Getting God's Army Out of Debt
New Visions Ministries Home Page(Rom 13:8) “Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.”
(Pr 22:7) “The rich rule over the poor, and the borrower is servant to the lender.”
Debt keeps us tied down, unable to move as we choose, because we owe. We are shackled to the lenders and must, must, must make our payments. We legally incurred the debt. We legally need to pay it. We’re Christians – we must pay our debts.
When we take on Debt, we are obligating our future income to decisions we make, today. As we pay off Debt, we are using today’s resources to pay for yesterday’s forgotten choices. When we have debt, we are committing God to our requirements for the future, not surrendering our Future to His requirements.
Credit Cards are common, expected, and easy to get. Using credit cards properly is not common, not expected, and not easy. Monthly interest and minimum monthly payments are the problem.
When you have debt, you pay interest for the privilege of having the debt. Interest is calculated and owed, along with a portion of the principal, and is paid every month. Your credit card or mortgage or other credit arrangement makes it very clear that you must pay at least the minimum payment each and every month.
Let’s take a typical purchase as an example – some clothing – a dress.
Bought on sale for $30.00 – purchased using a credit card – one with a balance due.
Most credit cards calculate a minimum payment as a small percentage of the outstanding balance, usually 2 or 3%. For this purchase, let’s assume your credit card would increase your monthly payment by about a dollar. (Most would actually calculate a much smaller minimum of maybe 50 or 60 cents.) Most credit cards charge about 18% interest on the balance – some more, some less.
How is it paid off? Let’s do a Monthly Interest Calculation to find out.
Im = P x R / 12
§ Monthly Interest = $30.00 times .18 = $5.40 divided by 12 months, or 45¢.
§ Your first month’s payment includes 45¢ of interest. Since your payment is $1.00, only 55¢ goes to pay the purchase.
§ After the payment, your new Principal is now $30.00 minus the 55¢ principal portion of your payment is now $29.45.
The second month payment calculation uses the same formula.
§
Interest = $29.45 x .18 = $5.30 / 12 = 44¢ interest.
§
Principal = $1.00 - .44¢
= 56¢.
The total Principal paid for these two months is $1.11.
In 2 months wear of this dress, on sale, you’ve only paid $1.11 total for it with your minimum monthly payments. You’ve still got $28.89 left to go... How long will this take? It will take about 3½ years before the entire, original amount is paid off. This is long after the dress is worn out, seen out, grown out, or fashioned out.
Any and every purchase has this same problem when purchased by credit card and only minimum payments are made. It will take 3½ years to pay it off — without making any more purchases.
See Chart #1 that shows how a $30.00 charge and 2% minimum monthly payments amortizes to the end of its debt.
Just quit. Every dollar you charge makes your payoff date that much farther in the future. You can’t get out of debt by continuing to incur debt. It’s like trying to win in Las Vegas… We all know that… “The House ALWAYS… Wins!”
You’ll find that most of the things you charge are just that — things. You probably don’t need them, at least not as much as you think you do.
Take your credit cards and cut them up!
Is that seems too cruel to you – cutting them up and watching them die? Here’s a more humane way. Put them in the oven. Turn it up to 350. Take a walk. When you get back, the cards have peacefully expired.
Put your credit cards in a drawer. Freeze them in a block of ice. Give them to your Mother, or send them to me! Hide them in the Safe Deposit Box. Make it very hard and embarrassing to use our credit cards.
Keep the shopping Channel off your favorite channels button. Don’t go to the Mall. Quit buying anything on credit. Now.
Pay off those balances by paying more than the minimum payments whenever you can. You knew that you ARE allowed to pay more than the minimums, didn’t you? Better yet, plan which account to pay off, when, and how.
Pay off the balances on one account at a time. You should pay at least the minimum balances on all of your accounts, but the one you choose to pay off early, pay more than the minimum. Pay as much toward the outstanding balance as you can.
If you simply paid an additional $1.00 each month on the account, your balance would be paid off in just 18 months instead of the original 40. See the Chart #2.
That’s because the extra dollar is all applied to pay off the outstanding principal balance. When the interest is calculated next month, there is an extra dollar gone from the balance. The interest is less, and more money is applied to the principal next month.
You will need to watch that the credit card company doesn’t do you a favor and suspend your minimum payment in succeeding months. You need to keep on making those minimum-plus payments.
Ø
Pay at least the minimum
payments on all your accounts every month.
Ø
Never make a late
payment. Late Payment fees can be worse than interest.
Ø
Chose to pay off:
o Highest interest.
o Highest payment.
o Highest balance.
o Lowest balance.
My preference is the Lowest Balance. Here’s why.
Ø
The lowest balance generally
has the smallest payment.
Ø
When you add any extra
money to the payment, the principal goes down faster.
Ø
The balance is paid off
quicker.
Ø
You will witness
progress and success much sooner.
Ø
You will be able to
celebrate a bit sooner.
Some say that you should pay the highest interest balance first. Others say to pay off the largest balance first. The fact is that once you set your sights on getting out of debt, it will happen quickly, and the net difference in extra interest will not be significant. You’re paying a high interest rate on your whole balance. Getting it paid off is the most important thing, not saving a few bucks in interest. You’ve already had your chance at saving money, but you missed that chance when you charged the purchase. You will likely be more successful trying to get discipline with your lowest balance.
What, are you not paying attention? Consolidation loans are called Debt. You haven’t solved the fundamental reasons you got where you are, (you have a spending problem) so consolidations only put off the inevitable. Taking on debt is not the way to get out of debt. The same goes for swapping credit card accounts and transferring balances for short term lower interest. It is only an illusionary fix. You are still in debt. Most people who consolidate debts end up even further in debt in a few months or years.
Unless you solve your spending problems through discipline and stewardship, your debt problems will not go away.
Look in your mailbox. You’ll find dozens of reduced-interest credit card offers. One recent example was a ZERO % for the first 4 months! This is a really good deal!
But the fine print says...
“0.0% is only good on transferred balances. New purchases are subject to a variable interest rate of 15.65%. Balances in default are subject to 20.65%.”
In fact, if you are in default on any of their accounts, you are charged the 20.65% rate. If you miss a payment, even by an hour, you are in default – and you can’t undo this rate change. Then, even the transferred balance gets charged 20.65%. Some bargain.
Some fine print even allows the rate to go up if the credit company THINKS you might miss some payments. So, they periodically check your credit file for any missed payments, with any creditor, and if they find one – Whoa! Your interest rate goes up!
These credit card companies are in the business of making money through your interest payments and late fees. They have some of the smartest and highest paid people in business figuring out how to maximize their return. You may think you can trick them by swapping from account to account. But, do you really think that you are the first person who ever thought of that? Do you really think they don’t know what you are doing? Do you really think you can outfox them at their own game? As we said earlier about gambling in Las Vegas, these companies are the House. The House ALWAYS wins. The only way you can beat them is to not play. Get out of debt – and FAST!
Get out of debt by paying off your lowest balance account first. Do it by making more than the minimum payments. Save and scrape a few extra bucks each month - $5, $10, $50 – and apply it all to the normal minimum payment. Do this every month. The extra money goes directly to pay down the principal. The next statement will have a smaller portion devoted to interest. The balance is paid way sooner than that 40 months or 19 years. You did it!! Celebrate a bit when it is zero. (Do NOT buy anything on credit!!!)
Once you have that first, lowest balance paid off, take its minimum payment, plus the additional money you’ve been able to gather together, and apply it all to the next lowest balance. This very much larger payment will accelerate that declining balance, and it will fall quickly. It’s time for another small celebration. You did it again!
Continue in this fashion, taking the total of your payments to old paid accounts, plus any extra cash, and pay to the next lowest account balance.
Keep going – your car payments, your student loans - even to your mortgage. Get out of debt. You can do it! It took you quite a while to get this far in debt. It will take some time to get out, but you can. It might take two or five or even seven years, but you can get out of debt.
You say, “John? What’s this about the mortgage? Isn’t it OK to have a mortgage? Won’t I lose one of the only tax deductions still available?”
Sure, you could keep your mortgage… But, your mortgage is still debt, and the same rules apply. Yes, you would lose some tax benefit. But if you are paying $10,000 a year in interest, your tax bill will only go down $2,500 or so. That’s a pretty expensive investment, isn’t it? Who are you paying that interest to? A bank. Are they interested in God’s Glory or your well-being? No.
So, if you want tax breaks, pay off your mortgage, take that $10,000 you’ve been giving to the bank, and give it to the church. You’ll advance God’s Kingdom, and still get the $2,500 tax deduction!!!
If you keep this payment process up, before you know it, all your accounts will be paid. There will not be any more monthly statements. Interest payments will cease. You are free.
Instead of charging, pay cash. Remember Rule #1. You can only get out of debt if you don’t use any debt.
If you are only paying minimums on your accounts, you are already paying for at least 3 ½ years’ or up to 42 years’ worth of purchases. You’ve made all the credit purchases you need to make for the next 3½ years. This is a hard lesson, but one that we all need to learn
So, since you quit charging, you must pay cash, or simply not buy. This brings you to some hard choices.
Now you have to set priorities in your buying.
·
Is food more important
than these baubles?
·
Can I do without a
Blockbuster rental?
·
Why am I paying
for premium Cable TV?
·
What are all these new
trashy novels doing on the shelf?
·
Do I really need to have
all these clothes?
·
Is going to Fast Foods R
Us how I’m going to get out of debt?
You have to be serious about getting out of debt. Debt is a lot like gambling at Las Vegas. The house always wins. You will never win the debt game. Just the lenders win.
You win by not playing. You don’t play by paying cash.
Begin to “save up” for purchases as you plan for them.
When you’ve saved up, you can shop wisely for your planned purchase. You can watch for sales. You might even find that you really don’t need it after all. If that’s what you find, don’t buy it. Move on to something else.
Buying a car is the hardest of these purchases. Even if you buy used cars, paying cash seems impossible. But it’s not. Financing a new or used car still takes 3 or more years to pay off. You still don’t own it. I know those who have had their cars wear out on them, and still owe thousands. Imagine paying for something you no longer own.
So, start saving for that next car. If you are financing now, get it paid off as quickly as possible like in Rule #2. Once you’ve paid it off, keep paying that that car payment into a savings account. Pay yourself instead of a lender. With an interest account, soon you’ll have enough cash to buy your next car, or at least make a large down payment. You’ll be able to get different concessions paying cash. You’ll be in control of the purchase. You’ll be out of debt.
Do the same for other major purchases, for vacations, for hobbies, for entertainment.
Now, this doesn’t have to be long green cash. You can use your checkbook. In fact, it should be your checkbook so you’ll be able to have a record of your expenditures. Writing checks is a skill, but easily mastered. Debit cards can serve the same purpose, but are harder to manage records. I prefer checkbooks.
If you consistently apply this rule, you will always be debt free.
All of these rules are interconnected, and they all mean the same thing. Live within your means. Delay your gratification. Appreciate those purchases you do make. Make your purchases glorify God and advance His Kingdom.
If we had heeded Rule #4, we would not have to have Rule #2. If we had been faithful with Rule #3, Rule #1 would be needless warning.
But since we got to where we are somehow, all of these Rules apply. Ultimately, you will get out of debt. Over time, you will develop self-discipline in your finances. This will spill into other areas of your life. When you control your finances, you control your life.
There are two ways to get extra cash. Save on your expenses, or increase your income. Increasing your income is possible, but until you actually make changes in how you spend your income, that extra income will just disappear. Cutting your expenses is the fastest and longest lasting way to find extra cash.
You will need to make some changes in how you live if you want to have some extra cash to end your debt. Use the list on Found Money to help you cut back on your Outgo. Use the Home Business Ideas List to increase your Income.
Change how you spend money. Find a few ways to earn a few extra bucks. Apply the extra to your debt, not your lifestyle. Get out of debt.
Once you are out of debt, keep your habits and discipline. Stay out of Debt. Stay in control of your spending. Honor God with your Life.
Use copies of the attached form, or use a notebook. Keep these listings. You will be able to see the difference each month. This will encourage you.
You are on the way. Keep on keeping on.
Typical Credit Card Purchase of $30.00.
$1.00 Minimum Monthly Payment.
Interest Rate of 18%.
Month # |
Payment |
Principal |
Interest |
Balance |
1 |
$1.00 |
$0.55 |
$0.45 |
$29.45 |
2 |
$1.00 |
$0.56 |
$0.44 |
$28.89 |
3 |
$1.00 |
$0.57 |
$0.43 |
$28.33 |
4 |
$1.00 |
$0.58 |
$0.42 |
$27.75 |
5 |
$1.00 |
$0.58 |
$0.42 |
$27.17 |
6 |
$1.00 |
$0.59 |
$0.41 |
$26.57 |
7 |
$1.00 |
$0.60 |
$0.40 |
$25.97 |
8 |
$1.00 |
$0.61 |
$0.39 |
$25.36 |
9 |
$1.00 |
$0.62 |
$0.38 |
$24.74 |
10 |
$1.00 |
$0.63 |
$0.37 |
$24.11 |
11 |
$1.00 |
$0.64 |
$0.36 |
$23.48 |
12 |
$1.00 |
$0.65 |
$0.35 |
$22.83 |
13 |
$1.00 |
$0.66 |
$0.34 |
$22.17 |
14 |
$1.00 |
$0.67 |
$0.33 |
$21.50 |
15 |
$1.00 |
$0.68 |
$0.32 |
$20.82 |
16 |
$1.00 |
$0.69 |
$0.31 |
$20.14 |
17 |
$1.00 |
$0.70 |
$0.30 |
$19.44 |
18 |
$1.00 |
$0.71 |
$0.29 |
$18.73 |
19 |
$1.00 |
$0.72 |
$0.28 |
$18.01 |
20 |
$1.00 |
$0.73 |
$0.27 |
$17.28 |
21 |
$1.00 |
$0.74 |
$0.26 |
$16.54 |
22 |
$1.00 |
$0.75 |
$0.25 |
$15.79 |
23 |
$1.00 |
$0.76 |
$0.24 |
$15.03 |
24 |
$1.00 |
$0.77 |
$0.23 |
$14.25 |
25 |
$1.00 |
$0.79 |
$0.21 |
$13.47 |
26 |
$1.00 |
$0.80 |
$0.20 |
$12.67 |
27 |
$1.00 |
$0.81 |
$0.19 |
$11.86 |
28 |
$1.00 |
$0.82 |
$0.18 |
$11.04 |
29 |
$1.00 |
$0.83 |
$0.17 |
$10.20 |
30 |
$1.00 |
$0.85 |
$0.15 |
$9.35 |
31 |
$1.00 |
$0.86 |
$0.14 |
$8.49 |
32 |
$1.00 |
$0.87 |
$0.13 |
$7.62 |
33 |
$1.00 |
$0.89 |
$0.11 |
$6.74 |
34 |
$1.00 |
$0.90 |
$0.10 |
$5.84 |
35 |
$1.00 |
$0.91 |
$0.09 |
$4.92 |
36 |
$1.00 |
$0.93 |
$0.07 |
$4.00 |
37 |
$1.00 |
$0.94 |
$0.06 |
$3.06 |
38 |
$1.00 |
$0.95 |
$0.05 |
$2.10 |
39 |
$1.00 |
$0.97 |
$0.03 |
$1.14 |
40 |
$1.00 |
$0.98 |
$0.02 |
$0.15 |
Totals |
$40.00 |
$29.85 |
$10.15 |
|
Typical
Credit Card Purchase of $30.00.
$2.00 Monthly Payment (Minimum of
$1.00 plus $1.00 extra.)
Interest
Rate of 18%.
Month # |
Payment |
Principal |
Interest |
Balance |
1 |
$2.00 |
$1.55 |
$0.45 |
$28.45 |
2 |
$2.00 |
$1.57 |
$0.43 |
$26.88 |
3 |
$2.00 |
$1.60 |
$0.40 |
$25.28 |
4 |
$2.00 |
$1.62 |
$0.38 |
$23.66 |
5 |
$2.00 |
$1.65 |
$0.35 |
$22.01 |
6 |
$2.00 |
$1.67 |
$0.33 |
$20.34 |
7 |
$2.00 |
$1.69 |
$0.31 |
$18.65 |
8 |
$2.00 |
$1.72 |
$0.28 |
$16.93 |
9 |
$2.00 |
$1.75 |
$0.25 |
$15.18 |
10 |
$2.00 |
$1.77 |
$0.23 |
$13.41 |
11 |
$2.00 |
$1.80 |
$0.20 |
$11.61 |
12 |
$2.00 |
$1.83 |
$0.17 |
$9.79 |
13 |
$2.00 |
$1.85 |
$0.15 |
$7.93 |
14 |
$2.00 |
$1.88 |
$0.12 |
$6.05 |
15 |
$2.00 |
$1.91 |
$0.09 |
$4.14 |
16 |
$2.00 |
$1.94 |
$0.06 |
$2.20 |
17 |
$2.00 |
$1.97 |
$0.03 |
$0.24 |
18 |
$2.00 |
$2.00 |
$0.00 |
$0.00 |
Totals |
$36.00 |
$30.00 |
$6.00 |
|
q
Take
lunch
q
Make
Sandwiches
q
Avoid
fast food
q
Clip
coupons
q
Make
a grocery list and stick to it
q
Have
a yard or garage sale
q
Sell
some stuff on e-Bay
q
Walk
somewhere instead of driving
q
Save
your change
q
Buy
Generic
q
Cancel
extra phone charges
q
Cancel
cable
q
Write
a letter instead of phoning
q
Make
do
q
Make
do without
q
Swap
services
q
Don’t
buy books, use the library
q
Don’t
buy music, listen to radio
q
Don’t
rent videos, use library
q
Make
gifts
q
Buy
kids clothes at thrift shops
q
Buy
your clothes at thrift shops
q
Adjust
thermostat, and dress for comfort
q
Take
shorter showers
q
Cancel
magazine subscriptions
q
Cancel
daily paper and watch or listen to news on TV or radio
q
Cut
your kid’s hair yourself
q
Do
your own manicures
q
Make
your own gift wrap
q
Learn
to cook, mend, sew
q
Learn
to repair, build, make
q
Enroll
in your company’s 401K
q
If 401K not available, start an IRA
q
Going
out? Get dessert instead of dinner.
q
Pet
sit, plant sit, or baby sit
q
Use
a clothes line instead of a clothes dryer
q
Turn
off lights
q
Set
hot water heater temperature down
q
Cell
phone? Buy cheapest plan and use only
for emergencies.
q
Let
your children play with you instead of a new toy.
q
Take
an “at home” vacation.
q
Make
your own coffee and carry a thermos instead buying at a coffee shop.
q
Don’t
over or under withhold on your W-4’s.
q
Get
a part time job.
q
Start
your own part time service business.
q
Use
leftovers
q
Don’t
use the ATM
q
Change
your own auto oil
q
q
q
All of the following business ideas have little or
no initial investment. Clients can be
located through net working, community or church bulletin boards, and flyers in
your neighborhood. If your goal is to
make an additional $25 to $100 per month, all these can be done in very limited
time. If you choose a business that
requires an investment in tools, supplies, equipment, or merchandise, be sure
to keep very good records for tax purposes.
Charge for your time and any additional expenses.
One or two children week days
Occasional nighttime sitting so
other couples can go out
After school care for a few children
Breakfast and “off to school” care
for neighbor kids
Write checks, balance checkbook, and file paid bills
for people or small businesses.
Grocery shopping
Gift shopping
Whole house cleaning for one or two
families
Specialized services such as oven cleaning, window
washing, freezer defrosting, etc.
Lawn mowing
Weeding
Pruning
Raking
Yard debris clean up
Painting interior or exterior
Repairs
Putting up/taking down screens or
storm windows
Cleaning gutters
Children’s rooms
Wall paper hanging
Occasional meals or specialties for people that
don’t have resources to cook or bake for themselves.
Assemble gift baskets from client’s
purchases.
Wrap Christmas or birthday gifts.
Daytime companionship for a
neighbor’s dog or cat.
Vacation care for pets or plants
Cleaning and watering indoor plants
for houses or businesses
Shopping, laundry, pick-up and
delivery.
Plan and/or provide services for children’s parties
such as themes, decorations, invitations, games, food, favors, etc.
Create entire scrapbook or just scrapbook pages for
new moms, brides, graduates, first birthdays, retirements, sport or dancing
event, or any special occasion.
Charge service credit or cash to members of co-op to
handle bookkeeping, appointments, and maintain database for service swapping.
(Or, contact John & Sandi Larson via email at: info@visionsbusiness.com)
Copyright 2001, 2002, Visions Business Development, Beaverton, Oregon - ALL RIGHTS RESERVED