Time to Eliminate Your Debt

Last time we discussed budgeting. Today it is time to focus on eliminating your debts. It won't be easy and it won't happen overnight. However, it can be done. Like the previous two lessons we will be looking at what the Bible says while using some commonsense advice to try to understand this topic.
Since the 1960's, when Bank of America introduced what is now known as Visa, we have been bombarded by an aggressive marketing campaign. Because of this it is hard for most of us to even fathom living life without any kind of debt. However, I'm here to tell you it is possible and it is even Biblical. As we go through today's lesson we are going to see some fundamental facts that may shock and surprise you.

I. Borrowing and Co-signing
You cannot get out of debt as long as you are still borrowing and/or using credit cards (including any store/fuel cars). It simply is not possible. Likewise, you cannot borrow your way out of debt. Trying to do so is like trying to dig yourself out of a hole. You end finding that the hole only gets deeper. You are not going to get out of the hole until you start filling it in. Stop borrowing! Start living on less then you earn and pay off your debts. I will reiterate here, You will never be debt free as long as you hold onto your credit cards. It is important that you cut up and cancel all your credit cards. Removing them from you life forever.
Romans 13:18 says, Let NO debt remain outstanding, except the continuing debt to love one another, for he who loves his fellow man has fulfilled the law.
Did you get that? Owe no one anything! God doesn't want us to be in debt. Does that mean it is a sin? No, but it is not God's desire for our lives.
In addition avoid the pawn shops, rent-to-own, cash advance, title loans and tote-the-note car lots. These places are greedy rip offs that benefit no one except the owners of these terrible places of business. Ezekiel even warned us about these places. Ezekiel 18:13a says, He lends at usury and takes excessive interest. Will such a man live? He will not! (NIV)
When it comes to co-signing you should avoid doing so for others. For one thing we are getting out of debt. So why would we encourage others to go into debt by co-signing for them? Which is exactly what co-signing would be doing. Further when you co-sign for friends or family or likewise lend to them that relationship will be strained until that debt is paid back. Besides if the bank, financial institution or car lot is requiring a co-signer there must be a reason. Their repayment history must be horrible or they wouldn’t be seeking a co-signer. The fact is if you co-sign for someone, you MUST be prepared to pay for the loan yourself and have your credit ruined. Even the writer of proverbs warned us against it. Proverbs 17:18 says, A man lacking in judgment strikes hands in pledge and puts up security for his neighbor. (NIV) The Contemporary English Version says it this way, It's stupid to guarantee someone else's loan. The New Century Version puts it this way, It is not wise to promise to pay what your neighbor owes.
Is there any question that it is unwise to co-sign?
II. Automobile Debt
One of the things I often hear is that car payments are a way of life. The simple fact is that isn't true. In fact only broke people think that way. Here are the facts. A new car loses about 20% of its value when you drive it off the lot. Further more, that new car can lose as much as 60% of its value within the first four years. That means if you buy an $18,000 vehicle it will lose $10,800 of its value within those first four years. Which translates into that car only being worth about $7,200. Meaning if you got a car loan you are throwing away $225 a month.
Another argument is from people who think leasing their vehicle is a good idea. They are wrong. Fact is that leasing is the most expensive way to finance a vehicle, If you own a business you can write-off your paid for vehicle without making payments for that privilege.
It boils down to avoiding any form of car payments by driving a reliable used car. That is what the average millionaire does. Spending less then they make and not making payments for everything is how they became millionaires.
A. Once you purchase a vehicle keep the car until it becomes to expensive to replace.
B. You might say, but I can't afford to pay cash. As Henry Ford said, “Whether you think you can or think you cannot, you're right.”
If you can afford payments on a car, then you can afford to make those payments to yourself after the car is paid off. Placing those payments in an interest bearing account. If you do this you will have the cash to buy your next car without taking on debt.
III. Mortgage
When it comes to mortgages you must remember that the best mortgage is no more mortgage. Paying 100% in cash is the best way to go. However, if you must get a mortgage your payments should be no more then 25% of your take home pay. Make sure the loan is a 15-year fixed rate with at least 10% down. Never do a 30-year mortgage. Yes the payment will be slightly higher with a 15 verses a 30, but the extra 15 years could cost you an extra $100,000 in interest. So this one simple step could save you big money.
Be sure to always purchase a home that has street appeal or can easily be fixed up to meet this requirement. Street appeal is the first thing that will sell a house when you go to resell. Second, when you are purchasing look for bargains. Overlook ugly carpet and/or wallpaper. These things can easily be replaced for very little money. However, they can greatly reduce your investment at time of purchase.
I am sure you have heard this before, but it is true. Homes appreciate in better neighborhoods and are priced based on three things; Location, Location, Location. However, you should purchase at the bottom of the price range in the neighborhood.
Fact is you don't need the biggest most expensive house. The house needs to fit your budget. As I said earlier no more then 25% of your income. However, it is more then just that. You don't need to purchase more house then you need (or can afford). In today’s world that may sound radical, but it is easier to move up in house then getting to much house and having to downsize.
Now lets take a look at Adjustable Rate Mortgages, often referred to as ARMS. These so called ARMS were brought to us with the advent of the high interest rates of the early 1980's. ARMS are a bad idea. They are usually tied to the Treasury Bill index. As the index increases so does your interest rate. There is a possibility of rates dropping, but more often people find their rates going up. Sometimes to the point where they can't afford the mortgage anymore. This is why you should avoid ARMS at all costs. Fixed rate mortgages are the only way to go, if you must take out a mortgage at all.
Conclusion:
You don't go into debt for emergencies and you don't borrow to pay off other debt. Smaller payments only mean more time in debt and more interest paid to the financial institution. There is no reason to borrow for anything other then perhaps a mortgage. Proverbs 22:7 says, The rich rule over the poor, and borrowers are servants to lenders. (NCV)
Why would any one want to be a slave to someone else? You don't need credit cards to build credit and you do not need a credit card to rent a car. Rental car companies, with few exceptions, will accept debit cards.
Further a Dunn and Bradstreet study a few years back, found that when people pay cash they tend to spend 12 to 18% less then those using credit cards. Spending cash hurts. No wonder fast food places started accepting credit cards. Finally how much could you save, invest and give if you had no payments?








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