Debt

Are You Prepared for the Next Recession?

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We aren’t predicting a recession tomorrow. But after such a long “Bull” run there’s bound to be a downturn sooner or later, and now is the best time to prepare your financial life so that you don’t get turned upside down or inside out when it happens.

Even a mild recession could cause a lot of pain for people with credit card debt. The next recession may not be as extreme as the one that occurred in 2007-2008, but it doesn’t have to be in order for credit card delinquencies to become a significant problem. 

Even now, amid a record 10-year economic expansion, most people are doing well, but some are living close to the financial edge and delinquencies are ticking up. 

What does your current and future financial picture look like? Just 35% of Americans have enough savings to cover three months’ expenses, and 28% have no emergency savings at all. Additionally, 39 million U.S. adults have been carrying credit card debt for at least two years, and another 8 million can’t recall how long they’ve been in debt. About one fourth of people who have debt expect to die before they can pay it off.

All of this despite an extraordinarily low unemployment rate of 3.7%. Makes you wonder what will happen if the unemployment rate goes back up to a more traditional 5-6% rate.

If you listen to the financial gurus on the TV and internet their top tip for paying off a credit card balance is to get a 0% balance transfer card, which lets you transfer your existing high-rate credit card debt to a new card with no interest for up to 21 months. They say that depending on how much you owe, a balance transfer could save you hundreds, maybe even thousands of dollars. 

The second top tip is to get a personal loan and use that to pay off the credit cards. Rates aren’t zero, but they are as low as the mid-single digits if you have good credit. The financial gurus suggest personal loans are a useful way to consolidate debt and lower your interest rate. 

The major issue with both of these two “Top Tips” is spending habits. 

If you haven’t changed your spending habits and you pay off your credit cards, you’ll have an open credit line. And that open credit line is tempting to use, potentially running up more significant debt. If you do that, you still have to pay the “old” debt that you transferred to the 0% card or the personal loan. So instead of taking a positive step forward, you have just taken a huge leap in the wrong direction.

It’s time for an attitude adjustment! Think about why you are spending money and how you are spending it. Are you trying to buy happiness? If you are buying things to make you feel better, what is it about your life that you don’t like? If you can focus and change the parts of your life that you’re not happy with, will that eliminate the spending sprees?

Another approach would be to think about the way you spend. It is much harder to spend using cash rather than credit. Carrying cash in your wallet means there is a limit to how much you can spend. Using credit means not really spending the money till the payment is due. Studies have shown that people spend about one third more when using credit rather than cash. Maybe it’s time to leave the credit cards home when you go to the mall.

Here is another approach. Review each of the purchases you made on your last credit card bill. Evaluate each, one rating it from 1-5. Did the purchase make you happy? With 1 being the happiest. We’re not talking about happiest at the point of purchase. We’re talking about happiest today during your review. You need to seriously think about any purchase that scored 3-5. What can you do to make all purchases score a 1 or 2 on the happy meter, even weeks after the initial purchase?

Do you live from a perspective of scarcity or abundance? Most people live from a scarcity mentality, thinking there is never enough. The focus is that we might not have enough. We might suffer from the lack of something. 

Take a moment to think about what things would look like if you lived from an abundance mentality. First, thought is that you already have enough and you don’t need more. The quest to buy happiness disappears.

In Paul’s first letter to Timothy he said “For we brought nothing into the world, just as we shall not be able to take anything out of it. If we have food and clothing, we shall be content with that” 

Nothing has changed in the past 2000 years. We still enter the world with nothing. We still can’t take anything with us when we die.

You can be prepared for the next recession if you focus on getting out of debt and stop spending in an effort to buy happiness. 

The Compass Catholic podcast shares more about preparing for the potential of a recession.

The Spiritual Impact of Debt

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Online shopping

In all the parishes we have visited all over the world, there have only been two or three times when the priest gave a homily on responsible spending and the benefits of avoiding debt. But when he did preach on that subject, he had the full, rapt attention of the congregation.

Online shopping

After all, money is something we deal with every day. We are either working to earn money, spending money, planning how to spend money, or using something on which we have spent money. Money is a big part of our daily life, and too often a large part of how we handle money includes debt.

Many churches don’t talk about personal finances unless there is a need for increased giving. Yet the spiritual impact of debt is clear:

  • Financial challenges can ruin marriages, leading to divorce.
  • A family wants to send the kids to Catholic school, but can’t afford the tuition because there are other places where their money is committed.
  • Vocations get postponed because many religious orders or diocesan vocations offices will not accept candidates who have student loan debt.
  • People feel like they can’t be generous givers because their debt is overwhelming. 

In the seemingly affluent United States, out-of-control debt is sort of a quiet monster. We are discovering something that Sirach talked about around the time of 200 B.C. Sirach lived in Jerusalem with all of its trade and travelers. He realized that “a man may buy much for little, but pay for it seven times over” (Sirach 20:11).

And paying seven times over is what happens to us when we buy stuff using credit cards that never get completely paid off. Debt that just keeps growing is first of all a money problem, but it can become a spiritual problem too, as debt drags us into slavery.

Overwhelming debt can make people feel isolated, embarrassed, and alone. When creditors call day after day, stress will eat away at peace of mind. Debt can make people feel depressed and powerless. 

One of the most amazing things about America’s growing difficulty with debt is what kind of people fall into the pit. Without paying attention to where the money is going, it could easily happen to anyone. There is no common thread among those who get into financial trouble. People with six-figure incomes can get into debt trouble as easily as someone whose income is much less.

People run up their credit cards month by month. In the short term, there really isn’t much pain. Minimum payments are easy to make. Then the balance balloons out of control and the interest rates and late fees hammer them, and suddenly the monthly payments don’t even touch the principal.

Spiritual questions about overspending include why people do it, and if they ever reach a point where they feel like they have enough. If we keep spending and spending and if we can’t afford it, it’s a huge spiritual issue. It means we don’t trust God to provide what we need and we are looking elsewhere for fulfillment.

Pope John Paul II, in a 1998 homily, described consumerism as a false antidote to spiritual emptiness. “Christ alone can free [us] from what enslaves [us] to evil and selfishness: from the frantic search for material possessions, from the thirst for power and control over others and over things, from the illusion of easy success, from the frenzy of consumerism and hedonism which ultimately destroy the human being,” the late pope said.

Consumerism can be an addiction. Your consumerism can consume you just as much as other pursuits can, and that’s not helpful to your pocketbook much less your soul.

The way we spend our money is an expression of our faith. We spend our money, time and thoughts on the things which are most important to us. Stop and think for a minute—what are your priorities? Over the last month, where did you spend your time, money and thoughts? Those are your priorities.

How you spend your money is an indication of how you integrate your faith into every aspect of your life. Getting out of debt means intentionally deciding not to define yourself based on what you own.

That’s not to say that spending is inherently wrong, or that treating yourself to some nice things is bad. But how much you buy depends on how much you can afford, and that is a reflection of your values.

It’s amazing how content we can be living a very simple life if we would only make the effort to do it. 

There is a parable about a man who had an abundant harvest and didn’t have enough space in his barn to store all his grain. He decides to tear down the barn and build a larger one. That same evening the man dies, showing the futility of putting our faith into material possessions.

People who have dragged their way out of debt say not owing money gives them a sense of joy, freedom and gratitude to God. They live out their understanding that everything they have is a  GIFT from God.  With that understanding comes thankfulness and peace, along with a sense that God will provide for them in good times and bad.

Everything that we have, including our money and possessions ultimately comes from God, not our own efforts. As Paul reiterated in Acts 17:25,  “it is [God] who gives to everyone life and breath and everything.” When you realize this, it suddenly became a lot easier to escape from the grasp of consumerism and quit trying to fill the void by accumulating more stuff. 

“To be full of things is to be empty of God.  To be empty of things is to be full of God.” (Meister Eckhart) 

The Compass Catholic podcast shares more about the spiritual impact of debt.

26 Weeks Till Christmas

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26 Weeks until Christmas

 

26 Weeks until Christmas

Breaking News … This year … Christmas will be in December! 

As you probably know all too well, the holiday season can be a major financial drain each year. Many of us don’t budget or plan for holiday spending throughout the year.  The result is that Americans whip out the plastic for Christmas spending and use credit to finance Christmas costs.

A survey from Magnify Money indicated that: 44% of shoppers racked up more than $1,000 in holiday debt last year and 5% accumulated more than $5,000 in debt. 

Paying off those balances can take months or even years. Only half of those surveyed expected to repay the debt within 3 months. Almost a third of the survey participants (29%) said they need more than five months to pay it off, often leading to growing balances on their credit cards and lots of money wasted paying interest. More than 10% of people surveyed said they would only be able make minimum payments on their credit cards. 

So let’s go thru a real life example of Christmas credit card debt. If the shopper spent $1,054 on Christmas and pays a minimum payment of $25 each month. He will be paying down the balance from Christmas 2019 till 2025. With an average interest rate of 15.9% the consumer will pay $500 in interest – that’s half of what they spent initially. And if they take on an extra $1,054 in debt every Christmas, the amount of money wasted paying interest grown exponentially.

It is easy to understand why the number one fear of people during Christmas is debt. Unfortunately, people willingly put themselves in that position. There is no law requiring us to overspend at Christmas—it’s a choice we make!

That’s not what Christmas is all about. Do you think the Lord wants us to celebrate the birth of Jesus by taking on debt which takes years to pay off?

That’s why we’re talking about Christmas in summer… because we are 6 months into the year. It’s not too late to start saving now to avoid the Christmas debt. You still have 5 months to build a Christmas nest egg.

Now I can hear a lot of you thinking that you can’t possibly save 1/5 of your Christmas costs over the next 5 months. So my question to you is “How can you possible afford to pay for all those Christmas costs PLUS INTEREST in the months and years following Christmas?”

The reason so many people get into debt for Christmas is simple—they haven’t planned ahead. They haven’t saved or given thought to how they may be able to creatively reduce the cost of Christmas. If you haven’t already developed a budget for Christmas do it now and start saving money to avoid the Christmas debt trap and eliminate the post-holiday stress.

Our cost savings plan for Christmas is that we do not exchange gifts with each other. That may make us sound like scrooges but we aren’t.  Our priority is to go places and have experiences instead of collecting more stuff. At this point, our ability to travel is so much more important to us that simply buying things.

We already have enough stuff and we don’t really need anything so why should we rack our brains trying to come up with a unique idea that neither of us really wants?

And we don’t need to spend money to prove we love each other. We have a strong marriage and a good relationship and we don’t need a holiday to remind of us of how important we are to one another.

The other reason we don’t buy each other gifts is because we have a limited amount of money and higher priorities. The more we avoid spending on non-essentials, the more cash we have left to fund the goals that are most important to us.

Don’t put your important long term goals at risk by spending money buying gifts people don’t want or need. You probably have much higher priorities. Once your priorities are in order, keeping the Christmas spending under control becomes easier.

Start by figuring out how much you spent last year for Christmas, including travel, parties, special meals, gifts, decorations, etc. Divide that total by the number of paydays till Christmas. The result is how much you have to save each paycheck to have a debt free Christmas.

If things are tight, decide to cut down on the number of gifts you’re giving until your finances are in better shape. Instead of trying to buy gifts for each person, decide to draw names and each person buys for one other person. Now is the time to have the discussion with other family members and friends about cutting back on Christmas spending–they will probably be as relieved as you are to simplify things.

We had a mom share with us her simple formula for Christmas gift giving.

Each child gets 5 presents:

  • Something to wear
  • Something to share
  • Something to read
  • Something they need
  • Something they want

This family discovered how to keep their Christmas spending in bounds with their budget.

As a family focus on the real reason for the season—to celebrate the birth of our savior. Make a commitment to focus on the spiritual side of Christmas by centering on celebrating the birth of Jesus.  Now is the time to discuss how you can do that–otherwise you are into the holiday season and it is too hard to change what you’ve always been doing.

The most important thing you and I can do is to remember why we’re celebrating Christmas—the birth of our savior, Jesus Christ. In the busyness of the season, it takes an intentional effort to focus on the true meaning of Christmas, to have a spirit that’s ready to worship the Christ of Christmas.

Start that journey now by prayerfully making the commitment not to go into debt this Christmas. The only gift anyone really needs at Christmas is the Baby Jesus.

Tune into the Compass catholic podcast for more on how to prepare financially for Christmas.

Don’t Fool Yourself About Your Finances

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Let’s face it, looking at your finances and being totally honest about what you are doing right, what you are doing wrong and what you are not doing at all is not on the top of the to-do list for most people.

But if you are not taking a realistic look at your finances, you’ll never understand the mistakes you may be making. If you don’t understand them you may continue to harm your long-term financial security.

To help you in this thought process, we have compiled a list of ways people fool themselves about their finances. See if any of these apply to you:

The first way people fool themselves is to consider debt to be a normal part of modern life. People use credit cards to buy the things they want and make the minimum payment on the credit cards, maintaining a balance and never paying them off in full. If you are digging yourself deeper and deeper into debt each month by using credit cards to finance a lifestyle you can’t afford, sooner or later you will find yourself in a hole so big that you can’t climb out of it.

This is not to say you have to pay for everything with cash; mortgages and student loans are a practical reality for the vast majority of Americans. And using credit cards is a convenience of modern life. What we are saying is that if you spend more than you earn on a regular basis, and use credit cards to fill the gap, it always catches up with you.

If you can’t subtract your monthly expenses (including what you buy on credit) from your income and come up with a positive number, then you are fooling yourself with the numbers. In order to spend less than you make, it’s crucial to make a realistic budget and stick to it, so you can live within your means.

Using the word “need” when you really just want something is another way people fool themselves. There is a difference between needs and wants. Needs are the basics in life—food, clothing, and shelter. Wants are above and beyond needs—like buying the new cell phone when yours is perfectly usable, going out to eat at restaurants, a newer, bigger house, or more clothes when your closet is already full.

To see if you are fooling yourself, think about how honest you are in acknowledging the difference between needs and wants. Philippians 4:19 tells us that God will supply all our needs. He never promised to give us everything we want.

We can fool ourselves if we think that the next thing we buy will make us happy. Happiness is a state of mind and while you may get some temporary satisfaction out of a new possession, it will never bring happiness for long. Because if you set yourself up to be happy based on buying things you will be in a never-ending cycle of “what’s next?”

You will never be content if you are always in pursuit of the next purchase in an effort to buy happiness. In 1 Timothy 6:8 we learn that if we have food and clothing we shall be content. Yet our society always encourages us to be in pursuit of the next acquisition.

If you think you don’t make enough money to save anything, you are fooling yourself. You may not be able to save a lot of money, and financial advisors can disagree over precisely how much you need to save for an emergency fund or retirement. But if you are not saving anything, and you are living paycheck to paycheck sooner or later you will run up debt. You are ignoring the fact that sometime in the future you are going to have a financial emergency: a health issue, accident, pay cut, or layoff can put your finances into a tailspin.

Every American should be saving for retirement in some way. Don’t fool yourself by thinking there is time to save for retirement later. If your employer offers some kind of 401k match, failure to save is an even bigger mistake. You are turning down free money from your employer as a reward for something you should be doing anyway, so take advantage of it. The best way to build a retirement savings account is to start early and save on a regular basis. Proverbs 21:5 encourages us to save via steady plodding—small amounts on a regular basis.

If you just have to make an investment because the opportunity is too good to be true, you are fooling yourself. There are always risks with any investment. Promises of instant profits through day-trading or house-flipping are often too good to be true. Keep your greed in check, save for emergencies and your retirement on a regular basis so you don’t have to take big risks by wasting your money on something too good to be true.

If you do have retirement savings, you are fooling yourself if you think the money in your 401k or IRA is up for grabs to spend on your wish list. Cashing out one of these retirement funds early can result in steep penalties, eating into your hard-earned savings.

In addition to the tangible loss of your saved money and the penalties you pay, you still need to save for retirement. Shifting the shortfall from one part of your budget to another is not a real long-term solution. Any money taken out of your 401k or IRA could have been growing over time—so you don’t just lose the money that’s withdrawn, you also lose the interest you could have earned on the money you withdrew.

It is really easy to convince yourself that you don’t make enough money to be generous, or that you need the money more than the church does, or that you don’t agree with the way the pastor is spending the weekly donations. These are some of the ways you can fool yourself and justify not giving. But the act of giving comes from what you have, not what you think you need in order to be generous.

Giving is not done because God needs the money, it is done as a way for us to honor him and acknowledge God as the source of everything we have. Acts 20:35 tells us that it is more blessed to give than to receive.

Money is just a tool yet we give it so much more importance than it deserves. We think money will give us happiness, contentment and peace; and the more money we have the better off we will be. But if you aren’t happy with what you have, you will never be happy when you get what you want.

Mark 8:36 asks us to consider “What profit is there for one to gain the whole world and forfeit his soul?”

Join the Compass Catholic podcast to find out if you are fooling yourself about your finances.

Eliminate Holiday Spending Stress

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Thanksgiving, Black Friday, Cyber Monday, and Giving Tuesday have all come and gone and the Christmas buying season is upon us. Before emptying your wallet and racking up credit card debt, take some time to think through WHY it is so easy to overspend at Christmas by reading the stories below.

Maria is a divorced mother of two teens. She overspends on the holidays out of guilt, trying to make up for the emotional disruption in her children’s lives by showering them with gifts. She knows deep down that when the credit card bills arrive in January, she will experience terrible anxiety.

Christmas is all about kids, and it can be a magical time where we make lots of happy memories. However, teens aren’t clueless and they can and do understand that money is not an infinite resource. You are not a bad parent if you can’t buy every single thing your kid likes or sees or wants. More to the point, they won’t stop loving you if you fail to provide an avalanche of presents. Let’s admit it, NOT making kids happy is a deep, dark fear that drives a lot of unhealthy financial behavior at this time of year.

Even little ones know Santa only has so much room on his sleigh. If you’re secretly worried a child will reject you over gifts, remember that they want your love, approval, time, and undivided attention. And if you have taught them to value material possessions over these things, you may want to rethink what you are teaching them. Prioritize your budget to spend more on the children than the adults. But balance this against the knowledge that overspending in the short term can be bad for the whole family in the long term.

Let’s look at Tom and Sue who LOVE the holidays and do everything they can to make the season festive and fun. They use a budget during the year, but it gets tossed out the window at Christmas. They would never want to disappoint their twelve nieces and nephews, six siblings, parents, neighbors, friends and even casual acquaintances.  Every year, they overspend their budget in quest of the PERFECT Christmas. And every January, they pay the price in stress, finance charges, and post-holiday misery.

Our own lives can seem messy when we compare them to our friends and neighbors. Top that with multiple media images of perfect families with perfect homes and armfuls of gifts and you have the textbook recipe for a holiday inferiority complex. We are holding ourselves up for scrutiny against an airbrushed, photo-shopped version of other people. But what you see in the media isn’t REAL. For all you know, the neighbors you envy may be up to their eyeballs in debt and their over-decorated house of cards might come tumbling down at any minute.

Make a conscious effort to stop comparing yourself to others. Who cares what other people think? Take a few moments to write a list of the things you truly care about, that bring you real joy and happiness. Shifting your focus can help you to prioritize what is most important, and is most likely to bring you lasting happiness in a way that material goods cannot. You can’t buy a good Christmas, you can only make one.

Emma and Ben have enough money that overspending during the holidays is not a problem. But what really makes them crazy is to see the holiday focus on elaborate gifts while friends and family miss the real reason for the celebrations. They hate seeing gifts that are broken, discarded, or ignored as soon as the holiday has passed. They struggle with the feeling that their money is not being well spent.

This situation is often linked with having one or more demanding, unreasonable family members who are difficult to stand up to. Don’t be a martyr. You can’t actually make people like that happy, so quit trying. There’s no point exhausting yourself and your bank account. Re-think the situation: what’s affordable and comfortable for you?  State your intentions simply without apologizing, justifying or arguing.

For example, “We’re only buying presents for the kids this year.” Sure, it feels weird the first few times you try acting assertively around certain friends or relatives who aren’t used to it, but it gets easier over time.  You can do it without being nasty or looking like the bad guy. The world won’t end if you say ‘no’ every now and then.

Sam and Suzie would never dream of buying presents at the discount store or doing anything other than over the top gift giving, decorating, party throwing and meal planning. Because they DESERVE the BEST! But, every year they get stressed out and the holidays are less than joyful, especially as the credit card bills start piling up in their mailbox.

Christmas is not really about deserving anything, is it?  Either you can afford something or you can’t, however entitled you or anyone else might feel. Do the math. If you can’t afford it, you can’t afford it. There’s nothing wrong with buying the standard version of something, if that’s what your budget allows.

In mid-December, Josie heads to the store for Christmas gift shopping. She doesn’t have a list—only a vague idea of what to buy and who to buy for. She wanders around aimlessly picking up those gifts that seem like a good idea. But when she gets home the gifts are all wrong and she forgot half the things she wanted to buy in the first place.

One of the biggest risks to our budget is panic buying. Feeling rushed or overwhelmed leads us to make snap decisions. We take the easy way out rather than the smartest option, and it ends up costing far more than we’d planned.

To avoid being in debt for months and months during 2019, avoid panic buying. Take a deep breath, calm down, check your budget and develop a detailed list for each person. Then stick to the list! Keep yourself focused and the panicky feelings will be a lot easier to overcome.

The holidays are rapidly approaching, but there is still time to take these proactive steps to avoid finding yourself in a financially stressful situation come January. If you see yourself in one of these situations, rethink what Christmas is all about.

Once Christmas 2018 is finished, we highly suggest saving 1/12 of your Christmas budget each month. If you say you can’t afford to do that, what makes you think you can pay the credit card bills for Christmas 2018, PLUS interest.

After all, the buying frenzy that occurs every year at Christmas has absolutely nothing to do with the baby in the manger, the gift of God made man. The only one and true gift we need at Christmas.

Here’s wishing you an affordable Christmas, and a financially stable New Year.

Join the Compass Catholic podcast for more about eliminating holiday spending stress.

Don’t Go Into Debt for Christmas

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Halloween is just finished and we are getting ready for Thanksgiving. Yet all the big box stores have been featuring twinkle lights and Christmas trees for weeks! 

We rush from one frantic buying season to another without even thinking about what the holiday is and why we should be celebrating. Unfortunately, this puts a lot of financial pressure on people to spend money they may not have.

Many parents are beginning to wonder how they’ll fund the Christmas holidays this year. According to CNN, two-thirds of America’s gift giving families spend more than they can afford, meaning many parents will go into debt to buy Christmas presents this year. They’ll use credit cards for Christmas spending, run up a big balance, and the Christmas bills will get paid off just about the same time the whole cycle restarts next year.

Other people will take more drastic measures to fund their Christmas purchases, such as 11% taking funds from their retirement account, 14% using their emergency fund, and 11% taking out a payday loan.

Christmas should be about creating memories, not about creating debt, stress or future financial problems. Christmas is a wonderful time of year, but it isn’t worth putting your long-term financial security at risk in order buy presents or to try and keep up with some false concept of what Christmas is all about.

It might seem harsh, but you don’t have to buy gifts for all your family, friends, neighbors, coworkers and acquaintances. Not everyone has the budget to give a beautifully wrapped gift to everyone in their life.

For many of us, being able to give amazing expensive gifts would be nice and we like to be generous, but the reality is that we simple can’t afford to be Santa to all the people in our lives during the holidays. Making everyone you love feel special at Christmas is awesome but it’s not worth sacrificing your financial future. Think about ways to create special fun times without going on a spending spree.

If you’re from a large family, suggest that you each pick a Secret Santa. That limits the gift buying to one person and makes it much less stressful and expensive.

Or try a white elephant gift exchange game where everyone just brings one wrapped gift, and there is usually a $$ limit on the gift. As people arrive, pile the gifts in one location and hand them a numbered slip of paper. When it’s time to open gifts, the person with #1 chooses a gift first. Person with #2 can either “steal” the gift from #1 or take a gift from the pile. Set up your own rules about how many times a gift can be taken and if gifts can only be taken once in a round.

This is a fun time, involves everyone, and is a simple way to give gifts to the family while also maintaining a dollar limit on your spending. In addition, it eliminates the financial stress of buying something special for each person in the family.

You can always make cookies for your neighbors or your children’s teachers or buy a $5 gift card to a local coffee shop. Attach a handwritten note saying how much you appreciate them and how they have touched your life. A personal message will mean more to people than an overpriced item they aren’t going to use. Try to think of all the ways that you can tell the people in your life that you appreciate them and be thoughtful without breaking the bank. The truth is that there are plenty of ways to spend less than you did last year on Christmas presents and still give the people in your life gifts that are both special and personal.

If you’re accustomed to shopping in person for your gifts every year, consider shopping online this time. The online experience can be much more peaceful and thoughtful than battling the crowds at the mall, or succumbing to the pressure to buy SOMETHING just to get out of the mall.

Don’t tie gifts to your worth as a parent. Kids don’t care whether or not their gifts are brand new. They don’t care that you spent hundreds of dollars to make sure they had the hottest gift of the year. We all know that if you put four massive cardboard boxes in your living room on Christmas morning your kids will have a ton of fun (unless they’re teenagers). So, try to relax. You’re not a bad parent if you limit your spending or buy your child a bike at a garage sale.

If you’re not sure how to rein yourself in when it comes to shopping for your kids, try using the Five Gift Rule:  1. Something they want; 2. Something they need; 3. Something to read; 4. Something to wear: 5. Something to share. It’s a great way to organize your gift giving without breaking your budget.

Kids remember Christmas because it’s a fun time of year. They remember it because they get to spend time with you, their parents. They get to eat cookies and sing fun Christmas carols. So, don’t put too much pressure on yourself. And don’t set unrealistic expectations for the kids where every gift-giving event is over the top. They aren’t going to count each gift and ask the price of everything under the tree. And if they are counting gifts and calculating how much you spent, what does that say about what you’re teaching them?

Going into debt for Christmas presents prevents you from reaching your long-term financial goals, like paying for your kids’ college tuition, paying off debt or funding your retirement. Every time you go into debt to buy a present, you’re choosing a physical object over your long-term financial security. 

Before you do any shopping, you should be able to answer these questions: What is your total Christmas budget, including gifts, food, decorations and travel? What is your Christmas budget for GIFTS this year?  How much do you plan to spend on each person? What gift will mean the most to each person?

Remember what Pope Francis has said about money: “If money and material things become the center of our lives, they seize us and make us slaves.” Don’t become a slave to our culture’s ideas of what Christmas should be!

Keep your eyes focused on Christ—the reason for this season—and not on what you feel forced to buy! Start planning now and don’t go into debt for Christmas.

The Compass Catholic Podcast has more about how to stay out of debt this Christmas.

The Spiritual Cost of Debt

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In our seemingly affluent United States, out-of-control debt is a quiet monster in our parishes. Over half of all Americans cannot pay cash for an unexpected $400 expense. So, they put it on their credit card. Add up several unexpected expenses along with regular monthly credit card spending and soon they are in debt over their heads. Then along comes a job layoff or illnesses or accident and the debt monster is upon them.

The debt monster keeps growing. In round numbers, according to a report in The Motley Fool, the average American with credit card debt carries a balance of $16,000. The average mortgage is $190,000. Student loans average $20,000 and car loans add another $31,000. With one car loan the average family has $257,000 in debt and with two car loans, the debt climbs to $288,000.

Debt that just keeps growing is, first of all, a money problem, but it can become a spiritual problem as we get dragged into slavery to service the debt. Proverbs 22:7 says that “the rich rule over the poor, and the borrower is a slave to the lender.” If you don’t think you are a slave to your debt, try missing a few payments and see what happens.

Debt is something the scribe Sirach talked about around 200 BC. Sirach lived in Jerusalem with all of its trade and travelers. He realized that “a man may buy much for little, but pay for it seven times over” (Sirach 20:11). When we use debt to fund a lifestyle we can’t afford, the cost of interest makes us pay for something seven times over, just like Sirach said thousands of years ago.

Debt can make people feel isolated, embarrassed, and alone. Some people feel compelled to hide a debt problem they don’t want to admit and don’t fully understand. One of the most amazing things about America’s growing difficulty with debt is what kind of people fall into the pit.

It affects professional people as much as it affects blue-collar people. We’ve seen people with six-figure incomes who are struggling to make ends meet. People run up their credit cards month by month and in the short run, there really isn’t much pain. Until the interest rates and late fees hammer them, and suddenly the monthly payments don’t even touch the principal.

A lot of people are a paycheck or two away from a major financial catastrophe. There is no common thread among those who get into financial trouble but without paying attention to where the money is going, it could easily happen to anyone.

For one young couple, it all started with a $300 lawnmower. Just married with their first house, they went to the store and bought the lawnmower and paid with a credit card. Then they needed more tools, and bought them with the credit card. They furnished and decorated the house using credit cards. And they started the marriage with a large credit card debt from their honeymoon. Before they knew it, their debt was over $70,000. Unfortunately, this is unseen but not uncommon.
Catholics are no different than the rest of the US population. Most churches don’t talk about finances unless there is a need for increased giving, the annual appeal or a capital campaign. And rarely do you get any guidance about responsible spending or staying out of debt from the pulpit.

Yet the spiritual impact of debt is clear. People in debt are anxious and exhausted. The relationships between husband and wife and parents and children deteriorate when this happens because of the stress and anxiety.

Consumerism can be an addiction. People use credit to buy things they can’t afford with money they don’t have. It’s a huge spiritual issue if we never reach a point where we feel like we have enough.

Pope John Paul II, in a 1998 homily, described consumerism as a false antidote to spiritual emptiness. “Christ alone can free [us] from what enslaves [us] to evil and selfishness: from the frantic search for material possessions, from the thirst for power and control over others and over things, from the illusion of easy success, from the frenzy of consumerism and hedonism which ultimately destroy the human being,” the late pope said.

As Catholics, we need to understand that the way we spend our money is an expression of our faith. How you spend your money is an indication of how you integrate your faith into every aspect of your life.

We live in a culture that has influenced us to think that we can only be happy, fulfilled and successful if we buy the latest and greatest whatever.
Getting out of debt means intentionally deciding not to define your identity based on what you own. That’s not to say that spending is inherently wrong, or that treating oneself to some nice things is always bad. But how much you buy should depend on how much you can afford; not how much you want or how much your neighbor has.

Jesus tells a parable about a man who had a very rich harvest and didn’t have enough space in his barn. He takes down the barn and builds a bigger barn to hold all his treasure. That night the man dies, showing the futility of accumulating material wealth. Luke 12:21 tells us: “Thus will it be for the one who stores up treasure for himself but is not rich in what matters to God.”

Some Catholics who’ve dragged their way out of debt say not owing money gives them a sense of joy and freedom and gratitude to God. They live out their understanding that everything they have comes from God. With that understanding comes thankfulness and generosity toward those in need, a sense that God will provide in good times and bad, a lessening of a desire to have more and more.

Everything that we have, including our money and possessions comes from God, not our own efforts. As Paul reiterated in Acts 17:25, “It is [God] who gives to everyone life and breath and everything.” When you realize this, it suddenly becomes a lot easier to get away from the grasp of consumerism.

Bottom line is stuff will never make you happy for long. Once you get the next best thing, some other next best thing comes along. Debt can be avoided based on making conscious choices about your spending.

Catholic parishes need to teach values-based spending and help families, specifically young families, escape the debt and overwhelming consumerism we are exposed to regularly.

Listen to the Compass Catholic podcast for more about the spiritual cost of debt.

Don’t Go Into Debt for Christmas

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This year, it seems like Christmas advertising started the day after the kids went back to school.  For months, stores have been featuring Christmas decorations, trees, wreaths, lights and ideas for presents.

As a society, we seem to skip from one shopping season to another with no regard to the holiday we are celebrating.  Other than the meaningless rush to buy stuff there seems to be no reason for the Christmas holiday. We don’t even think about what we are really celebrating and what the holiday is all about. Unfortunately, this materialistic mindset has many parents worrying about how they will pay for Christmas this year.

According to CNN, two-thirds of them will spend more than they can afford, meaning many parents will take drastic measures to afford Christmas. Many of them will use credit cards for Christmas presents and go into debt which will take months to pay off. Others will take more extreme measures to fund their purchases:  11% will dip into their retirement account, 14% will use funds from their emergency savings, and 11% will take out a payday loan.

Funding short term purchases with anything other than cash can have harmful effects for years to come.  Paying off credit card debt for months means paying 15%-21% more for those presents once the interest charges are factored in. Using money withdrawn from a retirement account means a penalty on early withdrawals, lost interest and tax consequences. Raiding emergency funds for Christmas presents makes people more vulnerable when an actual emergency does occur. And using a payday loan for anything is a horrible idea. You will be paying an exorbitant interest rate plus a finance charge.  For a two week loan, the interest rate on a PayDay loan can be as much as 400% APR. 

Christmas should be about celebrating the birth of Christ, creating memories, and enjoying friends and family, not about creating debt. Christmas is a wonderful time of year, but it should not come at the risk of your long-term finances stability.

So, as you are getting ready for Christmas, here are some tips to avoid going into debt for the holiday season.

Begin by matching your budget to your Christmas list. You may want to buy gifts for every one of your family members, all of your co-workers, the tradespeople you deal with on a regular basis, and every neighbor up and down the street.  But can you really afford to do that?

It might seem harsh, but you don’t have to buy gifts for everyone. You can always make cookies for your neighbors or your children’s teachers. Or give them a small token gift card with a sincere thank you note about how they have touched your life.

Most times, a simple thoughtful gift means more to people than one more overpriced trinket that they don’t want and won’t use. Try to think of all the ways that you can show the people in your life how much you appreciate them without going into one penny of debt.

For many of us, being able to give a beautifully wrapped expensive store bought gift would be a nice way to make the people we care about feel special. But the reality is that we simply can’t afford to be Santa to everyone in our lives during the holidays.

If you’re from a large family, suggest that you each pick a name and only buy something for that person. A white elephant gift exchange is another way to do something fun and inexpensive. Each person brings one wrapped gift to contribute. (Be sure to indicate some parameters such as a dollar limit for the gift.) Have the gifts in a pile with everyone seated around the pile. Assign an order in which the gifts will be chosen. You can draw numbers from a hat or assign an order based on age. The first person gets to choose a gift from the pile, open it and show it around. Each person follows one at a time and when it’s their turn, they can choose to either pick an unwrapped gift from the pile or steal an open gift from someone else. Anyone who gets their gift stolen can do the same–choose a new gift or steal from someone else. This usually results in both chaos and fun.

Another way to save money is to window shop before buying. Start with your list of recipients and a budget for each of them. If you are doing online shopping, save items to your wish list for a few days before buying. If you are shopping in a brick and mortar store, walk through the store without your wallet or purse to scope out what you may want to buy. This helps you see what’s available that may be an appropriate gift in a slow thoughtful way. After your window shopping expedition, make a specific list of what you are going to buy for whom and return to the store or website to complete your purchases. This method helps you comparison shop, keeps you from buying things you have to return, ensures you remember everything and everybody and puts some sanity into what can be a chaotic rush to buy something – anything!

If you’re not sure how to rein yourself in when it comes to shopping for your kids, try using the Five Gift Rule.

1. Something they want

2. Something they need

3. Something to read

4. Something to wear

5. Something to share

It’s a great way to organize your gift giving without breaking your budget.

And let’s face it, how many times do the young ones have more fun with the huge cardboard boxes than with the toys. And kids don’t care how much you spent or whether it is brand new or from the thrift store. They don’t even notice that you spent hundreds of dollars to make sure they had the hottest gift of the year.

Take the stress away. You’re not a bad parent if you don’t spend $500 on each child. You’re not a bad parent if you bought them a bike at a garage sale and fixed it up. Kids remember Christmas because it’s a fun time of year. They remember it because they get to spend time with you, their parents. They get to eat cookies and sing fun Christmas carols. They aren’t going to count each gift and ask the price of everything under the tree.

So, avoid the inevitable financial pressure that comes each year at this time. Remember, going into debt for Christmas presents prevents you from reaching your long-term financial goals, like paying for your kids’ college tuition or funding your own retirement.

Every time you go into debt to buy a present, you’re choosing a physical object over your long term financial security. Try some of the above tips to stay on track and on budget this holiday season. It will still be merry and bright; and your future self will absolutely thank you.

 And remember what Pope Francis has said about money, “If money and material things become the center of our lives, they seize us and make us slaves.” This Christmas, escape from the slavery of debt and consumerism. Keep your eyes focused on Christ—the reason for this season—and not on all the unnecessary stuff our society throws at us.

For more on this topic, connect with the Compass Catholic podcast on Podbean as we discuss how to keep some sanity in Christmas spending.

Ditch the Debt!

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If you are tired of paying interest or if you feel like there is an avalanche of debt coming your way, it’s easy to feel totally overwhelmed. But putting your head in the sand is no solution and ignoring debt can make things even worse.

Many types of debt destroy your future. Maxing out your credit card on vacations and luxuries isn’t going to help your financial situation. Buying a new car every few years ensures you will never get a car loan paid in full. And not paying bills on time will destroy your credit rating.

If you willingly take on debt, you are obligated to pay it back.  Romans 13:8 from several different Bible translations admonishes us “Owe nothing to anyone;” “Keep out of debt;” “Owe no man anything;” “Let love be your only debt;” “Don’t run up debts.”

Debt is a tool, and like any tool it needs to be used correctly. A hammer is a tool but you don’t use a hammer to kill a bug on a window. And you should not use debt to subsidize a lifestyle you can’t afford.

In looking at your personal debt, it helps to understand the difference between secured and unsecured debt. Secured debt is tied to a specific piece of collateral, such as your house or car. If you can’t pay the loan, the lender can seize this collateral to fulfill your debt obligation.

Unsecured debt (medical bills, past due bills on utilities, and money owed on credit cards) is solely based on your creditworthiness. A lender will approve unsecured debt, without any collateral to secure it, by reviewing your credit report and credit score.

If you are having problems making ends meet, it makes financial sense to prioritize the secured debt and pay that first. Falling behind on a credit card payment may ruin your credit score, but falling behind on your car payment may lead to your car being repossessed.

If you find yourself in a position where you have to prioritize debt payments, you will never recover without using a budget. It is the only way you can match your income against your expenses and find ways to bring them into balance.

A budget forces you to assess priorities and set limits while giving you the information you need to make smart decisions with your money. In general, you should use a budget to figure out places where you can cut back and save money. In addition to taking care of your basic needs, your budget should include a strategy for how much you can add to minimum debt payments and the order in which you want to pay off your debts.

Remember, that a budget is a tool and the success of a budget depends on how you use it. Writing down some numbers you pulled out of the sky is not a budget. Track your spending for a few months, categorize the spending and use that as your starting point for a realistic budget. Be sure to prioritize your debts and expenses, listing those that are essential to pay (like the mortgage, or the utility bill) and those that might be less important (such as department store charge cards or loans from family and friends).

A budget allows you to see if you are staying on track and making progress. Otherwise your finances are just guesswork, which is probably how you got into debt in the first place.

If you are seriously using a budget but can’t make any progress after a few months, you may need help from a credit counseling organization. If you do, check out the company’s credentials first. Not all agencies are legitimate—some charge excessive fees, fail to perform promised services, provide bad advice, don’t discuss alternative ways to deal with debt, make false promises, and sometimes even take your money and run. The federal Trade Commission website offers tips on how to choose a credit counseling agency: https://www.consumer.ftc.gov  and search for: choosing-credit-counselor.

You may be considering using a home equity line of credit (HELOC) to pay off your unsecured debt. Or you may consider debt consolidation, which is a loan used to pay off all of your debts at once. For many people, a HELOC or some sort of consolidation loan may seem like an easy fix. But the HELOC may put your home at risk if you don’t pay it on time and a consolidation loan can lead to more debt.

If you don’t make fundamental changes to your lifestyle you’ll be in debt again within a few years after securing these loans. They are an easy fix to the immediate problem but debt is just a symptom. The real problem is how you manage your money.

To solve the root cause of debt, you need to resolve the reasons you ran up so much debt in the first place. Are your expenses greater than your income? Is your spending irresponsible and impulsive? Do you live beyond your means?  Are you addicted to credit card spending sprees? Unless your lifestyle goes through a fundamental change, you will keep spinning in the debt cycle

To pay off debt, you only have two choices: spend less or earn more.

To spend less, think of potentially significant changes to your lifestyle. Can you manage on one car? Should you sell the house and downsize? Can you take on a roommate to help pay the mortgage? Are you willing to buy clothes at a consignment shop? What do you own that you can sell? Your biggest savings will come from lifestyle changes.

Similarly, if you want to earn more, maybe you need to change jobs. Or maybe it’s time to approach your boss with all the (well documented) reasons you deserve a raise and a promotion.

But be sure to weigh the difference between cutting expenses and making more money. For each $100 decrease in your spending you have $100 more for debt payments. For each $100 you earn, only a portion is available for debt payment because of taxes, payroll deductions and other expenses related to your job.

If you can’t seem to stay away from those little pieces of plastic that allow you to buy every whim, follow one of our strategies. Freeze your credit by putting the credit cards in a plastic bag, putting the plastic bag in a bowl, filling the bowl with water and putting the whole thing in the freezer. Or try plastic surgery by having your credit cards meet a nice sharp pair of scissors.  Another trick is to cover a cookie sheet with aluminum foil, add your credit cards, then put the cookie sheet in the oven at 3500.

The bottom line is that any time you are trying to change a habit it is a long process and a lot of hard work. Making a lasting lifestyle change won’t happen overnight.

While we do NOT encourage debt, some debts, such as a mortgage, student loan or business loans are hard to avoid. These three examples can be classified as ‘acceptable’ debt as they are appreciating assets. Homes usually appreciate in value. A student loan is assuming a higher salary after graduation. A business loan may allow you to expand your business and earn more. In these cases, debt is an investment in the future.

To help you stay focused, meditate on this verse from Proverb 22:7: “The rich rule over the poor and the borrower is slave to the lender.” All the hard work you will go through to pay off your debt and change your habits is the price you pay for the freedom that comes with being debt free.

Connect with us via our podcast on Podbean for more about how to dig your way out of debt.

It Takes Extraordinary Effort to Get Out of Debt

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So many people who are in debt are looking for a quick fix.  They think taking out a consolidation loan, or even worse using a home equity line of credit to pay off debt will free them. Unfortunately, all a quick fix does is put a band-aid on a place where you need major surgery.

In addressing credit card debt, an important starting point is to define how and why you are currently using your credit cards. If you are having problems making credit card payments, but you haven’t stopped using your credit cards, there really is no debt consolidation loan that will help you.

Yes, you may be able to lower your total monthly payments, but if you are still buying items and not paying the balance in full each month, you will just increase your debt more and more each month.

Using a home equity loan to payoff credit card debt is also a very bad idea. If you fail to make payments on the home equity loan, you could lose your house.  If you fail to make payments on credit card debt you might be forced into bankruptcy, but you won’t lose your home. So, using the equity in your home to pay credit card debt is very risky.

If you are looking for a way out of the debt cycle, there are several things to do immediately:

  1. STOP using your credit cards for any reason.
  2. Begin tracking every single penny you spend—even if it’s just $0.50 for a piece of gum. This will help you figure out what spending is absolutely necessary and what is not.
  3. Do not get another credit card “for emergencies!” Begin saving money in an emergency fund. It may sound crazy if you are already having trouble, but only pay the minimum amount on your credit cards until you have saved $1000 in an emergency fund.

Remember the definition of emergency —”a serious, unexpected, and often dangerous situation requiring immediate action.”  Do not use your emergency fund for anything that doesn’t meet the definition of an emergency!

  1. Start managing your money using a spending plan! You already know how much money you have to spend each month—the net amount you receive from all sources of income. Design your spending plan around that amount of money. If something isn’t in the spending plan, then you can’t buy it.

This may all sound like gloom and doom, but it’s not. It’s hard work, attention to detail and a commitment to get out of debt. I know. We did it!

You can accomplish almost anything if you are willing to sacrifice. Sacrifice—that’s a good “Catholic” word, isn’t it? If you want something badly enough, you should be willing to sacrifice for it. And therein lies the problem! It is hard, it’s not fun and it takes a long time—in other words, it takes sacrifice to get out of debt.

We had a couple come to us who had over $120,000 of credit card debt. They really wanted to get out of debt, so they applied extraordinary effort for about 4 years. They started their journey by applying the story of the Widow and the Oil (2 Kings 4) to their personal circumstances.

In this Bible story, Elisha asks the Widow “what do you have?”  This couple did the same thing—they looked at what they had, and found that they had cash value in a life insurance policy. They still needed to have life insurance, but the cost of their cash value policy was so high, they were underinsured.  So they took the cash value of their insurance and applied it to their debt. They also bought a term life insurance policy which gave them more coverage at a fraction of the cost. That one change paid off about $20,000 of debt real fast!

Next, they started tracking every single penny they were spending and found that they were spending money on things that were not necessary. They immediately adjusted their spending habits.

At the same time, they created a spending plan and stuck to it. Part of their spending plan was a debt snowball. Any extra money (no matter how little) was paid on their smallest credit card debt, while they made minimum payments on their other credit cards. Once the smallest credit card was paid off, they tackled the next smallest one and just kept repeating the process.

After about 4 years of extraordinary effort, they had paid off over $70,000 of the $122,000 in credit card debt!

They didn’t cross their fingers. They didn’t sit there and hope their debt would go away. They did not take out a consolidation loan or a home equity line of credit. They worked hard and made it happen.

Here is another good Catholic word: fasting. We usually only hear this word when we think of our Lenten practice of fasting on Fridays or fasting from a particular item during Lent.  Think about what we do during Lent when we fast. One big meal and two smaller meals that would equal one meal. We abstain from eating certain foods.

But what about a spending fast? Could you go a whole week without spending any money? There would be no stopping at the grocery, or the big box store, or even the gas station on a spending fast! Instead of running to the grocery store on a regular basis, could you make meals from what you have in the pantry?

Is it possible to turn your fasting week into a fasting month? Could you go a whole month without eating out or fast food meals, spending money on entertainment, buying any clothes? Can you limit car trips to a round trip to and from work only?

What would happen in one month if you expended this extraordinary effort? Can you set an aggressive goal for saving and paying off debt in a month’s time?

Set a savings goal. Set a debt payoff strategy and GO FOR IT! The extraordinary effort will pay off in so many ways.  You will see how little you really need to survive and you can revise your spending habits in ways you never dreamed were possible.

THIS IS A CHALLENGE FOR A ONE MONTH SPENDING FAST!  

Send us an email to mailto:info@compasscatholic.org. and let us know how your extraordinary effort paid off.