How to Get Out of Debt


Originally posted by J.D. of Get Rich Slowly

This article has some very good concrete steps to getting out of debt.  I believe the contents that follow do follow biblical principles, even if J.D. didn’t do so purposely.  Any faithful stewardship is on track to follow bible teachings, all you need to realize if you’re already working to rid your life of debt, is that God has granted you all that you have and you are just a steward of those things.  Please read J.D.’s article and apply it to your life in the context of God’s Word.  To be compliant with copyright laws, I am only posting snippets of the article here.  To get the full Monty, please visit J.D.’s original post.

Debt elimination involves three steps:

  1. Stop acquiring new debt.
  2. Establish an emergency fund.
  3. Implement a debt snowball.

Here’s how to approach each step. (I’ll use Nick’s situation as an example, but the principles apply to everyone.)

Stop acquiring new debt

(This step can be accomplished in an afternoon.)

This may seem self-evident, but the reason your debt is out of control is that you keep adding to it. Stop using credit. Don’t finance anything. Cut up your credit cards.  That last one can be tough. Don’t make excuses. I don’t care that other personal finance sites say that you shouldn’t cut them up. Destroy them. Stop rationalizing that you need them.

Establish an emergency fund

(This step will probably take several months.)

For some, this is counter-intuitive. Why save before paying off debt? Because if you don’t save first, you’re not going to be able to cope with unexpected expenses. Do not tell yourself that you can keep a credit card for emergencies. Destroy your credit cards; save cash for emergencies.

How much should you save? Ideally, you’d save $1,000 to start. (College students may be able to get by with $500.) This money is for emergencies only. It is not for frivolities. It is not for shoes. It is not for a Playstation 3. It is to be used when your car dies, or when you break your arm in a touch football game.

Implement a debt snowball

(This step may require several years.)

After you’ve stopped using credit, and after you’ve saved an emergency fund, then attack your existing debt. Attack it with vigor. Throw whatever you can at it.

Many people say to pay your high interest debts first. There’s no question that this makes the most sense mathematically. But if money were all about math, you wouldn’t have debt in the first place. Money is as much about emotion and psychology as it is about math.  Psychologically, using a debt snowball offers big payoffs, payoffs that can spur you to further debt reduction.

If you apply disciplined prayer & God’s Word to these solid principles, you will be successful in reducing your debt!

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