How Much Debt is Too Much?

Debt is a way of life in America. Most Americans carry some amount of debt. There is the mortgage, the car payment, medical bills, credit cards, student loans and the money good old Uncle Fred loaned to you.

Unfortunately, many people don’t realize they have too much debt until they reach disaster level with their debt load. That’s when they get to the point where they’ll do anything to escape the enormous weight of those monthly payments.

If you don’t know how much debt you have in total, try adding up the outstanding balances on all your debt and see if the number horrifies you. Calculate how many hours you have to work to pay your monthly debt. Calculate how your total debt compares to your yearly salary. How many years do you have to work to pay it off? Calculate how much you are paying each month in interest only. Then figure out what you are NOT able to do because you have to pay debt.

Usually that’s enough for an epiphany of some kind, and there is a “light bulb” moment when you decide it’s time to turn things around. That happened to us when we hit bottom. We had a mortgage, tons of credit card debt, two car payments, no savings and an unhappy marriage filled with financial stress. We knew that something had to change, in order for us to turn around our financial mess and stay married.

If you have stopped bringing the mail into the house and let it sit in the mailbox, or if you bring it into the house and shove it into a drawer so it is easier to ignore, you may be in a situation where the debt is taking over your life.

If your credit card balance increases every month you have too much debt.

If you are just squeaking by financially each month, and living paycheck to paycheck that is a big warning sign. When your debt payments consume so much of your income that you’re scraping pennies together at the end of the month, it’s time to do something about it. 

If you’re just making the minimum monthly payments, getting out of debt can take almost forever. When you owe so much that your credit cards are rejected it is a telltale sign that things have gone too far.

Have you ever checked your net worth? If you haven’t, it’s worth exploring.  First list your assets and total them (house, car, cash on hand, bank and investment balances) then list your debts and total them (outstanding balances on your mortgage, car loans, student loans, credit cards, past due bills, etc.) Then subtract your debts from your assets. That figure is your net worth. If your net worth is a negative number then you owe more than you have. When your net worth calculation is negative, it is certainly a signal that things have to change. (Go to CompassCathlic.org where you can find “spreadsheets to customize your budget” for a form to help you calculate your net worth.)

If you aren’t able to save for an emergency fund, or if you aren’t contributing to long term savings through a 401K or IRA because all the money is going to pay off debt, you are making one serious mistake. A mountain of debt can create a vicious cycle of not saving and not saving means more debt when emergencies come up.

A job loss, unexpected illness, or family emergency will throw your finances into a tailspin. Think about what would happen if you or your spouse lost your job—how long could you survive financially? How many months of living expenses and debt payments can you handle with a decreased income?

If you’re in debt and ready to make a change, you have to be ready to say enough is enough. You have to get to the point where you’re thoroughly tired of the struggle, and ready to make some sacrifices—to do whatever it takes to turn it around.

The first step in getting out of debt is to acknowledge the situation you are in, then vow it’s time to change. Start by praying for strength and guidance as well as contentment. Track every penny you spend, which will show you how much money you may be wasting on non-essentials. If you can’t pay off your credit cards every month, stop using them.

Starting with your credit cards, make the minimum payment on all your debts and funnel any extra cash to the credit card with the smallest balance, while making the minimum payment on all other debts. Once the credit cards are paid off, tackle the consumer loans, school loans then the mortgage.

We know what you are going through. When all of your expendable income goes toward debt payments, it can be disheartening. We’ve been there and it is not a happy place to be. Paying off debt is not fun and it is a ton of hard work. But, I can tell you from experience, that there is nothing better than paying off all your debt and being totally debt free.

If debt is holding you back, now is your moment to decide to stop digging a hole, and start climbing out. Getting out of debt won’t happen overnight, but the process can’t begin until you decide it’s time. Dealing with and recovering from your mountain of debt requires a life change, a total transformation.

When you and your spouse decide together that enough is enough, and you work together to pay off your combined debt, your marriage will be MUCH stronger.

Proverbs 22:7 tells us “Just as the rich rule the poor, the borrower is slave to the lender.”  Stop being a slave and get that debt paid off! The freedom is worth the struggle.

What You Need to Know if You are Buying a Car

After a home mortgage, car loans are the largest debts most people have. More than 70 percent of all the cars on the road are financed. Car debt is one of the biggest roadblocks for people on their journey to true financial freedom.

It’s especially dangerous because most people never get out of car debt. Just when they get to the point of paying off a car, they trade it in and purchase a newer one with credit.

Unlike a home, which usually appreciates in value, the moment you drive a car off the lot it depreciates in value. It’s worth less than you paid for it by the time you hit the first intersection. If you had to sell it, you couldn’t get enough to pay off the loan.

The average price of a new car, considering all models, is about $33,000 and the typical monthly car payment is just over $500. In our Navigating Your Finances God’s Way Bible study we advise that the average expenditures for ALL transportation costs should be between 10%-15% of your net spendable income (salary, minus payroll deductions, minus giving = net spendable income).

Transportation costs include the car payment as well as insurance, gas, maintenance, tolls, parking, etc. If the total of all transportation costs should not exceed 15%, the car payment should not exceed half of that or 7% of your net spendable income, which means your net spendable income needs to be $86,000 in order to properly budget for a car payment of $500/month. And that’s only for one car. If a family is making two car payments the salary needs to be higher.

In our opinion, the most reasonable financial position is to buy a certified used car. If the average price for a new car is $33,000 and a 3 year old used car is worth only 50% of the new price, then it stands to reason a used car average price should be about $16,000.

The upside is that you’ll have lower monthly payments or maybe no payments at all. You can probably afford a better model at a lower price than if you were buying new. And those first few dents and dings won’t be as painful with a used car.

You always run the risk of buying someone else’s lemon, but that can be mitigated by buying a certified used car. These are usually 2-3 years old with low mileage. Some certified used cars may still have some of the original factory warranty left. Plus, these used cars come with certifications from factory trained mechanics covering from 150 to 180 point inspections. The cost is higher than a non-certified used car, but it is definitely lower than what you would pay for a new car. Be sure to read the fine print to understand what you are getting.

As you begin to contemplate purchasing a car, you’ll need to consider the purpose of the vehicle. If your family has outgrown the sedan, you may want to consider a minivan. If your job, or choice of recreation dictates off road capabilities, you may want to consider a truck or SUV. In addition to deciding which type of vehicle you need, you should also write up a list of car options you simply can’t live without, such as automatic transmission; power steering and brakes; good gas mileage; or adjustable seats.

It will also be helpful to write up a second list of options that would be nice to have if you happen to run into a vehicle that comes equipped with those features, but lack of those features would not be a deal breaker. Some of those features could include: bluetooth, body style, color preference, air conditioning, cruise control, and sound systems.

You also need to be aware of how much car you can afford based on your finances. Some people purchase a used car outright; others plan to finance. Either way you’ll need to determine how much you can afford to spend. In addition to the cost of the car, be sure to factor in the expenses that you may not have considered yet such as title transfer and registration fees, and in some states, smog or emissions certification.

In addition, your insurance rates may be affected with a newer car, so check with your current agent or go online to get a quote. If you plan to buy an older car, or are willing to buy a car that may need maintenance or repairs right away, set up a special fund for those probable expenses.

Once you determine how much money you can spend on purchasing a used vehicle, it is time to start the next step to car ownership which is to do some research.

We always recommend seeking counsel before making any financial decision. Proverbs 20:18 says “Plans made with advice succeed; with wise direction wage your war.”  Buying a car and haggling over the price can sometimes feel like waging war!! 

Talk to family, friends and co-workers to see which vehicles they have been happy with. Their experiences (good and bad) are purely anecdotal, but they may help you decide which make or model might work best for you.

Take a look at the general types of vehicles currently for sale, what features are available on what makes and models, and what kinds of vehicles you can afford. Spending some serious time at this stage of the process is important to making an informed decision on what type of car you’ll be narrowing your search for, so don’t skimp on the time you dedicate toward your future vehicle.

There is certainly no shortage of used cars being offered for sale by individuals, especially in larger cities and through the car selling websites and auctions online.

A major difference between buying a used car from a dealer and a private party is the degree of warranty available. Few, if any, individual sellers offer any type of after sale warranty, while dealers cars range from “as is” to limited warranties to certified vehicles that come with extended warranties.

There are many websites that provide great resources by year, make and model on such things as safety records, frequency of car repair, maintenance costs, comparison reports, and gas mileage figures. Here are some of the best places to get car info on the Web: Edmunds.com; Cars.com; U.S. News Best Cars; Kelley Blue Book, and TrueCar.

When you find a car you are interested in, be sure to request that the seller provide you with the Vehicle Registration Number (VIN) for that car. Each car manufactured is issued its unique VIN and the records of that vehicle follow it throughout its lifetime. For a minimal fee, online services can locate the records for that particular car and send its vehicle history report to you, including: if the car has a clear title; if the car has been salvaged; if the car has been involved in a serious accident; how many times the car has been sold; the original sale date; and if there have been any recalls for that car. Investing in a VIN search can save you a lot of headaches (and money) down the road.

When you are car shopping, spend some time considering your options, discuss the idea with your family and friends, do some window shopping and PRAY for God to help you make a wise decision.

Lots of people get confused between the function of a car, which is to take you from Point A to Point B and the status of driving a new car. In 1 John 2:15, we read “Do not love the world, nor the things in the world.” So make a car buying decision based on your need for safe reliable transportation and nothing else.

Cosigning Can Ruin Your Credit Score!

 

Many people gladly cosign a loan considering it a favor to a friend or relative. It may seem like a good idea at the time. You think you are helping your child buy their first car. Or maybe your sister wants to buy a house. You may think your only responsibility is to sign the paperwork and that’s where it ends.

But beware! Anytime you cosign a loan you are agreeing to be legally responsible for the debt if the person you cosigned for does not pay. By cosigning, you have promised to pay off the entire loan if the borrower does not pay.

Cosigning is required by a lending institution when a person applies for a loan and their credit score and credit history indicate they are a poor loan risk. The lending institution requires a cosigner to guarantee the loan. In other words, the lending institution with millions or billions of dollars in assets will not risk making the loan because they do not think the borrower can pay back the loan.

Proverbs 17:18 says “Senseless is the man who gives his hand in pledge and who becomes surety for his neighbor.” The Bible is telling us that we have no sense if we cosign.

The statistical truth supports the Bible. If you agree to cosign someone else’s loan, the odds are against you. Various sources indicate the borrower defaults on approximately 75% of cosigned loans.

If the borrower makes late payments or does not pay the loan per the agreement, it is reported on YOUR credit report. Your credit report gets a negative hit because someone else did not pay on time. Your credit score will also be affected. So before cosigning a loan you should think about the long term impacts that cosigning could have on your credit score.

Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. In addition to lending institutions, credit scores are used by other organizations such as mobile phone companies, insurance companies, landlords, government departments and even potential employers.

The credit score is a number assigned to each person that is an indicator of whether they can get credit and the interest rate they will pay.  Husbands and wives each have their own credit score even if they have joint accounts.

A credit score is based on five indicators and both positive and negative details are included:

  1. Payment history (35%) The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in a credit score.
  2. Amounts owed (30%) Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low credit score, but it is a factor in calculating the overall score.
  3. Types of credit in use (10%). The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
  4. New credit (10%). Research shows that opening several credit accounts in a short period of time represents a risk—especially for people who don’t have a long credit history. So opening several new accounts in a short period of time will have a negative impact on your score
  5. Length of credit history (15%). In general, a longer credit history will increase your credit score. However, even people who haven’t been using credit very long may have a high credit score, depending on how the rest of the credit report looks.

There are three main credit reporting agencies: Equifax, Experian and Transunion. The details of how they calculate a credit score may differ, but they all use a numeric score between 500 and 850. The higher the score, the better your rating.

An excellent credit score is over 720. This level ensures the best interest rates and repayment terms for loans. If you want to make major purchases, such as a home mortgage this credit score range is where you want to be.

A good credit score is between 680 and 719. You can still get decent terms from lenders, although not as nice as those offered to borrowers with truly excellent credit scores. If you’re shopping for a first home, a score in this range will get you an acceptable interest rate on your mortgage.

An average credit score is between 620 and 679. This is the absolute minimum credit score you can carry and still get fair mortgage terms. Smaller-ticket items that require financing are doable, however, in this range, you should be taking steps to improve your credit score.

A poor credit score is between 580 and 619. Although you won’t necessarily have any problems getting loans with a credit report score in the high-500 to low-600 range, you’ll get those loans on lenders’ terms. Be ready for higher interest rates, and expect finance charges that will hit you right in the wallet. The good news is that you can increase your credit score by monitoring your credit reports and by being responsible with your finances. Note that this range is also the lowest workable credit score range if you’re shopping for auto financing.

A bad credit score is between 500 and 579. If your credit score falls somewhere in this range, long-term loans, such as a 30-year mortgage, will carry an interest rate at least three percent higher than interest rates awarded to borrowers with good credit. For shorter-term loans, like a 36-month auto loan, expect interest rates almost double those offered to consumers with good credit scores.

A miserable credit score is less than 500. At this point, your credit score is so bad that getting any type of financing is almost impossible. If your credit score is below 500, it’s time for action. Get a copy of your credit report, and make an appointment with a credit counselor.

Americans are entitled to one free credit report within a 12-month period from each of the three credit bureaus. The three credit bureaus run Annualcreditreport.com, where users can get their free credit reports.

It is important for you to review your credit report regularly and report any inaccuracies to the credit bureaus to ensure your credit score reflects your actual credit history. Over 79% of credit reports contained at least one mistake, and 54% of credit reports contained identifying information that was misspelled, outdated, belonged to another person, or was otherwise invalid. At least 30% of credit reports incorrectly showed accounts as open that had previously been closed by the consumer.

If you have a dispute with an item on your credit report, document the error via a letter to the credit reporting agency and send it certified mail.  Keep a copy of all correspondence you send and receive. Under the Fair Credit Reporting Act (FCRA), the credit bureaus have 45 days to investigate.

Credit scores are available as an add-on feature of the report for a fee. This fee is usually around $10, as the FTC regulates this charge, and the credit bureaus are not allowed to charge an exorbitant fee for their credit score.

Consider the potential for disaster when cosigning. If the person pays late, misses a payment or defaults on the loan, you get all the problems that come with debt and none of the benefits since you do not have possession of whatever the person bought.

If you are thinking about cosigning, meditate on this verse from Sirach 8:13, Do not give collateral beyond your means; consider any collateral a debt you must pay.” When you cosign, your signature obligates you to be fully responsible for the loan.

Listen to the Compass Catholic podcast on Breadbox Media for more.

Turkey Trot at the Daytona Speedway

The day after Thanksgiving, we took the two teenagers in our life to the Turkey Trot which is held each year at the Daytona Speedway on the weekend after Thanksgiving. It is a combination swap meet and car show with lots of people walking around appreciating the refurbished cars, trucks and other assorted vehicles. Other people were wheeling and dealing on spare parts and every imaginable accessory related to cars, trucks, boats and motorcycles.

The boys were having a great time talking about which truck/car they liked the most, which paint color was best and snapping pictures of their favorite vehicles. We were having a good time pointing out the types of cars that our parents had when we were growing up and what we drove when we were first married (ancient history to the 15 and 16-year-olds).

One of the trucks on display was a 1934 Ford pickup. It did not impress the boys. The only way to describe the color is to call it rust (like in real rust, not rust colored). The hood was halfway gone, the seats were threadbare and there were tools all over the inside. I do not think this truck had been washed in at least 50 years and it had probably never seen a spot of car polish.

While the truck was old and falling apart, the owner, however, was amazing. He explained that when he was in high school, his parents encouraged him to save money. And to give him some incentive, they matched what he saved each month. When he graduated from high school he had enough money in the bank to pay cash for a reliable used truck. The matching savings was accompanied by encouragement from his parents on the benefits of driving a vehicle with no car payments.

It was his pride and joy as a teenager and as the years passed, he never saw a need to replace the truck since it remained in relatively good running condition. If it ever needed to be fixed the engine was simple enough that he could fix it himself, even if it was something as complicated as completely removing the engine from the truck.

Then the owner hit our hot button as he started to talk to the boys about the benefits of driving a debt free car for 50 years (from high school to retirement). He explained that he was able to save, enjoy life, travel, and retire based on not making a car payment during his entire adult life.

So what is the impact of driving debt free cars? Today, the average car payment is about $375/month. If a 21-year old drives a debt free car and saves the $375 monthly car payment, by the time they are 65, they will have saved over $1.3Million!! ($375 per month at 7% for 44 years). That got the boys’ attention!

The only reason to own a car is for safe reliable transportation. Yet how many car commercials focus on those aspects of owning a car? Instead, they focus on how sexy the owners are, how luxurious the car is, how other people will envy you if you choose the car they are selling. How wonderful the sound system is. How fast the car goes. In short, most of the car commercials don’t even acknowledge safe and reliable transportation as a reason to buy what they are selling.

Yet, as our new friend shared with the boys on Friday, spending more than you need to on a vehicle can do serious damage to your financial health. And driving a debt free car does amazing things to your financial goals.

After home mortgages, car loans are the largest debts most people have. Unlike a home, which usually appreciates in value, the moment you drive a car off the lot it depreciates in value. It’s worth less than you paid for it by the time you hit the first intersection. The depreciation is especially dangerous because most people never get out of car debt. Just when they get to the point of paying off a car, they trade it in and purchase a newer one with credit.

Everybody likes the new car small – but it comes at a high cost. A new car loses 40% of its value in the first year, and 60% of its value is gone by year four. In other words, a new $28,000 car will lose about $17,000 of value the first four years you own it.

You could get the same results by tossing a $100 bill out the car window once a week for over 3 years! Car debt is one of the biggest roadblocks for people on their journey to financial independence.

In 1 John 2:15 we read “Do not love the world, nor the things in the world.” Often times loving the things of this world influences our buying habits too much. Looking at the shiny new cars that are so enticing to a teenager is certainly an example of loving the things of this world.

We may not be able to match monthly savings for our teens, and many of them will not be able to buy a car with cash, but teaching them about the money wasted in paying interest and the money gained by saving is a valuable lesson.

At a minimum, teens should be taught to always buy a used car, never buy a new car. Besides being budget-friendly, today’s vehicles are designed to run for many more miles than the models of years past, although I can’t imagine many cars would last as long as our friend’s 1934 truck. But even driving a car for 10-15 years after it’s paid off is a huge financial benefit if you save the money that would go toward the car payment.

Teach your teens 3 steps to get out of never ending car payments:

  1. Decide to keep the car as long as it is drivable after the loan is paid off.
  2. After the final payment, keep making the same payment to yourself. Put the money into an account that you will use to buy your next car.
  3. When you are ready to replace your car, the trade-in, plus your years of savings should be sufficient to buy a good used car without a loan.

While the boys may have enjoyed looking at the hot rods and all the custom vehicles, we certainly enjoyed the impromptu lecture on car loans. After all, the real reason for owning a car is to get you from point A to point B safely and reliably!

Are You Abusing Your Credit Cards?


credit-card-1520400_640Credit cards can be a good tool for you to use to manage your finances. They can also create financial chaos if you fall into the trap of using credit cards to satisfy every whim. The secret is to use credit cards wisely or not at all. 

Use them don’t abuse them.

When people pay for purchases with credit cards instead of cash, they spend about one-third more money, because credit cards don’t feel like real money.  It’s just plastic. So it is easy to buy what you see, but don’t necessarily need. Racking up credit card purchases can quickly get you into trouble if you are not paying the balance in full at the end of each month.  It does not take long for interest charges to multiply your outstanding balance to the point of no return.

Paying interest on credit card purchases is a waste of money.  If something is too expensive for you to buy, and you use your credit card to make the purchase, and you carry a balance from month to month, you may end up paying multiple times more than the purchase price for that item you thought was too expensive!


The average American has about $16,000 in credit card debt. If you have an APR (annual percentage rate) of 18% on your credit card, you are paying about 0.049% in interest every day. If you start the month with an outstanding balance of $16,000, every day you are being charged roughly $7.84 in interest.  In a month that adds up to $236.88. In a year your interest payments will add up to $2,822.40 if you aren’t making significant progress paying down the balance. Surely you have better things to do with almost $3,000 than give it to the credit card company in interest payments. Paying interest on credit cards is simply a waste of money.  It’s making the credit card company rich and draining away your financial success.

Sirach 20:12 sums up interest payments in this verse, “There is one who buys much for little, but pays for it seven times over.” The longer you keep an outstanding balance on your credit cards, the more likely it is that you will be paying seven times the purchase price for whatever your charged on your card.

Using credit cards wisely means only using credit cards for budgeted items.  It is important to your financial future to pay off your credit card balance every month and avoid interest charges. This is where a budget is used to help you manage. On the same day that you charge something on your credit card, deduct the amount from the appropriate budget category. You spent the money via your credit card, so it is no longer money in your budget that is available to spend. This way, the money to pay off the credit card will be available at the end of the month and you will not be digging a debt hole that you may not be able to escape.

If you are tempted to use credit cards for an unbudgeted purchase, use a “Wish List.” Write down the date and the item you want.  Get three prices.  Wait 30 days.  If you still want the item after 30 days AND you have saved the money in your budget, go out and buy it.  If something else comes to your attention that you want to buy before the 30 days is up, cross out the first item. Write down the second item you want along with the date. Get three prices. Wait 30 days. If a third item gets your attention before the thirty days is over, start the process all over again.  Cross off the second item, write down the third item … This is a sure way to stop those impulse purchases that turn into budget busters.

Destroy your card the very first time you have a credit card bill that you can not pay in full the month the bill is due.  Use one of our proven strategies.  Cut it up into little tiny pieces or put it through the shredder.  Put the credit card in the oven at 3500 for half an hour. Or freeze your credit by sealing the card in a plastic baggie, putting the baggie in a bowl, filling the bowl with water and putting the whole thing in the freezer.

And always pray and ask for strength to follow through with your efforts to get out of debt.

The best way to avoid financial problems is to avoid the situations that are most likely to cause financial problems. For most families, the primary cause of
financial problems is the misuse and abuse of credit cards.

If you fall into credit card abuse, it is in your best interest to function without them. Being disciplined and paying the balance in full each month will ensure that your credit cards will not be abused.

Evelyn Bean

To save or Not to Save – That is the Question

piggy-bank-1595992_1280Today’s blog title is a take off on a scene from Shakespeare’s play Hamlet. In this scene, Prince Hamlet was contemplating the meaning of life.

Today’s blog contemplates the reason for saving.

The savings rate of the average American has hovered around 5% for the last several years. The personal saving rate is the net amount of money saved as a percentage of your disposable personal income (gross income minus deductions and, in our opinion, also minus giving.)

But according to Nerd Wallet, a savings rate of 5% is far too low. Most financial planners advise their clients to save between 10% to 15% of their disposable income for emergencies, retirement and other needs.

Saving takes a conscious effort, dedication and hard work. But having an emergency fund or fully funding your retirement is well worth the effort.

Proverbs 21:20 tells us, “Precious treasure remains in the house of the wise, but the fool consumes it.” Saving can be hard work, but spending every penny you make is simply foolish. Too many people think they will get to a point sometime in the future when saving will be possible. They live each day looking to an uncertain future without making a concerted effort to make saving a priority.

Every little bit you save will help build your nest egg, so start with whatever you can do, even if it is a very small amount. There can be a huge difference between saving small steady amounts on a regular basis versus waiting until you have one big lump sum to save.

One of the exercises we do in the Compass workshops is to make a deal with the attendees. We ask “Which would you prefer, a lump sum of $1,000 right now or a penny a day doubled every day for a month?” Most people look at $0.01 and compare it to $1,000 and take the thousand dollars. The interesting thing is that a penny a day doubled every day for 31 days will net over $10,000,000!

While the penny exercise may be unrealistic, it is a good way to illustrate how a small amount can grow exponentially.

Here’s another example of exponential growth. If a person saves $2.74 per day they will have $1,000 in a year. In 40 years, at 10% interest, the $2.74 per day will grow to over $500,000. If they wait just one year and only save for 39 years, the difference is over $50,000 less!

Compounding your savings makes a huge difference and is based on three variables: the amount you save, the interest rate you earn, and the length of time you save.

1. The amount you save depends on your income and spending. Learning God’s way of handling money will help you focus on being a conscious spender so you can find ways to save.

2. The interest rate you earn has a huge impact on how quickly your savings will grow. An interesting fact about savings is how long it takes your money to double. It’s called the rule of 72. Take the number 72 and divide it by the amount of interest you are earning, and the result is how long it will take your money to double. If you are earning 3%, your money will double every 24 years. If you are earning 6%, your money will double every 12 years.

3. Time is the third factor. Answer this: Who would accumulate more by age 65: Danielle who started saving $1,000 a year at age 21, saved for eight years, and then completely stopped; or Matt who saved $1,000 a year for 37 years starting at age 29? Both earned 10% interest.

Interestingly, at age 65, Danielle who saved a total of $8,000 has $427,736 while Matt who saved $37,000 has $363,043. Danielle saved $29,000 less and accumulated $64,693 more.

As you can see from this example, since Danielle started earlier, it made a huge difference in the total amount over a long period of time.

1 Timothy: 16-19 gives us good advice about our attitude toward gathering riches:

“Tell the rich in the present age not to be proud and not to rely on so uncertain a thing as wealth but rather on God, who richly provides us with all things for our enjoyment. Tell them to do good, to be rich in good works, to be generous, ready to share,
thus accumulating as treasure a good foundation for the future, so as to win the life that is true life.”

We need to guard against the human tendency to be proud of our wealth. When we accumulate assets we have a tendency to place our confidence in them. Someone once observed, “For every ninety-nine who can be poor and remain close to Christ, only one can become affluent and maintain a close relationship with Him.”

It is human nature to cling to the Lord when it’s obvious that we have no place else to turn. Once people reach financial freedom, however, they often take the Lord for granted because they no longer think they have as much need of him.

When you have financial resources, the tendency is to turn to your money to solve problems, instead of first praying and seeking the Lord. We tend to trust in what we can see with our eyes, rather than in the invisible living God. We need to remind ourselves that wealth is completely uncertain, and can be lost in a heartbeat. The Lord alone can be fully trusted.

Sirach states it well, “Use your wealth as the Most High has commanded; this will do you more good than keeping your money for yourself.” (Sirach 29:11, GNT) By saving and investing with a godly attitude, and balancing saving with generosity, we can live the fulfilling life God intends for us now.

Cosigning is Bad for Your Financial Health

writing-1149962_640Many people gladly cosign a loan thinking they are doing the right thing by helping someone out of a difficult situation. Cosigners are usually friends or relatives who sign loan papers for someone who’s not able to get a loan on their own merit.

It seems like a good idea at first. You may be trying to help your daughter or son go to college. You may be assisting someone who is trying to purchase a home. Or maybe your brother needs to replace his car. Whatever the reason, cosigning is always done with the best of intentions.

You may think your only responsibility is to sign the paperwork and as long as they pay the loan back everything should be great, right?

Maybe not!

When you cosign you are agreeing to pay the loan in full if the person you cosigned for does not pay. You are legally responsible for the debt. By co-signing, you have promised to pay off the entire loan if the borrower does not pay.

Cosigning is required by a lending institution when a person applies for a loan and their credit score and credit history indicate they are a poor loan risk. The lending institution requires a cosigner to guarantee the loan. In other words, the lending institution with millions or billions of dollars in assets will not risk making the loan because they do not think the borrower can pay back the loan.

When you cosign you become fully responsible to pay the loan if the original borrower cannot do so. If the borrower makes late payments or does not make payments per the loan agreement, it is reported on YOUR credit report. You are risking what ever assets you have to guarantee the loan for which you are cosigning.

Therefore, if the borrower pays 30 days late, the late payment appears on your credit report. Your credit report will get a negative hit and your credit score will be affected. One thing most people do not consider when they are co-signing is that if the borrower defaults, your credit could be affected for at least seven years.

Cosigning means you get all the problems that come with debt and none of the benefits since you do not have possession of whatever the person bought. Your daughter or son may have a college education and your friend may have a house and your brother may have a car but you have the debt.

Proverbs 17:18 says “Senseless is the man who gives his hand in pledge and who becomes surety for his neighbor.” The Bible is telling us that we have no sense if we cosign.

The statistical truth supports the Bible. Rather than the original borrower paying their own loan, you, the cosigner will most likely end up paying for the loan. If you agree to cosign someone else’s loan, statistically the odds are against you. Various sources indicate the borrower defaults on approximately 75% of cosigned loans so before cosigning a loan you should think twice. In the end, you will be grateful you took the time to think about it.

Bankrate.com defines the following top ten reasons to avoid cosigning:

  1. All the risk, very little reward
  2. The lender will sue you first if payments are not made
  3. You may need to sue the other responsible party if payments are not made and you get sued
  4. The person you help will be happy, but you have a lot to lose
  5. Cosigning and financial issues can destroy friendships or family relationships
  6. You are 100 percent liable for the loan and it could be a significant amount
  7. You could face tax consequences if the debt is settled
  8. If you need a loan, the cosigned debt on your credit report may have a negative on the approval of your loan
  9. You are fully responsible to make the loan payments if your co-signer defaults
  10. To ensure protection you need to monitor the payments your cosigner makes

Cosigning means you are paying on something you don’t own, the relationship with the other person has probably been ruined, your credit has been wrecked and your financial future is in jeopardy through something you could not control. Doesn’t really sound like a very good deal, does it?

If you’re considering co-signing, think about this verse from Sirach 29:17 “Going surety has ruined many who were prosperous and tossed them about like waves of the sea.”

Cosigning can be very dangerous to your financial health.

God Knocks-How do you respond?

Screen shot 2013-02-21 at 4.28.47 PMYou hear a knock at the door and open it to find God saying …  “Come follow me …” (OK, He probably won’t actually knock on your door, but we all know he does call us.)

As God continues with his revelation for your life, you’re thinking, “This is not a good time to be called.  I have a business to run and I need to work.  I owe about $10,000 on my credit cards; I just bought a new car, and I’ve got this home mortgage that needs to be paid!  I just can’t pick up and leave!”

You’re not alone.  Almost every American is in the same predicament and Catholics are no better that the general population.  If God came today asking you to walk away from everything and follow him, would you have to say “No” due to financial obligations? Very often our ability to respond to God’s call is directly related to our financial situation, especially as it applies to debt.

The Bible clearly discourages debt.  Romans 13:8 reads: ‘Owe nothing to anyone, except to love one another,” and in (Proverbs 22:7) we learn that “The rich rule over the poor, and the borrower is the slave of the lender.”  If you don’t feel like a slave, try missing a payment on your mortgage, car loan or credit card.

There was a recent newspaper article touting the latest changes that Americans are making in their financial lives by saving more and spending less.  Is this really a permanent change, or is it man’s natural instincts for self-preservation kicking into overdrive? Will it all be forgotten next year when the economy revives and our human instincts for material wealth kick in again?

Maybe instead of a knee jerk reaction to a frightening financial situation, the recent financial woes have provided opportunity for a conversion experience. True conversion means turning our heart and mind toward God.  In Isaiah 55:8, God tells us, For my thoughts are not your thoughts, nor are your ways my ways, says the LORD.”

As users of the resources that God has blessed us with, we should be careful spenders not just during the current crisis, but as a response to his call to be good stewards of all the blessings he has showered upon us.  Our society does not think that how we handle money has a direct impact on our spiritual life.  As Catholics, we must not only think that way but also act that way and live our lives according to Mark 8:36 “For what does it profit a man to gain the whole world and forfeit his soul?

Use today’s economic crises as a time for conversion.  Change your ways.  Think about the future.  We are called to act differently than the rest of the world.  We are called to shine his light.  We are called to make a difference.   We are called to be his presence in the world.  Our situation related to debt can hamper the response to that call.

Think about a different scenario. You hear a knock at the door and open it to hear God say “Come follow me …” As God continues with His revelation for your life, your response is an excited acceptance of the call. “Here I am Lord!  I will go if you lead me.”