Digging Out
by Heather Koerner on 09/03/2008 at 11:37 AM
Here's a comment we hear sometimes at Boundless: "That's good advice, but what if I'm hearing it too late. What do I do now?"
And, sometimes, those comments have to do with what we have written about financial stewardship. In fact, we received one such e-mail a few weeks ago. The gist: She's a college student who feels that God is honoring her commitment to get through school with no debt. She is planning to get engaged to a man who will end up with approximately $50,000 in school debt. They both feel called to ministry and are ministry majors. She's concerned:
"I've been realizing how enslaving this debt is going to be for maybe the next 10 years, and longer if we actually jump right into the careers that we feel God has called us to. We're both determined to live simply and get rid of the debt as soon as we can, but that much money will take a long time to pay off no matter how much we pinch. Any advice? How can a person get rid of school debt? I have been praying a lot lately that God would provide in unforeseen ways for him like he has for me. How much do we just trust that God will provide for us according to the calling he has given us and how much do we go out and try to find solutions now before the debt actually piles up to $50,000?"
Now, this young woman didn't take on the debt, but she will (if she marries him) have to deal with the consequences.
It's for these type of situations that I wrote, "Digging Out" -- today's Boundless article. In it, I try to explore how we can tackle debt in a uniquely Christian way and how that might look different from a "get out of debt plan" that the world might offer. It includes some solid steps to take. But it also includes answering some hard questions: Is sin the cause of my debt problem? Do I need to repent? Are the financial priorities in God's Word also my priorities?
As for this young woman, "any advice?" Well, I would advise her and her intended to sit down with a pastor or mentor couple and tackle those same questions. Ask God for wisdom. Ask Him to turn your hearts toward His priorities.
In addition, they should discuss how they will handle debt in their future marriage. Will they take on debt? And if so, for what? What do they think God's financial priorities and principles are? How will they apply them in their marriage?
She asks if they should be doing something now. My answer would be a resounding "Yes!". No need to wait to live simply. They can both work right now on getting income up and expenses down (this may seem impossible, but even when I considered myself a "broke" college student, I ate take-out, bought new clothes, had a car and had plenty of technology). He can try to pay off debt and she can save for an emergency/pay-down-debt fund for when they get married. He can determine not to take on any more debt. (I don't recommend student loan debt. Others do. Regardless, he seems to be dangerously over-committed compared to the salary he plans to make). They can plan a very, very simple wedding.
Getting into debt is all too easy, as many of us know. Getting out of debt is hard, as we also know. But God's Word is exactly right: debt is enslaving. It determines what you do and when and how you do it. It's best never to get into debt. But if you're already in, and you're already in deep, I pray that this article will give you a place to start.
1. Tim said the following at 12:14 PM on Sep 3:
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Great article. I truly believe money management is one of the ways Christians still have the most to learn/apply in their lives. It is also something that can often be taught in practical steps.
Now, my one disagreement. I've discussed this with people from Crown before, and never received a satisfactory answer. It has always just come down to, "well, that's what we believe is best."
Step 3: Establish an emergency fund
Here is my problem with this step. Saving money while interest is being charged doesn't make sense. Not with the convient access to our money that we have nowadays. If I have a large credit card balance, why would I save money in the bank, gaining almost no interest, while the credit card company is charging me lots and lots of interest? That money would be better off reducing my debt and saving me interest from the credit card company. Personally, if I were in that situation, I would work to pay every cent I could as soon as possible.
You may say, "but what about an emergency?" Well, what about it? I can pay for the emergency expense with a credit card or with cash. Either way it gets paid. I might as well put my cash towards my credit card balance in the meantime so that I can get charged less interest. If I do that, and a large expense comes 2 months later, that's 2 months that I had a lower credit card balance.
OK, this has been a long post, but I feel strongly about everything I've said. Does anyone have an answer as to why you would ever save money as cash instead of paying off a high-interest credit card? If you needed to spend money somewhere a credit card wasn't accepted, that would make sense, but that is a rare exception.
Again, thanks for the article. I strongly agree with the other 99% of it.
2. Elisabeth said the following at 1:54 PM on Sep 3:
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My husband and I are committed to not taking on debt. However, we've only saved 6,000 for a new car and its getting rather desperate that we purchase a new car rather soon. We're also trying to save a down payment for a house. All the places I've looked used cars are really expensive--way over the 6,000 that we've saved. Any suggestions?
3. erin said the following at 2:13 PM on Sep 3:
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Great article! I completely agree that debt is enslaving, and I know in my case it was definitely caused by sin in my life. During grad school I accumulated almost $7000 in debt because I told myself that I could live a lifestyle I actually couldn't afford. I bought new clothes often, went out to eat all the time, went to concerts, etc., when my meager grad student stipend simply wasn't adequate for that. Then when the debt started piling up, I stopped tithing because I "needed" that money to pay down my debt. My finances were messed up, as were my priorities, and it took meeting my (now) husband and being honest with God about my selfishness to get me into shape. I brought that debt into my marriage, and it's one of my biggest regrets. The day that we paid it off, about 8 months into our marriage, was an amazing day, and we now are completely debt free (no car payments, mortgage, or student loans even!). If anyone is thinking about getting a credit card, don't do it! It's just not worth it.
4. Celebrindal said the following at 2:53 PM on Sep 3:
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I really liked the article. It has some very good advice. I've been trying to get through college without debt, but this year I had to borrow money since my school no longer has its own payment plan. All the tuition is due by the first day of classes unless there is financial aid lined up to cover it. I also bought a car several months ago after my old (and I do mean old) car died on me, which took most of my cash. Rather than borrow the money through a typical school loan, I took advantage of my parents' excellent credit record and borrowed the money through their line of credit (which they almost never use). The interest is low and payments are interest only, but I'm paying $100 or more a month to get it all paid down by the time I graduate or shortly after.
Elisabeth, I don't know where you live, but I got a 2002 Cavalier for $3200. It may not be brand new or a luxury car, but it runs good, the AC works, and it has low gas mileage. It is quite possible in many areas to find a decent car for $6000. Check your local paper for individuals who are selling cars and visit used car lots. Do your homework and know the Blue Book value of the cars you are interested in before you buy. You might also look at Ebay motors. My family has bought 3 vehicles that way and they have all been good deals and we've had no problems.
5. BDB said the following at 3:01 PM on Sep 3:
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I tend to agree with Tim. Pay off credit cards first before saving up an emergency fund. If the emergency happens before you have a fund, you can use that available credit line. It will be MUCH better for your credit rating to show that you've paid off the credit card, which will in turn get you much lower interest rates on cars and/or mortgages in the future.
A home-equity line of credit can be used by a responsible person as an emergency cash source, but it's subject to being cancelled if housing prices drop, as many homeowners discovered in recent months.
Besides, if you are carrying a credit card balance, you probably need to improve your financial discipline anyway. The process of paying off that credit card will be painful, but the discipline is worth it in the end.
You might also like the mySmart cash account from Fidelity. It has much better interest rates than bank accounts while still being FDIC insured. They also have a wonderful set of tools to teach you financial investing concepts. It's a great place to park your emergency fund.
6. Heather Koerner said the following at 3:09 PM on Sep 3:
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Tim (1): Your point is completely logical. Why would I save up cash when I'm getting lamblasted by interest building up?
The reason I encourage an emergency fund is because this article is intended for those with a credit card problem. If you can't control your credit, you need to stop the credit pronto, cold turkey. By saving cash, they begin to move in a positive direction--buying only that which they have money for.
I also recommend an emergency fund for those without a credit problem. Because, really, emergencies will come. We will get sick. We will lose our jobs. Our cars will break down. If we plan to use credit cards for those, we're two steps into the hole (we have the emergency and we're deeper in debt during the emergency situation).
Thanks for your comments!
Elisabeth (2): Keep looking! I promise that used cars under $6,000 are out there--especially if you are in dire straits with your other car.
I know it's tempting to take out that loan. But it really is bad news to borrow money on a depreciating asset. You are in an amazing situation that many people would envy--no debt. Keep working. Keep saving. You can do it!
7. Kate said the following at 3:11 PM on Sep 3:
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Elizabeth #2, you do NOT need to buy a new car. Try reading what Dave Ramsey has to say about buying new vs. used cars: http://www.daveramsey.com/etc/cms/why_buy_a_used_car_5153.htmlc
It is possible to purchase a decent used car for $6000. Now, you aren't going to get a luxury car/truck/SUV for that price, but you will be able to get one that is completely sufficient and reliable. In fact, you may even be able to buy two small cheap cars like Cavaliers or Neons for that price. (which also have the bonus of good gas mileage). My husband and I both drive 2001 Cavaliers valued at about $3000 that we bought with over 100,000 on them and it's totally fine.
You also need to think about the cost of insuring a new car vs. an older one. (big difference)
You could purchase one for $3000-$4000 and save the rest of that to replace tires, brakes and other repairs that will come up. I realize you need to know what you are doing in order to not end up with a lemon... but it's so worth the effort of learning about it to save the amount of money you can save in this way.
Start looking on ebay and the ads on craig's list and the paper, look at Kelly Blue Book's website. Learn what is worth what. You do not need to go to a dealer, and if you do and the salesperson can tell you know nothing about cars, they will definitely charge you a higher price than you would have gotten if you knew what you were doing. Ask around, I know a lot of people who have bought good used cars from people at their churches or neighbors, etc. Tell friends and relatives you are looking, because you never know what somebody might spot on the side of the road. Those excellent deals get snapped up very fast.
Or if you presently have an older car that you are sick of because it needs repairs... just fix the car you have. It is DEFINITELY going to cost less money that way.
$3000 or ? of repairs if you own a car now
$6000 for a used car + ? for repairs
$15,000 or way more for a new car, that you will depreciate in value instantly and you will have to fix sometime anyway.
8. Paul said the following at 3:45 PM on Sep 3:
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Tim,
I agree with Heather. If you're prudent, you pay off the card then start saving, but if you're prudent, you've probably not got into a serious debt problem in the first place.
Once you've got into that position, you probably need some simple rules to make sure you can avoid further temptation and straighten your finances out.
"Here's a small jar of money, that you can only spend in emergencies, once it's gone, it's gone" and "here's your credit card account, you're only allowed to pay money off, not spend any more" are quite simple rules. Much easier to follow than "try to pay more off your credit card than you spend on it", and probably much much easier to feel a genuine sense of achievement (especially in the early stages).
Oh, and as a bonus, you're not done until you've got an emergency fund and no debt. If you pay the debt first, it's easy to think you're finished too soon and never get into the habit of saving.
9. DEH said the following at 4:20 PM on Sep 3:
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Elisabeth (2)~
You could look on Craigslist. My cousin has bought and sold cars on there several times and got really good deals. Just like with any used car purchase, have someone who knows cars check it out first. And way to go saving the money to buy it outright!
10. Leah said the following at 11:54 PM on Sep 3:
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Elisabeth, I think sometimes we have to be willing to take on reasonable debt. For example, you will never buy a house debt-free unless you have a large income. A mortgage is a debt.
Small debts that you are likely to pay off reasonably soon aren't unwise, in my opinion. My husband took a car loan when he was in university. It was a special students' loan- you got 10k for your car and were not required to start paying back until you started work. However you did need the backing of parents (so their income was insurance for the bank) and the interest was 14%. My husband (then boyfriend/fiance) paid it off with almost double the required alotments (required: 300 a month. He paid: 300 a fortnight). It took him about 18 months of fulltime work to pay it off. Not that much, realistically.
Another example is my parents. They mortgaged our house to pay for a second house they bought for investment purposes in another city. The rent my parents get from it pays ONLY for the interest on the mortgage and has contributed nothing towards the actual loan itself. HOWEVER, the intention is to sell it further down the track, at which point the property's worth will have increased substantially, meaning it will pay for the loan and then some.
Loans can be wise. You just have to know what you are doing. eg. in my parents' situation, you'd want to have good knowledge of property and choose one that has very good chances of appreciating in value.
11. Simon said the following at 8:24 AM on Sep 4:
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Elisabeth #2,
I agree with the other commenters who have suggested it would better to buy a used car rather than a new car.
You might also consider leasing, instead of buying, a car.
12. nicole said the following at 10:47 AM on Sep 4:
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Tim - you should be cutting up the credit card and just paying cash for purchases. I would get $1000.00 in your Emergency Fund first, you never know what can happen, its always nice to know that you have 1k in the bank or moneymarket fund. I would then focus on paying your credit card down. If you dont like the way the crown program, look into dave ramsey's program. I think its a much easier program to use.
Elizabeth - Craigslist is the easiest to get a "new" used car. Do not flease a car you will be paying more then its worth in the long run for the car. Go used, you can easily get a good car for under 5k. I did and it had lasted more then 7years (paid $3k for it).
As for me I can now say I am debt free as a few weeks ago. Love it and now im saving up for a "new" used car to buy in the next few years. I am in the Dave Ramsey program, and highly recommend it. Paid off $6k in 18months. And had to re-fund my Emergency fund 3times. And i only make $19k take home per year. Just stick with it.
13. Ray said the following at 11:17 AM on Sep 4:
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It took me 4 years to pay off $40,000 between credit cards, student loans, and car loans. Praise God! Just like losing weight. It doesn't take long to gain weight, it takes forever to lose it.
14. Janelle said the following at 1:10 PM on Sep 4:
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Tim, (#1)
I think that the point of establishing an emergency fund is so that you get OUT of the habit of charging things to your credit card before you pay down your debt, emergency or not. It's important for people to learn self-control in the beginning. And putting stuff on the card that you're trying to pay off can get you nowhere fast.
15. Kimberly Eddy said the following at 2:03 PM on Sep 4:
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Elizabeth (#2) we bought a newer model van for our family last year when our much older van needed extensive repairs. We paid only $3,000 for the newer van and it runs like a dream.
Tim in #1 asked "Does anyone have an answer as to why you would ever save money as cash instead of paying off a high-interest credit card? "
I think it depends on where you are at. If you are the sort of person who has a problem with credit cards and spending everything that comes in and more (which is most Americans), then savings is a habit you want to work on developing to help change your heart towards money. Breaking free from the debt mindset is not just *not* whipping out the plastic but also getting used to having money that you don't spend to help you break free from spending money you don't have. Make sense? We put our emergency savings in a Money Market Mutual Fund that up until last year was earning us a whopping 5.25% (not any more of course--I wish). It's small compared to a 25% or more credit card of course, but its better than nothing.
16. Val said the following at 3:45 PM on Sep 4:
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Really great article, especially seeing it from a biblical perspective.
I have been struggling with debt for a while now: student debt, a mortgage, credit card debt and loans, a result of living a frivolous life as a student, trying to keep up with the Jones’ and being extremely materialistic (linked to low self esteem) and I’m now paying for it. I have a good job with a good salary but I never have any money, as the majority of it goes to repay debt. I’ve found it difficult to talk to anyone about it outside my immediate family and they have been extremely supportive but I think the Bank of Mum and Dad is officially closed for business to me now!
I fully recognise the factors that lead me into my current debt situation and I am doing my best to ensure that I don’t fall into that same position again e.g. cancelling magazine subscription to all the fashion magazines I used to get as they encourage me to want to have more things that I don’t need. I have also made a lot of changes to my current lifestyle in an attempt to reduce my outgoings and I have also had a bit of success selling things I no longer need on eBay and Amazon.
One of my struggles though has been with the whole tithing thing. I have tended to be quite sporadic with it, having the mindset of ‘I can’t afford it’, but I remember a Pastor telling me that ‘when you don’t tithe things will be tight’ and things will happen that you will ‘lose’ your money anyway. Recently I found this to be true. I didn’t tithe last month (not for want of trying) all my bills go out the day after payday and when I checked my current account I realised I didn’t even have money left for my tithe (Note to self for future – take it out on payday!) so I just gave my normal offering but no tithe. Last month I got a parking ticket which was £70. Now if you pay it within 14 days it reduces to £35 but for some reason I put it in my glove compartment and forgot about it. When I discovered it (searching for a CD) the 14 days had passed so I ended up having to pay £70, which was painful especially since I don’t have that kind of money to waste.
What I am beginning to realise is that this whole thing is about faith and whether I put my faith in my money or God, and I’m finally coming to the ‘realisation’ that it has to be God every time. If I put my trust in Him, he will provide for my needs. Also I’m ‘broke’ anyway tithe or no tithe so I should honour God with my first fruits.
I firmly believe that I will repay all of my debt (what a fantastic day that will be) and I don’t agree with bankruptcy or anything like that, but my real worry is with regards to marriage. I am currently in a relationship with a man who I believe is the one God has called me to marry and this is not something we have discussed yet and I am seriously concerned about what he will think and the impact on our marriage, should we progress down that path!
Any advice welcome!
Thanks in advance (bit of a long post!)
17. Six said the following at 6:36 PM on Sep 4:
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I agree with Tim's comment (#1).
Heather, your response (#6) seems to rely on a false dichotomy. Whether or not someone establishes a $1000 "emergency fund" has no bearing on him or her "buying only that which they have money for".
If your concern is that someone cannot handle keeping a credit card for emergencies, that can be addressed by giving the (one and only) credit card to a financially wise friend who will only allow the card to be used in a genuine emergency. Hopefully, it will never be needed.
Keeping $1000 in cash is simply financing an extra $1000 of debt, which is fiscally imprudent (assuming debt remains). It may never be needed, or it may not be enough (what if your "emergency" costs $1500?).
I would suggest that people are in credit trouble because (at least in part) they do not understand how money (and interest) works. The fact that people apparently need to be told to pay off the highest interest rate first (which should be obvious in almost every case) tends to support this conclusion. I can only assume that many people lack basic math skills, or have a mental block where money is concerned.
Heather, you seem to be suggesting that setting up an emergency fund (while there is outstanding debt) teaches non-savers how to save. I would counter by saying that setting up an emergency fund (while there is outstanding debt) is teaching/reinforcing bad money management skills/understanding, and keeps the person in debt, longer.
If the corner of your house was on fire, it would seem unwise to keep a bucket of water beside you just in case a fire broke out somewhere else...
The debt IS the emergency, and needs to be retired as quickly as possible.
I have no qualms about setting up an emergency fund once the debt is retired - that seems like a good idea.
18. Tim said the following at 11:53 AM on Sep 5:
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Six (#17):
You explained exactly what I was thinking, and in better words than I could come up with. I love the analogy of a fire. A balance on your credit card is a financial emergency! You are spending money and getting absolutely nothing in return.
I will admit that some people need a crash course in saving their money. However, I think for those people, even $50 or $100 left in a bank account for a month straight would be an impressive accomplishment and would satisfy the intended goal. $1000 is way too much to leave in the bank when a large credit card balance remains.
Many have commented how those with credit card struggles need to completely abandon their credit cards. I understand this thinking, and agree to a point. However, I have a different idea... accountability. Match the person having money problems with someone trustworthy and willing, and have the 2 sit down once a week to review the credit card statement. You can easily print out a current one online. This makes it harder to make unwise choices, as the person will know that their decisions will not remain private.
19. Russell Earl Kelly, PHD said the following at 12:10 PM on Sep 5:
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Friend, May I offer an alternative interpretation of Malachi for your study.
From: Tithing is not a Christian Doctrine
www.shouldthechurchteachtithing.com
Russell Earl Kelly, PHD
Malachi 3 is the Most Abused Tithing Text in the Bible. The “whole” tithe never was supposed to go to the Temple!
A. Malachi is Old Covenant and is never quoted in the New Covenant to validate tithing (Lev. 27:34; Neh. 10:28-29; Mal. 3:7; 4:4).
B. In Malachi 3:10-11 tithes are still only food 1000 years after Leviticus 27:30-34 and Numbers 18:21-28.
C. Malachi’s audience had willingly reaffirmed the Old Covenant (Neh.10:28-29). The blessings and curses of tithing are identical to and inseparable from those of the entire Mosaic Law. The rain in Deuteronomy 28:12, 23-24 and Leviticus 26:1-4 is only obtained by obedience to all 613 commandments. Galatians 3:10 (quoting Deu 27:26) “For as many as are of the works of the law are under the curse: for it is written, Cursed is every one that continues not in all things which are written in the book of the law to do them.” Trying to earn God’s blessings through tithing only brings curses for failure to keep all of the law. See also Galatians 3:19.
D. Beginning in 1:6 “you” in Malachi always refers to the dishonest priests and not the people (also 2:1-10; 2:13 to 3:1-5): “Even this whole nation of you --priests” (3:9). In 1:13-14 the priests had stolen tithed animals vowed to God. In Nehemiah 13:5-10 priests had stolen the Levites’ portion of the tithe. God’s curses on the priests are ignored by most tithe-teachers (1:14; 2:2 and 3:2-4).
E. Point #12 of the essay. The Levitical cities must be included in a correct interpretation of Malachi 3:10. Most tithe-recipients lived outside of Jerusalem.
F. The 24 courses of Levites and priests must be included in a correct interpretation of Malachi 3. Normally only 2% of the total Levite and priest work force served at the temple one week at a time. Subtract wives, males under the age of 30 and daughters. Therefore 2% did not require all of the tithe. See 1 Chron 23-26; 28:13, 21; 2 Chron. 8:14; 23:8; 31:2, 15-19; 35:4, 5, 10; Ezra 6:18; Neh. 11:19, 30; 12:24; 13:9, 10; Luke 1:5.
G. Nehemiah 10:37-39 is the key to understanding Malachi 3:10, The people were commanded to bring their tithes, not to the temple, but to the nearby Levitical cities. Verse 38 says that the priests were with the Levites in the Levitical cities when they received the tithes.
H. According to Nehemiah 13:5, 9 the “storehouse” in the Temple was only several rooms. The real “storehouses” were in the Levitical cites per Nehemiah 10:37b-38. Only the Levites and priests normally brought tithes to the Temple (10:38). Two rooms in the Temple were far too small to contain the tithe from the entire nation and 98% of the Levites and priests lived too far away to eat from them.
Therefore, Malachi 3:10’s “Bring ye all the tithes into the storehouse” only makes contextual sense if it is only commanding dishonest priests to replace the tithes they had removed from it or had failed to bring to it.
While the 3:10 of the Law in Malachi is so important to tithe-teachers they ignore the 3:10 of the Gospel in Galatians and 2nd Corinthians. Perhaps those wanting to enforce the 3:10 Law of Malachi should also enforce the 3:10 Law of Numbers. They share the same context.
Christian giving is freewill, sacrificial, generous, joyful, regular and motivated by love. That is enough to provide the needs of the Church.
20. BDB said the following at 12:35 PM on Sep 5:
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Val (#16) you need a system!
And a budget.
You need a system for not misplacing bills. It's easy to get in the habit of not wanting to think about it, and then missing a deadline. Done that plenty of times in my past.
What finally worked for me was creating a spreadsheet. I put every regular bill on it. At the bottom, I put my credit card balances, with a formula tied to my credit card payment each month, minus interest. This allowed me to see just how long it would take to pay off my credit cards.
It was quite sobering. It took a year of focused (and painful) effort. But boy, was it satisfying.
By writing down all your debts in a spreadsheet, and figuring out how much you'd need to pay to pay them off in a year, you end up with the monthly amount you need to budget each month. You also put your tithe on your budget.
If you're feeling sporadic, I personally think it's good enough to start by tithing 10% off your net - what you take home after taxes. It will still be a good place to start.
In the U.S. the satisfying way to keep score was to track my credit report/FICO score. Each quarter, the small payments on the credit cards resulted in incremental improvements in the credit score. It was VERY satisfying to see it go up as a result of discipline. Kind of like how personal records are so important to athletes so they can see their improvement over time.
Good luck! You can do it!
21. xeres said the following at 12:36 PM on Sep 5:
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Tim,
Are you saying it's good to use credit cards? I really don't understand. I mean, I really don't want one anyway, espceially with much of the problems it causes. Some people feel differently but I just don't see much benefit is having one
22. BDB said the following at 2:21 PM on Sep 5:
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Xeres (#21):
If you hope to buy a house or even rent a car one day, it's good to start building your credit in college. A low-limit credit card is a good way to begin. A student card with a $300 limit for example.
At 37, I have a 17-year credit history, which is GREAT for my credit rating. About 30% ofthe credit score is how you handle revolving credit, like credit cards. But discipline with credit is absolutely critical.
23. Kristi Kohl said the following at 10:22 PM on Sep 5:
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THIS IS WHY YOU DO EMERGENCY FUNDS!
Debt reduction doesn't work until you start that emergency fund. Trust me, we've tried. Here's why I think so:
1. You have to get out of the habit of using the credit card because it's a very counterproductive way to solve a problem (it is the problem). We have talked more and I have prayed more instead of reaching reflexively to the card for a solution.
2. The emergency fund itself gives you flexibility and security. Flexibility to spend the money on your friends that you owe if you want, to actually pay for that tooth extraction, or to pay for the car repairs without going further into debt. Credit cards can't do anything except make you make another payment the next month. You eventually get numb to the numbers and it's too hard to see progress.
And security...I don't mean that you shouldn't trust in God. It's preparation really, and I think that's biblical. But the quick-cash option in the savings account keeps the desperation at bay, and keeps people from walking the edge to failure (and keeps spouses from blaming each other). I consider it a tool and gift from God. It's a cushion. And sometimes things do come up that can't be put on a credit card. What if a mission worker needs a typhoid vaccine? What if you buy diapers for someone? It also builds a good bridge into the future when (hopefully) you quit paying on the debt and start giving to others b/c you know you don't have to have things for yourself.
3. Also, it's a bigger deal to take money out of the emergency fund than using the credit card. Kind of like divorce after marriage vs. just leaving someone you live with. It's like a sacred trust, and a pact with my husband (like a wedding ring). You really need to think about it when you use it. And, you have an obligation to pay that amount back for the next emergency.
I like the asset/liability paradigm and have used it to decide what I keep and what I don't. I think that's an important lesson in stewardship. It's a huge freedom to not be tied to things because you owe money on them. We just got down to my student loans and the house-- total of $67k paid off so far. Now we're looking at updating the house in ways that increase the resell value and may be able to make around $40 k based on a recent appraisal. We are selling a pickup-and-camper too if we can, but it's just nice to be able to sell but not HAVE to sell things or skimp on necessities because you have to pay off your selfish earlier whims.
Right now we've just had a lot of changes that have made us think this way, and things that were stable may not be. But really that's the point in life we all should come to-- looking ahead to things that are truly important.
Blessings to you all; I'd be glad to hear other sides,
Kristi
PS I agree with Dave's smallest debt first b/c we tried doing the highest-interest rate and failed at that. We know now you can also start with the one you hate the most. After our credit cards, we paid down a new pickup (read liability b/c of depreciation). It depends on what motivates you. We are now mad at Nelnet because their minimum payment didn't even cover interest and we ended up owing more than the initial balance so that one's next.....
24. Tim said the following at 9:35 AM on Sep 6:
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"Are you saying it's good to use credit cards?" - Xeres (#21)
So far, what I've been saying is that if you already have credit card debt, it is better to pay every cent you can to lower your balance than it is to save money in the bank and leave your balance high. Either way, the key is being disciplined in your spending so that you can begin to reduce what you owe. Once the debt is paid, if the person feels tempted to start using their credit card irresponsibly again, cut it up and throw it out. I would never argue that everyone should have a credit card.
However, your question brings up an interesting point. For a lot of people, yes, I do believe it is good to have a credit card. Let me use my own experience as an example. (I use my card for almost every purchase I make)
- The credit card company makes a list of all my purchases for me. Saves me some work.
- Through a rewards program, I basically get 1% off everything I buy.
- There are no fees for owning the card, and since I pay off the balance each month, I'm never charged interest either. My card costs me no more to use than using cash. It is free, and always will be as long as I continue to use it responsibly.
- As a 20 something without a home, I have little credit history. My credit card provides atleast a little help in that area. When I do buy a home, maybe I'll get a slightly better interest rate due to my proven track record with my credit card.
- My card is convienient. The stop at the gas station goes faster when you don't have to wait in line to pay a person. Just swipe, pump, and leave. Also, I rarely waste time stopping at the ATM or my bank to get cash.
Many of these points would apply to debit cards too (except for establishing credit history), so I guess those are a good alternative if you want to make sure you only spend money that you already have. I realize that credit cards can be very dangerous, and like I said, they aren't for everyone. However, I'd like to see more people focus on becoming responsible for their actions and learning self-control. At that point, they can use a credit card in a positive, God honoring way.
25. Heather Koerner said the following at 10:25 AM on Sep 8:
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Six (17) and Tim:
The numbers of your argument are right on.
My opinion is that this is not a numbers-only argument.
The point is that credit card debt is surety--unsecured debt. Proverbs tells us not to take on unsecured debt.
Like you, Tim, I use a credit card as a tool. I pay it off every month. I have no unsecured debt. I see no problem with that, though I do need to be cautious of the temptation to spend more using a credit card than cash (as some studies have shown).
If someone has unsecured debt, the first step, I believe, should be to commit to stop. No more surety. That's what the emergency fund does. It stops that cycle. It's not so much learning to save (intensive saving should come after the debt is paid off). It's about stopping the borrowing.
Putting an emergency back onto the card continues the actions that Scripture specifically prohibits. It continues buying/paying for something for which you do not have the money.
The fund puts the horse before the cart. First, I will set up a system to stop taking on unsecured debt. Second, I will tackle the unsecured debt.
Again, your numbers are correct. But I don't think the damage done by saving $1000 first measures to the damage done by continuing to go against what God's Word instructs.
26. Shannon K said the following at 1:40 PM on Sep 8:
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Heather (#25):
I'm interested in your understanding of "surety" in Proverbs to mean that we're not to take on unsecured debt. Don't the references to "surety" to mean not co-signing or otherwise agreeing to accept responsibility for the debts of others? I just consulted Strong's, and of the 6 times the word for "surety" is used in the context of finances in Proverbs, 5 explicitly refer to the concept of co-signing (becoming "surety" for a friend/stranger/whoever; this is just one type of unsecured debt, right?), and the last isn't quite as clear.
Don't get me wrong -- I firmly believe in *not* taking on unsecured debt ("borrower is servant to the lender", etc.). I'd just like to know if I'm missing something in these verses.
27. Heather Koerner said the following at 6:34 PM on Sep 8:
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Shannon (26):
Thanks for the question. See "Debt the Halls" for details.