We are a nation of debtors. We suffer from the perceived prosperity disease. By using credit cards and taking advantage of easy lease programs we can appear to live at a level beyond what we can actually support. Although we appear prosperous, we're actually digging a grave for ourselves.
When we use credit cards, no cash actually passes through our hands, so we register very little emotional realization that we've just spent money. "But I pay my card off at the end of every month," you may protest. Maybe. Maybe not. Seventy percent of cardholders carry a balance with an average percentage rate of 18.1, according to BankCard Holders of America. Even if you do pay the balance off, you're probably buying more when you use plastic than when you use cash. Studies show that the typical grocery purchase nearly doubles when the shopper uses plastic. Ron Blue states in Master Your Money that "the mere use of credit cards will cause a family to spend 34 percent more, regardless of whether the full statement is paid off each month or not."
Up until the last century in the English-speaking world, failure to pay debts resulted in some form of physical bondage. If a person failed to pay his debts, the whole family could become slaves to the lender - literally becoming his property. Nowadays, debtor's prisons are not made of stone and iron; they are made of plastic. And financial bondage is not physical, but mental: anxiety, sleeplessness, or stress.
If we are interested in financial freedom, we need to remember that the words financial freedom and debt are incompatible. Borrowing on depreciating items is a bad investment. We rob from the future to pay for the past. Borrowing causes the magic of compound interest to work against us rather than for us. When we borrow money, we are obligated to pay back the money, usually with interest. Obligation is never freedom. Borrowing puts us in financial bondage. If we can't afford to pay cash today, we can't afford to pay with interest tomorrow. Debt enslaves us; freedom liberates us.
If you are not in debt, don't start accumulating debt now. If you are in debt, you can take steps to get out and stay out of debt. To take the steps to get out of debt you need to be engaged spiritually, involving God in your financial affairs. You need to be engaged intellectually, establishing a conviction that you will not borrow any more money. And you need to be engaged emotionally, getting mad enough to do something about your situation.
Engage spiritually
How do we get God involved in our financial affairs? The apostle Paul instructed, "Don't worry about anything, but in everything, through prayer and petition with thanksgiving, let your requests be made known to God" (Philippians 4:6, HCSB).
We make better choices when we pray first. Often we impulsively pay, and then we ask God to get us out of our predicament. The best place to begin our journey to financial freedom and away from debt is through prayer - talking and listening to God.
Engage intellectually
Debt is serious business, and, if not carefully managed, it can be dangerous business. Creditors want you to think you can borrow your way out of debt. Creditors want you to pay the minimum monthly balance. That's how they make their money. And that's how they rob you of financial freedom. So get serious about not borrowing more money on consumables and non-appreciating items.
Now, some of you are saying, "Get real. You can't be serious. That's impossible." But it is possible, just not popular.
Engage emotionally
Dave Ramsey in his book Financial Peace (Penguin) writes: "There is no energy in logic, only emotion. When you get ticked off [about debt], you can get out. Years of counseling has revealed that this plan works. You can't scheme, scam, or borrow your way out of debt. You just have to get mad."
Once we are engaged spiritually, intellectually, and emotionally, we are ready to act on a step-by-step plan for getting out and staying out of debt. Those steps are as follows:
1. Start today to rid yourself of debt
Other than a home mortgage and possibly a car loan, your goal is to eliminate all consumer debt. You want to turn your debt-servicing dollars toward you-servicing dollars. You want the magic of compound interest to work for you and not against you. And the best time to start is now.
2. Use only one personal credit card
You risk blowing it if you hold too many credit cards. You simply do not need either the motive or the means to accrue tens of thousands of dollars in consumer debt. Take control of your credit by narrowing the sum total of your credit and charge cards to one. Destroy the rest of the cards. Be sure to close the accounts so the companies won't send new cards when the old ones expire.
3. Remove temptation from your wallet
If you struggle with impulse charging, make the card more difficult to access. Keep it in your safe-deposit box. Or follow the example of the couple who keep their card in the freezer, frozen in a water-filled milk carton. Having to thaw out the card before making a purchase forces them to pause and think whether they really need to put a desired item on credit.
Repay your creditors
Borrowing money is not a sin, but not repaying it is a sin. Make a list of all your creditors, the balances owed, the interest rates you are paying, the minimum required payments, and your current monthly payments. Then prioritize your list for payment. You can prioritize in many ways: most urgent to least urgent, most costly to least costly, or smallest to largest.
Many people choose to pay off the smallest balance first. They make the minimal monthly payments to each, but when the smallest is paid they begin applying that amount to the next creditor. This method results in a sense of accomplishment and the motivation and momentum to pay off all your debts.
Trust God
Debt is never the real problem. It is only a symptom of the real problem: greed, self-indulgence, impatience, fear, poor self-image, lack of self-worth, lack of self-discipline, or lack of something else. And often that something else is a trust in God. Getting out and staying out of debt begins and ends with God.
Take a dollar bill from your wallet or purse. Prominently displayed are the words In God We Trust. Let's make that more than a slogan. Let's make that a way of life. Let's not just talk about trusting God. Let's live our lives, financially and otherwise, trusting in God.
A final prayer
"Two things I ask of You; don't deny them to me before I die: Keep falsehood and deceitful words far from me. Give me neither poverty nor wealth; feed me with the food I need. Otherwise, I might have too much and deny You, saying, 'Who is the LORD' or I might have nothing and steal, profaning the name of my God." (Proverbs 30:7-9, HCSB). God has promised us our daily bread. We need only trust Him for it.