Decreasing Debt

Solomon on Debt

• Prov. 11:15 – If someone puts up security for a stranger, he will suffer for it, but the one who hates such agreements is protected.
• Prov. 17:18 – One without sense enters an agreement and puts up security for his friend.
• Prov. 22:7 – The rich rule over the poor, and the borrower is a slave to the lender.
• Prov. 22:26-27 – Don’t be one of those who enter agreements, who put up security for loans. If you have nothing with which to pay, even your bed will be taken from under you.
• Prov. 27:13 – Take his garment, for he has put up security for a stranger; get collateral if it is for foreigners.
• Prov. 28:25 – A greedy person stirs up conflict, but whoever trusts in the Lord will prosper.

Problems with Debt

• Elevated Cost – Debt seeks to secure our happiness now by committing to pay more for it later.
• Symptomatic Problem – Increasing debt indicates that there is potentially something dangerously discontent within you.
• Interest Rates – Incurring high interest rates now means you have less money to spend in the future.
• Minimum Payments – If a company can lock you into paying the minimum requirement, they benefit the maximum amount.
• Depreciating Value – Most purchases depreciate, which can lead to owing more than what something is worth.
• Relational Burden – Debt can create tension within a family and increase one’s probability of being a burden on others.

Considerations for Debt

• Home Mortgage – It is financially unwise to have a mortgage payment of more than 25% of your take-home pay.
• Car Loan – Since a car significantly depreciates in value, it is best to avoid a car loan if possible.
• Student Loan – Only incur a student loan if the degree and school are necessary for an unwavering career path.
• Credit Cards – Reconsider if you really need something that you don’t have the money for right now.

Decreasing Your Debt

• Create an intentional and persistent plant to eliminate all debt.
• Avoid going into further debt by fighting for contentment and creating a budget.
• Utilize the debt snowball approach to reduce your existing debt.

Example

$500 medical bill – $50 payment

$2,500 credit card debt – $63 payment

$7,000 car loan – $135 payment

$10,000 student loan – $96 payment

• If you paid the minimum, you would maintain these debts for 10 years and 10 months.
• If you had an extra $500 each month, you could pay off all of your debt in 27 months.
• Pay off the medical bill in 1st month.
• Pay off credit card debt at $613 a month in 4 months.
• Pay off the car loan at $748 a month in 10 months.
• Pay off student loans at $844 in 12 months.
• You would pay off $20,000 of debt in only 27 months.
• Then, you have $844 unrestricted money every month.

Order

• List all of your debts out.
• Order them by amount (smallest to largest).
• Pay the minimum on all.
• Pay any possible extra on the smallest.
• Once one debt is paid, apply the entire payment to the next debt in line.
• Repeat until all debts are paid.
• Refrain from incurring any unnecessary debt.