Debt and Credit Management

A person cutting up a credit card with scissors.


Society may say that debt is good but it actually can be a curse.  It can create great strain on household budget and create a lot of anxiety.  People take out loans on assumption that income will be there tomorrow but then the unexpected happens.  Proverbs 22:7 directly addresses debt, “The rich rule over the poor, and the borrower is slave to the lender.”  We can avoid that bondage by paying back all our debts, living within our means and avoid using debt or charge cards to buy stuff.   

While scripture does not outline when debt is appropriate, here are three suggested guidelines that all need to be met before entering future debt:

  1. Item purchased is asset & demonstrated potential to appreciate or produce income (Ex: House)
  2. Value of item exceeds the amount owed against it
  3. Debt is not so large that it puts significant strain on household budget

An example:  Home purchase.  A down payment of 20% at a minimum should be paid at purchase.  Moreover, the new housing expense should not exceed 40% (mortgage, property taxes, insurance, utilities, and maintenance).  Homes normally appreciate (Guideline #1), mortgage amount owed will be 80% or less of value (Guideline #2) and below 35% of income (Guideline #3).

Step two towards financial freedom is to pay off all debt except house using Debt Snowball.  A debt reduction plan begins with awareness of the current situation.  Listing all debts is the first step.  From there, the next step is a written monthly budget that is balanced. Expenses should be less than income.  This can lead to avoiding new debt and remaining income at month end can be used to paydown debt or add to Emergency Fund.  Moreover, through planning, decisions can be made to decrease expenses or increase income before entering into the upcoming month.

Let's talk about a plan with you towards becoming Debt Free!  The PowerPay link is a great way to outline the steps needed to paydown credit card debt.  

Useful Links

Consumer Protection Financial Bureau

PowerPay from Utah State

Mint Intuit Budgeting App