They both came from middle-class families, went to college, and financed their education with a few grants, a little work, a little help from home, and a little debt-only about a thousand a year. Since the loans were federally guaranteed, the payments didn’t start until a year after college.
After they were married, they both got good jobs together, making about $16,000 annually. They rented a nice apartment, bought a new car (an economy model with easy monthly payments), and the local department store had a great installment plan for the carpet, drapes, and some basic furniture. What’s more, their local bank was happy to grant their application for a bank credit card with their income. All things considered, as father-in-law put it, “you sure have it a lot better than we did twenty-five years ago.”
But somehow, they have never seen the rosy lining on their financial dream cloud–that $16,000 a year income is about $13,000 after federal, state, and Social Security taxes. The rent on their nice apartment uses up another $3,000 a year. Since they both work, they eat at the local cafeteria and buy a lot of TV dinners to use when they both come home tired in the evenings, and their food bill comes close to $2,000 a year, though they don’t realize it. The car payments come to about $1,500 a year, and insurance, gas, and other operating costs use up another thousand. Their educational debts are just beginning to come due, and the bank and the department store eat up just about all the remaining “disposable income.”
They have been just getting by, but recently the car broke down and had some unexpected medical expenses. The telephone company has taken their telephone away, the loan company is calling about the car payments, two months behind, and the department store has turned their accounts over to a collection agency, threatening to have their wages garnished.
Neither of them could afford any new clothes for more than a year. They fight constantly over money, and both are beginning to think of how good they had it when they were single.
Time to Make a Change
Change a few figures in the above scenario, and you could be reading a history of your financial suffering. The disease is too much credit, too easy to get, and So tempting to use.
Where did they (and/or you) go wrong, and what can be done about it?
First, some definitions. Debt, credit, or financing are general terms for what is really the purchase of money.
You lack the necessary funds to go to a firm that “sells money.” The cost of the money is the interest that you pay.
Over the years, this borrowing (or purchase) of money was generally frowned upon by the mores of society. Still, in the developed countries in the twentieth century, a middle-class lifestyle on a middle-class income virtually demands some debt, and it has become acceptable. Thus, you should make a distinction between wise and unwise debt. If a debt is incurred for a necessity, such as education, a home, or possibly a car to get to work, and if the means are readily available to repay the loan, it is possible that going into debt might be the realistic course to follow. But what if a series of reasonable, or more likely, a combination of reasonable and unreasonable borrowing has put you in debt, as it did the young couple in the above scenario? What can you do then?
Steps to Get Out of Debt
Family financial counselors recommend several steps. Some may not fit your case, while other recommendations must be tailored slightly. But in general, follow this plan:
1. Cut up and throw out your credit cards, charge cards, shopping plates, and even bank credit cards. Like an alcoholic throwing away his bottle, you need to begin by removing the temptation.
2. Make a list of all your income (net, after-tax income, not gross income). Exclude all windfall items, such as tax refunds, overtime pay, et cetera, since you can’t depend on windfalls. Then list all your regular expenses, such as tithe and offerings (no matter how deeply you are in debt, don’t stop your giving. You’re going to need the Lord’s blessing as you get out of debt), rent, food, a regular amount for clothes, transportation, and the like. Then list all extraordinary items you know are coming, such as a new set of tires for the car or a once-a-year insurance premium.
Finally, list all your debts. Make a careful note of the monthly payments on each.
3. Make and balance a budget. Since most bills and expenses come monthly, it’s probably a good idea to budget every month. Be sure the whole family is involved, children (if they are old enough to understand) and spouse. Balancing your budget will probably involve some cuts that will affect your lifestyle, so as you do it, here are some sample questions to ask yourself:
a. Can the housing expenses be cut? Moving to cheaper, more reasonable housing may solve your problems. But, before you decide on this solution, consider the cost of moving, deposits on the rent, new carpets, drapes, and other relocation needs. Also, considering the area’s quality that may be cheaper, will you risk paying the immeasurable human costs as a victim of crime?
b. Can transportation expenses be cut? If you have two cars, consider the effect of selling the second car. The extra inconvenience of only one car may be insignificant compared to the savings. Or, dare to ask yourself the unthinkable: can you get along without a car? By moving to within walking distance of a store, using carpools and/or public transportation, or possibly a bicycle, you could ease a serious financial strain by doing without a car.
c. Can you cut your food bills? If you are seriously in debt, you could do well to eat very simply. First, rule out categorically all expensive prepared foods. Then, investigate the comparative costs of different foods of equal nutrition.
d. Can you cut your entertainment? A picnic in the park can cost a fraction of eating out, as can an evening of games at home, rather than commercial entertainment.
4. After you have gone over all your expenses, cutting where possible, set up a record-keeping system and stick to it firmly. It seems rather strange, but by forcing yourself to write down every small expenditure, you’ll spend less. You’ll also know, month by month, whether you are sticking to your budget. As the saying goes, take care of the pennies, and the dollars will take care of themselves; or, to put it in more modern, inflated terms, take care of the dollars, and the twenties will take care of themselves.
5. Within the framework of your budget, devise a plan to pay back all bills. If at all possible, plan on making all payments on time. Penalty charges and extra interest can add to portions of delinquent payments. For example, one family paid $800 on numerous outstanding debts, far overdue, and found they had paid only $7 on the principal. (Alice Lake, “How Families Are Getting Out of Debt,” McCall’s May 1975, p. 112). Be very careful about the temptation to get single consolidation or bill-paying loan. You can often end up with higher interest rates, and you almost certainly will pay more in the end; and because your payments will be spread out over a longer period, you will be tempted to incur additional debt.
6. Now convince your creditors to accept your plan. Remember, all your creditors want is their money. They do not want to take you to court or make your life miserable by harassing you if they can be reasonably certain of being repaid in full. Don’t hesitate to bargain with them – creditors will often accept partial payment now, with the prospect of full payment, rather than push you into bankruptcy.
7. Finally, make the Lord your financial partner. Though debt is not sin, avoiding it and getting out of it is very similar to overcoming sin, and your prospects for getting out of debt are certainly increased if you consult with the Lord as you allocate the income He gave you.
But what if, despite all your best efforts, you are in too deep? There is still one other alternative contact a debt-counseling service. A bank, finance company, social agency, or Better Business Bureau can recommend one. Or, you may write to the parent organization, the National Foundation for Consumer Credit, 1819 H Street N.W., Washington, D.C. 20006. Make sure the organization you turn to is nonprofit. You’ll pay a small, virtually token fee, generally two to ten dollars a month. They will help you formulate and stick to a budget and work with your creditors to accept your repayment plan.
If at all possible, don’t consider bankruptcy. Though bankruptcy can clear up your legal obligations to pay, there is a moral obligation between you and your conscience. In addition, bankruptcy can be expensive because of legal costs. It doesn’t always give you a clear start, it wipes out all possibility of future credit for long periods, and worst of all, it doesn’t educate you to do better in the future.
Experience is a hard teacher, but it teaches its lessons well, and the experience of paying off your debts will teach you how to manage your money in the future. It may also save your marriage, your credit, and immeasurable financial anxiety.
Courtesy of Insight magazine, Review and Herald Publishing Association, Washington, D.C.
Originally published in Message Magazine’s January/February 1978 Edition by Kimber J. Lantry.