Concrete Steps Toward Getting Out of Debt - Foundation Series

Show Notes

As a new year gets underway, many people feel motivated to do things like lose weight, cut back on social media, and, yes, get out of debt. Unfortunately, New Year’s “motivation” often wanes quickly. Just ahead, practical ideas for turning a new year’s resolution into genuine progress — at least in the “getting out of debt” area. This is Faith and Finance Live - biblical wisdom for your financial journey.

• Every so often on the Monday program, we revisit the five basic things you can do with money. They are: earn it, live on it, give it away, owe it to someone or the government, or you can grow it for the future by saving and investing. Earn, live, give, owe, and grow.
• On this episode, we focus on the fourth of those: owe.
• A lot of people, at the first of the year, resolve to get out of debt, or at least make progress on reducing their debt. That’s a good resolution because debt, especially things like credit cards put a drag on your overall finances. Getting those debts paid off will improve your financial situation tremendously and provide a great sense of freedom in your finances.
• Motivation, however, often wanes quickly. As we get a few weeks into the year, many resolutions fall by the wayside. To stay motivated, you need to have a plan. You may remember that a few days ago I mentioned the idea of making your resolutions “SMART.” S-M-A-R-T. That stands for Specific, Measurable, Attainable, Realistic and Timely.
• First - Find out where you are - you need to have a concrete understanding of how much you owe, to whom, and what the terms are, including interest rates. You need to know that because it’ll make much more sense financially to attack a credit card debt that’s at 18% than a car loan that’s at 3%. So that’s the first thing. Find where you are. As you catalog your debts, list them in order from the lowest balance to the highest.
• Second - this too is very specific: STOP ADDING TO YOUR DEBT. As the old saying goes, it’s hard to get out of a hole if you keep digging deeper. You may want to stop using credit cards and instead move to a debit card or cash for your spending. That’ll help you avoid further debt.
• Third - an idea from financial writer Matt Bell. He says, “Tell someone what you’re doing.” In other words, ask someone to hold you accountable to your plan to get out of debt. It’s remarkable how much it helps to have an accountability partner when it comes to following through on what you’ve committed to doing.
• Fourth - create a specific plan for paying down your debt. There are different ways to approach this. Perhaps the easiest method is to commit a specific amount to debt reduction each month. Let’s say it’s $500, and you have five credit cards. Pay at least the minimum balance due on four of your cards, but pay as much as possible on the card with the lowest balance. To continue the example, let’s say your minimum payments total $300. You pay that, but then pay the remaining $200 toward the lowest-balance card. When you focus your payments this way, you’ll be able to pay off that lowest-balance card soon.
• Then, when it’s paid off, you’ll keep paying $500 a month on your debt, but now focus your attention on the NEW lowest-balance card. After a while, when that one is paid off, you keep paying $500 a month and put most of the money toward the new low-balance card. This approach of fixing your overall payment at the same amount each month and attacking the lowest-balance card will create a steady sense of progress that you’ll find encouraging. Note how this approach is S-M-A-R-T. It’s Specific, Measurable, Attainable, Realistic and Timely. It’s not vague at all. It is clear and purposeful.
• After you get all your credit cards paid for, you can then start attacking other debts that may be at much lower interest rates, such as car loans and school loans. If you were paying $500 a month against your credit cards, that $500 is now freed up to accelerate payments on your other debts.
• This process of creating a systematic plan for paying down debt has worked for many people. Again, first you need to get a clear picture of where you are, then commit to not taking on more debt, and finally, create a clear, easy-to-implement plan that you stick with — not just in the early weeks of January but throughout the months ahead. And if you have an accountability partner, you’re much more likely to succeed.
• If you’d like to connect with a financial coach who can discuss your situation and help you implement a plan, we can help with that. Just go to the Faith and Finance website and FaithFi.com and scroll down to where it says “Connect With a Coach.”
• On-Air Mention:
• Specifically on the topic of debt, you may be someone who’s worried and struggling with credit card debt, but don’t know where to start. Our trusted underwriter, Christian Credit Counselors, offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full. Their faith-based mission will also consider your values and goals as a Christian, too.

Next, Rob answers these questions at 800-525-7000 or via email at askrob@FaithFi.com:

• If you have a CD that will be maturing soon with a sizable balance and your financial advisor has recommended a Guaranteed Annuity offering around 4%, is this advisable?
• How should you tithe on a rental property?
• If your 39 year old son has a traditional 401(k) and wants to move some funds from traditional 401(k) over to Roth 401(k), should he change his 10% contribution from all pretax to 5% pretax and 5% Roth 401(k) instead?
• If you have an authorized user on a credit card who is a friend from church that didn't have a credit score who continues to charge things on your card, what should you do?
• What is the best way to reduce your tax liability if you're already contributing to a Roth 401(k)?
• If your 16 year old wants to buy your old car and he has the cash to do so, should you consider co-signing on a loan just to build his credit?

<<< Faith and Finance Market Update with Bob Doll >>

• With the new year, what is the news of the day and how are thinking about investing?
• Are earnings estimates are too high right now?
• You indicated in your predictions that International stocks could outperform US stocks? Is that correct and is it surprising?
• What about the change in leadership of the House? How might that affect particular sectors particularly energy?
• What is the key indicator you're watching to signal inflation is coming down?

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