How do I pay off my debt?

Debt and what to do about it

Let’s start with the Bible, which has at least a few things to say about debt.

• The rich rules over the poor, and the borrower becomes the lender’s slave. (Proverbs 22:7)

• Do not be among those who give pledges or become guarantors for debts. If you have nothing with which to pay, why should he take your bed from under you? (Proverbs 22:26-27)

• If you have become surety for your neighbor, have given a pledge for a stranger, … Give no sleep to your eyes, nor slumber to your eyelids; deliver yourself like a gazelle from the hunter’s hand and like a bird from the hand of the fowler. (Proverbs 6:1,4-5)

Scripture doesn’t mince words: Avoid debt; if you’re in it, get out of it as quickly as possible.

This is a significant warning and the consequences of not heeding it play out daily. Homes are foreclosed on, vehicles are repossessed, businesses are sunk, wages are garnished, and endless possibilities are lost as money that could have been used to invest in future opportunities (including giving opportunities) is instead used to pay off past decisions.

While debt is something to be avoided, this doesn’t mean there is never a wise and strategic time to borrow.

For example, businesses generally need debt and invested capital to purchase the assets necessary to operate successfully. Without sufficient cash and operating assets, even the best business ideas will often fail before achieving the owner’s vision. “Good” business debt is a balance between the expected outcomes of the debt, constrained by the probability of paying back the debt without significant risk to the future of the business.

Okay, that makes sense. But what about personal debt?

Avoid it if you can, but if borrowing for a specific purpose seems strategic for a season, proceed with prayer and a plan. For example, some amount of educational debt may be necessary for a college student pursuing a specific long-term career. And a home loan may be necessary to provide a young family with the space its growing family needs. However, these decisions should always be made considering the potential risks. A four-year degree may not be worth the cost, depending on the job market and the particular career path. And the value of a home could rise and fall based on factors outside the owner’s control, possibly leaving the homeowner underwater. Also, in most cases, debt is backed by a cosigner (someone else on the hook) or by collateral (a lender’s claim to an asset belonging to the borrower, such as a house, a vehicle, etc.).

Some debt is clearly unwise, such as payday loans, which are inherently a problem and a debt trap. While credit cards carry certain conveniences, they always present the temptation to buy something you may not otherwise be able to afford, such as a new television or a nice vacation. If credit cards are a temptation for you, get rid of them!

As you’re reading this, you may be considering your own debt situation and wondering what you can do about it. Here are some proven strategies for getting out of debt quickly:

• Stop borrowing! This may seem obvious, but you’d be surprised.

• Develop a budget that enables you to throw as much of your income as reasonably possible toward paying off your debt. Don’t necessarily turn your life upside down (although this may be a good course for some) but prioritize debt repayment.

• Make the minimum payment on all your debts (to avoid fees) but then focus on knocking out one debt at a time. Some people like the “debt snowball” approach, which focuses on attacking the smallest loan balances first, resulting in early wins and an emotional sense of accomplishment that increases their motivation to keep going. Others prefer the “debt avalanche” approach, which focuses on first attacking the highest interest-rate debts, resulting in less overall interest being paid. In either case, the idea is that the amount of money being used for repayment grows as each loan is paid off, causing overall debt repayment to accelerate.

• Debt consolidation. This approach focuses on consolidating multiple loan payments into a single monthly payment. Depending on current rates, This could decrease or increase your average interest rate, but the primary outcome is a manageable monthly payment that aligns with your available income.

• Debt management. This approach may involve a nonprofit credit counseling agency to assist in setting up a debt management plan if you have yet to succeed with the above strategies.

A lot more could be said about debt and its effects, but the bottom line is this: borrowing is a stewardship decision. When we borrow money, we decide how to use the current and future income God has entrusted to us. And in the case of loan collateral, we are making a decision that affects one or more assets entrusted to us. May we approach this stewardship decision with the greatest of care.