The majority of people have 24% of their income going towards consumer debt
We need to come to the realization that expenses over 100% of our income are not sustainable. Something to ask yourself, “Is my spending in line with my financial goals, vision and values as a Christ follower?” Everything we have are gifts from God. We are stewards of God’s money to provide for our needs and further His work on earth. Self-control is a fruit of the spirit. Sometimes the most difficult person to say “no” to is the one in the mirror.
In this post I would like to address paying back credit card debt. Now that you have set financial goals and have a spending plan, let’s focus on getting them paid off. You want to pay more than the monthly minimum payments. With a spending plan in place you can discipline yourself to stop using credit cards. You also know where you have a little wiggle room in your budget.
In order to achieve financial well-being and eliminate credit card debt we need to make cuts somewhere in our spending plan or earn more income so we can put extra money toward paying down the debt. To determine the order of importance when creating a spending plan to prioritize paying off debt, remember the “4 Walls” approach: Housing, Food, Transportation, Clothing. Allocate your funds to these 4 categories first and then plan the rest of your payments from there.
Begin by saving $1,000 as an emergency fund and build on it after your credit cards are paid off. Once the credit cards are paid off start building your savings to 3-6 months of your total expenses. You can find an online high interest rate savings account on bankrate.com. As of January 2024, AmEX (American Express), Marcus (part of Goldman Sachs) and BMO are listed with over 4.5% yields with $0 minimum deposit, where Chase and Bank of America are only paying .01%. It is easy to set up accounts online and transfer funds between your accounts online or by using an app. Even as the Federal Reserve adjusts interest rates, these online accounts will continue to yield higher interest rates than a standard bank savings account.
We will begin with a payment plan to use if your total credit card debt is $5,000 or under. You are going to use the successful payment method called the Debt Snowball. List your credit cards with their balances lowest to highest amount owed. You will begin paying extra money for the one with the lowest balance. You will make minimum payments on the others and add extra money each month to the minimum payment on the card you chose. After paying off the smallest debt, then apply all of the money you have been paying to that one to the next credit card on the list. Keep going until they are all paid off.
As you pay off each card then cancel and shred them. If you can stay disciplined and only use a credit card for budgeted items keep 1 major credit card. Cancel any store credit cards you have. Using the snowball plan it takes an average of 12-24 months to pay off the credit cards, depending on how many you have and the open balances. Once all of your cards are paid off, just think of how much money you will have left over each month that you can apply to save for future needs AND how much stress will be taken off of you!
If you debt is over $5,000 then you may want to consider Credit Counseling. Use either Christian Credit Counselors at christiancreditcounselors.org or Trinity Debt Management at trinitycredit.org. You can research both companies and have them work out a plan for you without any obligation. Both services work the same way and they will require that you have a spending plan in place. The payment might be more than the total minimum payments you are currently paying, but it is well worth it to get them paid off. These companies have negotiated lower interest rates with the credit card companies and the debt will be combined into one payment. You pay the company and they pay the credit card companies. The debt will be paid off in 3-5 years, depending on how much you owe. The credit cards you put in the program will be cancelled but remember, we are trying to avoid debt so it should not make a difference. *Note: Credit Counseling is not available in all states.
Some money experts recommend that one way to free up money to pay off credit card debt is to stop paying into a retirement plan until the cards are paid off and then catch up later. Another option is to pay in only what your company will match. For instance, the company I work for matches 3% in the 401K, so if I were to use this method I would only have 3% deducted from my paycheck and use the extra money toward paying off debts If you are earning 5% to 8% on your retirement account but paying over 20% interest on your credit cards, it makes sense to pay off the credit cards first. You can make catch up contributions once the cards are paid off.
Areas to consider cutting down expenses so you can find extra money in your budget to apply to debt reduction: Stop eating out and ordering take-out, which will save on your food budget immensely. Don’t buy alcohol, beer or wine, they are not good for your health or your wallet. If you smoke, stop; the national average cost of a pack of cigarettes is $8.00 – $10.00. I know it’s difficult to quit, every one of my family members went through it, 5 of them developed COPD later in life. If you need help quitting join Celebrate Recovery, nicotine is as addictive as any other drug.
Research cell phone services, you can get good service with unlimited data for $20.00 a month. Compare cable and internet services, cut out extra streaming services. Stop merchandise subscriptions, if they say you save 10% but you are paying over 20% interest, it is no longer saving you money. Download Rocket Money, this app will search for subscriptions you may have that you do not know about or forgot about. I know people who found they were paying for 2 Netflix accounts and more than one music streaming account. If you have game apps that you pay for, delete them. Also delete the payment cards from Google Play and Apple Store accounts. If you play games, only play free ones.
If you are getting your fingernails done, consider doing them yourself or partner with a friend or family member who is also trying to save money. Price shops for getting your hair done. What can you do yourself for a while? Perhaps share hair coloring with a friend. Check for beauty schools in your area and call to see what services they offer and what they charge. Remember all of the cuts are for a good reason, to get out of debt. Once your credit cards are paid off you can gradually add things back as they fit in your budget and as they fit in your new financial goals, vision and values.
My next post will be a list of money saving and money earning tips that I previously posted on the FOCUS Facebook page. If you have any questions, feel free to email me. If you would like more personalized financial coaching, you can go to the FOCUS web page and register for 3 coaching sessions for a reduced rate of $25.00.
Karen Ferguson
FOCUS Financial Coach
Email: [email protected]
Web page: https://www.focusministries1.org/help/financial-coaching-online