How to Get Out of Debt This Year

Help!  In debt!  Knee deep in debt!  Help!  I’m drowning in debt!

These words are communicated by people all over the country on a regular basis.  You’d know this to be true if you listen to the Dave Ramsey show on a regular basis.  People call in seeking help for their debt problems and are trying to determine the best way to change their financial life.

There are typically more debt problems now the holiday season is over.  So, that’s why it’s important to revisit the key principles and steps to overcome debt which I believe work whether it be credit card, medical, school or other types of debt.  I love revisiting steps to get out of debt at the beginning of the New Year because so many people are highly motivated and focused on getting the job done!

A Christian Perspective on Debt

You’re reading a Christian finance blog, so I’m going to start with the most important principles on debt reduction, in my opinion.  They are Biblical and make a lot of sense.  If you’re a Christian, understanding what God has to say about money and debt is key to living in financial peace.  They should be the foundation to any decisions regarding money and provide the right motivation for overcoming debt related problems.

First, you’re not a bad person in God’s eyes or have committed a sin if you’re in debt [the Bible never says debt is a sin).  We’re all sinners and we fall short of God’s glory.  God still loves you even if you’re in debt and you haven’t been the best steward of His resources.   God’s principles on debt simply say to avoid it.  You’ll find a lot of people in society trying to tell you it’s okay to be in debt (from a leverage standpoint), but God compares debt to slavery.

The rich rule over the poor, and the borrower is servant to the lender. (Proverbs 22:7)

You were bought at a price; do not become slaves of men. (1 Corinthians 7:23)

Why does God consider debt slavery?  It goes back to the fact that he loves you and wants to bless you.  Debt, as I’ve mentioned several times here on the blog, is limiting to your financial well being.  It doesn’t provide leverage to do more.  It’s limiting to what you can do with God’s resources and in fulfilling His plans for your life.  Obeying God’s financial principles on debt will position you for His blessings!

However, there should be no poor among you, for in the land the LORD your God is giving you to possess as your inheritance, he will richly bless you, if only you fully obey the LORD your God and are careful to follow all these commands I am giving you today.  For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you. (Deuteronomy 15:4-6)

Debt Reduction Starts with You!

Dave Ramsey says getting out of debt starts with you.  He says many people look for quick fixes and try using credit repair companies, debt consolidation, debt management or bankruptcy.  But, the real problem with money issues starts with the people who are managing it.

I know there are a lot of reasons people end up in debt and I’m not going to explore all of them in this post.  But in general, I believe Dave’s point to be true.  To get out of debt, you have to be willing to change your attitude about money and start managing it better.

There are two steps you can take to do that today.

1.  Use a Budget to Get Out of Debt

Creating a budget and following it will help you get out of debt.  A budget helps you manage your spending, find money you didn’t think you had and it provides peace of mind in having a plan for your money each month.  Many people think creating a budget means you have a money problem and is the necessary fix to it.  I don’t think so.  Everyone needs a budget to some degree and should watch their money closely in areas that can be problematic for them each month.

Here are three resources from the One Money Design archives and the Budgeting and Spending page to help you get a budget started this year:

• How to Create a Budget
• Budgeting 101 – 3 Easy Steps to Create a Budget (Video)
• How Do You Maintain Your Budget?

Once you have a budget up and running and are following it each month, you’ll soon learn the peace that comes with following your plan.  You can review your spending habits each month (depending on how you’re tracking them) and see where you need to make necessary spending adjustments to stay on track and avoid spending on a credit card.

2.  Create a Plan to Get Out of Debt

Finally, once you understand a Christian perspective on Debt, have started with yourself to fix money problems and created a budget; it’s time to create your plan to get out of debt.  I’ve written a lot about creating a debt plan here on the blog and you can find a number of resources on the Get Out of Debt page.

Overall, I think creating a debt plan involves three simple steps:

1.  Organize Your Debt

To get your debts organized you need to collect information about each of them which will help you in building a debt plan and understanding your starting point:

• Whom owed
• Contact name/phone number
• Pay off amount
• Payments left
• Monthly payment
• Due date
• Interest.

To help organize all this information, download this debt list template which was created by Crown Financial Ministries.

2.  Measure Your Debt

You need to understand the impacts of your debt on achieving other monthly expenses in your budget.  A high debt ratio may indicate that your monthly expenses are becoming unmanageable.  This should motivate you to put your debt plan in motion and make some sacrifices to contribute as much as possible to it.  Check out this good debt ratio tool from MSN Money.

3.  Create Your Debt Pay Off Plan

Finally, you will find a lot of debt pay off calculators and spreadsheets on the internet today.  I like DebtGoal as a tool to help you build and manage your plan.  However, you can find plenty of other tools on the Get Out of Debt resource page.

At the end of the year, will you still by asking for help because you’re in debt?  Will you be debt free?  Or, will you have a plan in place that’s getting you on the right track with your finances?

Getting your finances in order and out of debt isn’t out of reach for you!  You can live debt free by putting all the above practical steps in place.  It takes sacrifice and can be a long road, but the light at the end of the tunnel is God’s promise to bless you for following His principles.

Do you have a goal to get out of debt this year?  If so, what steps are you taking today to accomplish that goal?

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