil your commitments to others or the call to generosity, take this opportunity to repent and ask God for forgiveness. He is loving and merciful and wants you to live a life of financial freedom.
Step Two: Don’t take on additional debt
Do not take on any additional borrowings – STOP!
If you continue to borrow, you are only compounding the problem. The only way to begin the process of eliminating debt is to:
➢ Take a step back,
➢ Reassess, and
➢ Begin making serious lifestyle changes.
If you regularly put new debts on your credit card and/or fail to pay the full outstanding balance of the card at the end of each month, I suggest that you cut it up and switch to a debit card. By doing so, you cannot incur any new credit card debt.
Step Three: Make a List of all Debts
Make a comprehensive list of all of your current debts. Be very specific in making your list by including:
➢ The type of debt;
➢ How much is currently owed;
➢ The minimum monthly payment involved; and
➢ The interest rate you are paying.
Here is an example of the Debt Schedule:
|Debt Type||Initial Amount||Amount Outstanding||Interest Rate||Min Repayment||Actual Repayment||Repay by|
|Investment Property Loan|
Step Four: Put your debts in order – highest interest rate to lowest interest rate, largest to smallest
Take your list from above and place your debts in order, from highest interest to lowest interest rate. In the situation where two debts have identical interest rates, you should pay the smaller debt first. This will give you a sense of achievement as you begin eliminating your debts.
Use the table below as your guide:
|Debt Type||Amount (smallest to largest)||
Interest (highest to lowest)
|Credit Card 1||$1,500||18%|
|Credit Card 1||$1,700||18%|
Step Five: Consider Debt Consolidation
Where appropriate, consider consolidating your debts into one account at the lowest rate.
But please, be careful. By consolidating your debt, it can sometimes convert short-term debt, into long-term debt. Definitely take your time and research your options.
Warning: if you consolidate credit card debt by transferring the debt into one interest free credit card offered to you as part of a promotion, be sure to not spend on the new card. Generally, the bank will deduct any monthly repayments from the interest free transferred amount first, rather than any new spending. As a consequence, you will start paying interest immediately, nullifying the reason for your debt consolidation transfer.
Step Six: List your assets – Can any be sold?
Make a list of all your assets using the table below and determine which assets can be sold.
I suggest that you pray over this issue and ask for God’s wisdom.
There are many alternatives for asset sales, which are not necessarily ‘right’ or ‘wrong’. Here are a few examples:
➢ Your household may have two cars but you could survive by keeping one. Alternatively, you realise that your home is bigger than you need and you choose to downsize.
➢ You have lifestyle assets, e.g. a boat, which you could sell and rent one instead.
Be honest and willing to make some tough choices to rid yourself of debt and get onto a stable footing.
Here’s an example which may be worth using:
|e.g. Investment Property||$260,000||Yes|
Step Seven: Do a Budget
I am sure that, you have heard me talk (incessantly!) about the need to have a written Budget. I suggest that you complete a Budget (download below). Using this document, you can plan to make additional repayments to reduce your debt.
After you have built up an “Emergency Fund” (to the value of six months living expenses) to prepare for a rainy day, additional savings can be used to clear your debts, as quick as possible.
Step Eight: Cut out Waste
Whilst reviewing your budget (as per above), also consider eliminating budgetary items which you really don’t need. If something doesn’t add genuine value to your life, use this opportunity to eliminate it.
Step Nine: Trust God
Are you consumed with worry? Let’s face it, debt can be stressful, and can have a significant impact on our relationships, even our performance at work.
I suggest that you seek God’s help, protection and provision. Many Christians will say to you ‘trust God for his provision’. Whilst that is a pleasant sentiment, what does it really mean?
Let me give you an example: when my kids get up in the morning, they implicitly assume that there will be food for breakfast, lunch and dinner. They don’t worry about it, because they have complete trust that my wife and I, will provide it for them.
For some reason, when we get to adulthood, our trust for God goes out the window and we start to worry about money.
I believe that there’s a simple yet profound solution! Learn to be intimate with God, by spending time in prayer and reading his word.
When we understand who God really is and his true character, your worries will soon melt away. You are loved and cared for by the supernatural King of Kings, who lacks nothing. We need to remind of ourselves of:
➢ God’s Supernatural Power
➢ God’s Abundant Provision
➢ God’s Design
➢ God’s Character
➢ God’s Principles
Step Ten: Seek Advice
Seek wise counsel and instruction from people who can help with this process and provide you with genuine advice. Depending on your particular situation:
➢ You may benefit from financial counselling, and/or
➢ Seek the counsel of your pastor who can generally provide biblical principles
➢ You may even need professional advice from a licensed financial planner.
When? Start Now
Still reading this? Why are you procrastinating? Don’t delay, begin repaying your debts now.