My Musings

Monday, March 3, 2008

5 Principles for Managing Debt

Many people are greatly hindered in their service for God because they cannot afford to do what God has called them to do. Two years ago a friend of mine wanted to pastor a church but had to stay and work a secular job until he could pay off tens of thousands in debt. He could have begun fulfilling his calling years earlier had he not made the bad decisions that landed him in that situation.

This post is my attempt to share some financial principles that I have learned over the years. I have yet to pay any interest on a credit card and have, in fact, made hundreds, if not thousands, of dollars from credit cards. I am the type of card holder that the credit card companies hate! Let me teach you a few rules to live by for financial success in the area of debt management.

  1. Keep Debt to a Minimum! You should retrain yourself to consider all debt as bad. You should strive each month to pay off as much of your debt as possible. If the payment due is $20 then pay $30. Check this out: According to CNN Money, the average American family holds over $9,000 in debt. Wow!

    "The rich ruleth over the poor, and the borrower is servant to the lender."
    ~ Proverbs 22:7
  2. If You Can't Afford It, Don't Buy It! Most people base their standard of living on how they see others around them living rather than on their own monthly income. In fact, I often see my neighbor complaining about his financial situation only to see him go out and buy a new car or some video games because the store let him buy it on credit. According to MSN, 43% of Americans spend more than they earn each year. This kind of buying defies logic and it will lead to absolute financial chaos!

  3. "Don't sacrifice the future on the altar of the immediate!"

  4. Learn the Difference Between Good Debt and Bad Debt! There are two element to this principle and only one exception. First, if you are paying interest, it is bad debt. A friend of mine once told me what a great deal he got on a computer. Later he made the mistake of showing me the credit card bill that was charging him over 20% in interest plus several late fees. He ended up paying nearly double what the computer was worth. What a great deal!?!

    Second, if you don't have the money to pay it off, it is bad debt. Make it a rule that you will not spend more than you have in the bank. Decide that you will not charge more than you can pay off each month. If you pay your credit cards by the end of each month, they will not charge any interest at all.

    The only exception to this rule is in buying a house and that is based on the faith we place in the appreciation of its value. Discounting the tax benefits, we know that over the life of a mortgage its increase in value will outweigh our loss in interest.

  5. Take Advantage of 0% Offers! Two years ago, I received a letter from my bank, Fifth Third Bancorp, in which they gave me three checks that I could write against one of my credit cards. In the letter, they offered no fees or interest for six months. I had an idea. I called them and asked them to increase my credit limit to $10,000. They checked my credit score and immediately approved. I took that money and placed it in an interest bearing account. Six months later, I payed it off and incurred no fees. I made several hundred dollars.

  6. Take Advantage of Cash Rebates! I have a credit card from Chase bank that offers 5% cash back on all purchases at gas stations, grocery stores, and pharmacies. I purchase all of my gas and groceries on this card and I pay it off every month. Over the past year or so, I have made over $500 and have yet to pay any interest or fees on this card. Look for deals like this to take advantage of.
Keep in mind that it does not matter what income level you are at. I learned these principles when I was at an extremely low income level. I was a poor married guy trying to pay his way through Bible college. Yet even at a low income level, I was able to put more money into savings every month, I was able to learn about investing, and I was able pass up a lot of my friends financially even though they made more money than me. Don't waste your money. Be a wise steward of what God has given you and you will be free to serve him without restriction.

Please post some comments on this post and share with us what you think about these principles. Please share with us some of the principles that you practice in this area that I may not have mentioned or that I may need to learn.

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