By Darren Brown
“Owe no one anything, except to love each other, for the one who loves another has fulfilled the law.” Romans 13:8
It is always amazing how easy it is for us to just coast into debt without even thinking too much about it. Conversely, it is not that simple to coast out of debt. We should make a roundabout turn before starting that long journey up the hill. This requires a strong will and determination to get out of debt.
First, you make a commitment, and then you plan. Having a plan is key. Getting out of debt is a step-by-step process. It means not buying that brand-name handbag you so want; cutting out buying fast food every Friday night; deciding that if I get a pay increase tomorrow, it will not go towards another purchase of a consumable product but instead paying off my debts.
The Bible says in Proverbs 21:5, “Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.”
You may ask yourself, “How can I get out of this debt trap?”
I would say listen and talk with persons that have the fruit on the tree. One such proponent of living a debt-free life is Dave Ramsey. Through his “Financial Peace University” classes and books, he coaches and shares his seven-step plan for getting out of debt and building wealth.
- Baby Step 1: Beginner emergency fund. The first baby step is to save US$1,000 or the JMD equivalent for emergencies. The point of this emergency fund is to have money set aside for when life happens. The reality is that most families don’t have money set aside in case of an emergency. In these instances, many find themselves getting into debt to cover the costs of unexpected events. As a result, they continue in a cycle of living pay check-to-pay check and being in debt. Though there is no significance to the US$1,000, it is enough to cover most emergencies, without tying up funds that could be put towards paying off debt.
- Baby Step 2: Pay off all debt (except the mortgage) using the debt snowball. Basically, you order your debts from smallest to largest and pay them off in that order. By doing this, you can maximise the effect of getting quick victories by paying off the smaller debts faster.
- Baby Step 3: Put three to six months’ worth of expenses into savings as a full emergency fund. Though having $1,000 stowed away in case of an emergency is great, you’ll want to put more away. The recommended amount to put away for emergencies is 3-6 months’ worth of expenses. The idea here is that if you lose your primary source of income, you’ll be able to support yourself for up to 3 or 6 months without having to go into debt.
- Baby Step 4: Invest 15 percent of your household income into a retirement pension plan. At a minimum, you should take advantage of your employer’s pension plan if it is available. If your employer does not offer a pension plan or if you’re self-employed, you can open your own individual retirement account (IRA).
- Baby Step 5: Begin saving for college for your children. This baby step assumes that you have children and they’re going to college. If you don’t have children, it’s obvious that you can skip this step. However, if you do have children, you may want to just rename it “Save for children’s future.” If they show no desire to obtain a college degree, start putting money aside to help them start a business, buy a home, or make investments.
- Baby Step 6: Pay off your home early. This is the step where you become completely debt-free by paying off your house early. Your mortgage is likely your largest debt and will take the longest to pay. So, instead of including it with the other, smaller debts, make it its own stand-alone giant to conquer. Because the mortgage is a long-term commitment, the debt payoff isn’t as aggressive as in Baby Step 2, although you can certainly get aggressive and pay it off even more quickly.
- Baby Step 7: Build wealth and give. Don’t think of this step as final. Importantly, we should be building wealth and giving generously throughout each of the other steps: giving of our tithes and offerings; giving of our time to philanthropic efforts and community empowerment.
- Giving doesn’t just happen at the end, and neither does building wealth. In fact, getting out of debt in and of itself is building wealth by increasing your net worth.
Source: DAVE RAMSEY’S COMPLETE GUIDE TO MONEY – The Handbook of Financial Peace University
There are many shared testimonies of the Baby Step approach because of the focus and priority given to the debt. Breaking the debt down into smaller steps and pouring all your attention, energy, and passion into one thing at a time makes it much more achievable.
Imagine where you could be in a year if you took diligent steps to be free of debt. Resolve to take those steps starting today, relying on God’s wisdom and grace to do the hard thing. My hope for you is that you will set a goal to be debt-free. It is possible if you are disciplined. If you’ve never been debt-free, you have no idea the freedom you will experience when you no longer owe anyone anything except love.
