How To Get Out Of Debt (And How To Stay Out Of Debt)

I frequently get emails much like this one:

Hello Millionaires For Jesus,

Without going into specifics, I need financial assistance. Before I can become a “Millionaire for Jesus” I need guidance on how to get out of debt. I am not looking for a handout. I need specific guidance to get out of specific debt until I can have controllable debt. Please advise.

Sincerely,
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Before I describe the process of eliminating debt, I first need to make sure you are fully AWARE of a certain choice you’ve already made – one that you may not have even been aware that you made it. The choice was to:

  1. Operate on credit (easy on the front-end, painful on the back-end)
  2. Operate on cash (can be unpleasant on the front-end, easy on the back-end)

This is a significant CHOICE to make – this is a WAY OF LIVING choice – a choice that will impact you for the rest of your life with far-reaching consequences.

Also, this is a choice that everyone makes no matter what level of income they have.

It’s a choice one makes to:

  1. Get immediate gratification and forgo greater future enjoyment
  2. Forgo immediate gratification and gain greater future enjoyment

Somewhere along the way, a person DECIDES which way they are going to live and operate.

After that, they just habitually live and operate that way.

Here’s the thing, nobody ever stops wanting. If a person wants ABC, as soon as they get ABC, they’ll begin to want DEF. As soon as they have DEF, they’ll want GHI.

So, when a person operates on credit, they can quickly and easily get ABC.

But, the price that MUST be paid in order to get ABC now is to pay two to three times more for it on the back-end over what ABC would have cost if bought with cash up-front.

And, because they are paying for ABC twice or three times, that makes it more difficult for them to get DEF.

And, if they do manage to somehow get DEF, they have now indebted themselves to the point they’ll never be able to get or enjoy GHI because they’re struggling just to get ABC and DEF paid off.

Here’s an example you can check out for yourself: a $200,000 home with a 30-year, 8% interest mortgage will end up costing more than $515,000.

When you look at this truth, you can realize that you aren’t paying 8% interest. In reality, you’re paying almost 200% interest.

How wise is that?

(Approximately 1/3 of a mortgage pays for the home and approximately 2/3 of the mortgage pays interest – that equals 200% interest. But of course, lending companies know that if they positioned their business in its true light, far fewer people would borrow. And so, they use an “amortized” approach so they can tell you that you are borrowing at “8%”.)

If you were to walk up to the average person and ask them if they would trade you one of their $5 bills for two of your $1 bills you know they’d say, “No!”

And yet, the average person frequently makes this same kind of foolish exchange with far bigger numbers that have far more negative and severe impacts on their lives.

In Luke 14:28, Jesus speaks of “counting the cost”. If up to this point, you have not consciously made it your way of living to count the current cost compared to the future cost, it would be wise for you to begin to do so.

At this point, you may be thinking to yourself, “But, I have to have a home. And, there’s no way I can pay cash for it given my current means. What am I supposed to do?

The answer is that you DON’T buy a $200,000 house with a 30-year mortgage. Instead, you buy a $75,000 house with a 10 or 15-year mortgage. Your interest rate will be lower and the payment amount is one that you can much more easily afford to pay. From there, you pay as much as you can towards the principle loan amount and you make as many IMPROVEMENTS TO THE HOME as you can. With appropriate improvements, in one to three years you should be able to easily sell the home for a nice $10,000 – $30,000 profit.

Then, you take this profit and roll it into another $75,000 house – except this time, you have a smaller mortgage. In 10 years or less (usually less), you can work your way all the way up to the same $200,000 home that I gave in the example above – except you’ll be able to pay cash for it.

Think of that, paying cash for your $200,000 dollar home in 10 years while all your friends will be into their retirement years before they get theirs paid off.

Yes, your friends may laugh at you early on for buying a $75,000 “fixer-upper”. But at the end, you’ll be the one laughing, not them. And, as the old saying goes, “He who laughs last, laughs best.

While your friends are struggling with their debt, your dealing with how to best invest that extra $315,000 THAT YOU HAVE that they are giving away to someone else.

You’re making YOU RICH.

They’re making SOMEONE ELSE RICH.

Which model do you like better?

Let me shift the topic a bit…

People often ask me if debt is ever appropriate. In my opinion, unless a debt is a carefully calculated business investment – meaning the “cost” of the money is “calculatably”, logically, and real-worldly (think Murphy’s Law) less than the return on the use of the money, it should be avoided.

Even when the cost of money is less than the return, it is my viewpoint to look for alternative approaches and means besides using debt.

Why?

Because I value my FREEDOM. And, when I owe someone, I am REQUIRED to make considerations, choices, and decisions that I otherwise would not make! Specifically, I choose to serve God rather than man.

However you choose to look at it, what I can for sure say is thatANY DEBT THAT DOES NOT MAKE YOU MONEY IS BAD FOR YOUR FINANCIAL HEALTH.

Here’s something else for you to keep in mind…

You don’t deal with darkness by “fighting” with darkness. Instead, you focus on creating light and the darkness disappears. Similarly, you don’t deal with coldness by “fighting” with it. Rather, you create heat and the coldness goes away.

I say this to point out that although I’m about to give you a process to eliminate debt, at some point you don’t so much deal with the debt as much as you focus on creating wealth – and if you operate as God would have you operate according to the Bible – the debt just “goes away” and wealth is left in place.

In some cases, the amount of debt can be so LARGE that a person can quite literally never be able to “pay it off” via normal means. In this case, the ONLY solution is to devote all of your God-given creative ability towards creating a LARGER amount of money – one that will not only take care of the debt but also leave you an overage that can be used to create additional wealth.

Lastly, remember that no one gets into a bad debt position overnight and no one gets out of it overnight. Becoming debt-free is a process of discipline and time. And, these two are inversely related – the more disciplined you are, the less time that’s needed. Conversely, the less disciplined you are, the more time that’s needed to eliminate the debt.

Think of it this way, to bring about anything good requires a “gestation period”. And usually, that gestation period isn’t the most comfortable experience (just ask any pregnant woman). But, when the good has “birthed”, you forget all about the unpleasantness of gestation for the joy of the good that has been born. (John 16:21)

Now, here’s a proven process for getting out of debt:

  1. From this point forward you do NOT buy anything unless you can pay cash for it. If you do not have the cash for it, you do not buy it, do it, or go there.
  2. List out each of your debts – from the smallest, most trivial item all the way up to your biggest items such as your mortgage – with their respective balance owed, interest rate, monthly payment amount, and number of payments remaining. From this information, sort your debts in an intelligent pay off order. (Usually, it makes the most sense to put those debts that have the smallest number of payments remaining at the top and those with the greatest number of payments remaining at the bottom.)
  3. For the debt that is at the top of the list, you pay AS MUCH AS YOU CAN POSSIBLY PAY on that debt each month and the absolute minimum payment on EVERYTHING ELSE.
  4. Once you have paid off the first debt, you then take what you were paying on the first debt and add that amount to what you’re paying on the second debt – the second debt now being the primary target of elimination. Again, you continue to pay the absolute minimum payment on everything else that’s lower on the list. (This is where most people dig themselves into a deeper hole – once they pay off a debt, they go get their “next toy” and take on another, usually bigger debt.)
  5. Once debt number two is paid off, then the payment amount that WAS going towards the first debt PLUS the payment amount that WAS going towards the second debt now gets added to the minimum payment of debt number three. As you can see, what you’re doing is doubling, tripling, quadrupling, etc the payment you’re making on each successive debt. The net result is that the debt elimination starts out slow but quickly gains speed and momentum with the payoff of each debt.
  6. You continue this simple process until your every debt is gone. By zealously following this process, a family can take 30+ years of debt – including their mortgage – and pay all of it off in less than 10 years.
  7. Once all debts are eliminated, you take the monthly payment that was going towards debt and you start paying that amount into your very own wealth-building account. Because of the amount of these payments you can begin accruing wealth quite quickly.

At this point, I want you to take a moment and consider the difference between the person who has followed this debt-elimination process and the person I described above who avoided debt as much as possible. The Lord willing, they’re both going to pass through the 10 years. The difference is their position at the end of the 10 years.

The person who has USED debt extensively must use the 10 years to build OTHER PEOPLES wealth. In contrast, the person who has AVOIDED debt as much as possible can begin building his or her own wealth almost immediately.

Now, let me address a common problem… If you’re having a hard time paying all of your bills, consider these points:

  1. DO put smart thought into a plan and then take decisive action. As an example, it makes NO sense to “hole up in your house” and “hide from the world” if you’re headed for foreclosure. Not only does it not make any sense, it’s just plain dumb to set there until the sheriff’s deputy shows up to evict you. Even if the only plan you can come up with is to sell the house, at least you’re doing something to move yourself into a more positive position.
  2. DO communicate frequently, firmly, and professionally with creditors. Explain to them what your current plans and actions are. Explain to them all the things that you are doing to rectify the problem. Reassure them that you WILL pay them everything you owe them. To avoid communicating with creditors is to make the problem WORSE. For example, it’s not wise to avoid a creditor until he or she finally sues you for wage garnishment of the debt PLUS court costs and legal fees.
  3. Ask creditors if they can restructure or rewrite the debt so that you have lower payments. Of course, this will result in a higher interest rate and a longer payoff term but at least you give yourself some breathing room and the space to get back up on your feet where you can pay what you owe.
  4. DO seriously consider liquidating everything that you possibly can. Sometimes the best solution is to set your ego and emotional attachments aside, sell your house, sell your cars, sell your boat, sell your whatever, and rent a small place until you can get back on your feet. Rather than view this as embarrassing and humiliating, view it as an adventure that didn’t work out so well and now you are embarking on a new adventure.

As a last resort, you can consider seeking assistance from:

  1. Credit counselors – These people will analyze your situation, make recommendations, and will even call creditors on your behalf and get them to agree to extended payment terms. Usually, in this model you pay one payment to the credit counselor’s agency and they disburse payments to the various creditors. Of course, there is a fee for the credit counselor’s agency to do all of this for you. Also, just so you are aware, the fact that you’ve sought assistance from a credit counselor will show up on your credit report.
  2. Loan consolidators – These are private businesses who lend you money so that you can pay off all of your debts and then you owe just one creditor – the new lender. Unfortunately, if your situation is in too big of a mess (i.e. your credit is too bad), you may not qualify for the loan. Also, watch out for prepayment penalties. These types of companies usually make their money by getting you to agree to a long-term payment plan at a high interest rate – and they’re not interested in you “taking money out of their pocket” by paying your loan off early.

WARNING: Carefully and prayerfully evaluate any third-party solutions as there ARE those who are scammers and con-artists looking to take as much money from you as they can and then “disappear”. Be particularly cautious when the word “free” is used.

Now, there’s one more thing I feel obligated to tell you…

The “world’s” system is your financial enemy. Society’s financial messages are NOT for your good.

Consider the Visa advertisements that play adrenalin-pumping music as hordes of people use their credit card. And then, one lone guy pulls out his wallet and attempts to pay with cash. Immediately, the music stops and the hordes of people place their look of disapproval upon the one guy (click here for an example).

This message of “buy on credit” is hammered into millions of people’s heads every night…

Yes, they make it look fun and yes they cover it up with the guise that it’s “faster” and “safer”…

Yes, these hordes of people buying on credit are the 95% of the population who die dead-broke…

Yes, these hordes of people never get to enjoy time-freedom and financial independence…

They are another man’s servant…

Money is their master…for they never learned to master money…

They spent their life dancing to the beat of the wrong drum…

Consider the words of Solomon in Proverbs 28:22, “He that hasteth to be rich hath an evil eye, and considereth not that poverty shall come upon him.

With this verse in mind, ask yourself this question; “Is the use of credit anything more than just another way to hurry up and be rich?

Isn’t it true that the use of credit is nothing more than the desire to “live rich” and “be rich” now rather than later?

Consider another verse found in Proverbs 13:11, “Wealth gotten by vanity (debt) shall be diminished: but he that gathereth by labour shall increase.

Going back to the choice I mentioned at the beginning…

“The rich ruleth over the poor, and the borrower is servant to the lender.” – Proverbs 22:7

Do you now choose to operate with cash only and be rich? Or, do you choose to operate on credit and be a servant?

Here’s God’s will for your life… “Owe no man any thing, but to love one another” – Romans 13:8

Take these words to God in prayer and ask Him to lead you into all truth.

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