Debt

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.

8 Tips for Dealing With Debt Overload

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If you are tired of paying interest or when 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. Here are some tips to keep you focused and help you slowly recover from debt overload.

While we do NOT encourage debt, some debts, such as a mortgage, student loan or business loan 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.

Many other 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.

Because we have willingly taken on debt, we 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, what matters is how you use it. 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 cannot 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 by reviewing your credit report and credit score without any collateral to secure the debt.

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. Your budget needs to 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 another 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. 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 decisions.

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 increased expenses related to your job.

As you start to make progress paying down debts, don’t backslide by rewarding yourself with additional spending. You’re digging a deeper hole for yourself and making it exponentially harder to become debt-free.

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 put your credit cards on a cookie sheet covered in aluminum foil, 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.

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 podcast on Breadbox Media and listen to more about how to dig your way out of debt.

Debt is Not Your Friend

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Debt seems to be a way of life in modern day America. We have mortgages, car payments, credit cards, home equity lines of credit, second mortgages, student loans, loans from relatives, bank overdraft charges, payday loans and past due bills.

That mountain of debt is ruining families and marriages. We have talked to so many people who are struggling with debt and overspending in various forms. When we drive through neighborhoods, we see beautiful homes on the outside that are wracked with pain and trouble on the inside due to mountains of debt.

We know how that feels, because we were once in that position with a mortgage, two car loans, a ton of credit card debt and no savings. It is not a nice place to be.

It was only by learning and applying with the Bible teaches that we were able to dig ourselves out of the hole, control our spending, pay off the debt and save for the future. It wasn’t fun at first. In face it was a very painful transition. I remember times when date night was taking a walk in the neighborhood park. And a really fancy date night was topping off the night with an ice cream cone.

But working together on a common goal that was beyond challenging made us stronger as a couple. And using Scripture and our faith as the guidepost for that goal gave us the strength to persevere.

Scripture does not call debt a sin, but it does strongly discourage us from being in debt. Proverbs 22:7 tells us that “The rich rule over the poor, and the borrower is the slave of the lender.” If you don’t think you are a slave to debt, try missing a few payments and see how much of a slave you are to your lenders.

When we are in debt, we are truly a slave to the lender and the deeper in debt we are, the more enslaved we become. Debt means we have no freedom to decide where or how to spend money as it is already obligated to meet our debt payments.

In the Old Testament, being out of debt was one of the promised rewards for obedience.

“If you continue to heed the voice of the LORD, your God, and are careful to observe all his commandments which I enjoin on you today, the LORD, your God, will raise you high above all the nations of the earth. When you hearken to the voice of the LORD, your God, all these blessings will come upon you…. you will lend to many nations and borrow from none.” (Deuteronomy 28:1-2, 12)

On the other hand, debt was listed among the curses for disobedience. “If you do not hearken to the voice of the LORD, your God, and are not careful to observe all his commandments, which I enjoin on you today, all these curses shall come upon you and overwhelm you…. The alien residing among you will rise higher and higher above you, while you sink lower and lower. He will lend to you, not you to him. He will become the head, you the tail.” (Deuteronomy 28:15, 43-44)

When we get into debt, we’re assuming that we will earn enough in the future to repay it. But can we really assume such a thing? The Bible strongly cautions us against such presumption: “You who say, ‘Today or tomorrow we shall go into such and such a town, spend a year there doing business, and make a profit’ — you have no idea what your life will be like tomorrow…. Instead you should say, ‘If the Lord wills it, we shall live to do this or that.’” (James 4:13-15)

Most people slowly slide into debt and it’s easy to do. It’s overspending on Christmas or vacations. It’s not having an emergency fund and using the credit card when there’s no money in the savings account to cover unplanned expenses. It’s getting laid off or having a medical emergency. It’s any number of things that happen to all of us. The problem is that each penny of debt results in having to pay interest on the debt.

Sirach 20:11 is the perfect verse for the results of debt, “A man may buy much for little, but pay for it seven times over.”

The typical American family has about $15,000 in credit card debt. Assuming they are paying the typical interest rate of 18%, they are spending $225/month in interest or $2,700 a year in interest only. And that’s just on credit cards. It does not count interest on the mortgage, car loans, student loans, past due bills, etc., etc.

Think of how much that $2,700 adds up over time. In 20 years, the number will balloon to $54,000 in interest payments. Without paying interest on debt, that’s $54,000 that could have been saved.
Looking at the opposite side of PAYING interest is EARNING interest. Take the same $225 paid on credit card interest and save it each month for 20 years. At the end of 20 years, at 2% interest you’ll have almost $70,000 in your savings. Higher interest rate on your savings will grow that nest egg even further.

Paying interest is just throwing away money. That $2,700 in interest a year is like throwing away $8.00 each and every day for 20 years. It adds up to a lot of money!!!

In the meantime, whatever was bought on credit is probably lost, used up or no longer valid by the time the credit card is paid off.

Many people raise their lifestyle through debt, only to discover that the burden of debt then controls their lifestyle.

If you are trying to get ahead, build up savings for college, or a home, or retirement, paying interest is not going to help you get there. If you think you don’t have enough money to save $225 each month, how can you possibly be paying $225 in interest payments?

Debt is definitely not your friend!

A Leaky Budget

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pipe-159671_640A “leak” is defined as something escaping through a hole. So a budget leak means you have money escaping through a hole in your budget.
A budget leak can have many sources. It’s spending money on the same things over and over again without even thinking about how or why you are spending that way. It might be any money spent on things you don’t really need with no conscious thought. It could also be increased costs on items bought regularly.

Finding and plugging those budget leaks is part of being a good steward. Luke 16:11 tells us “If you have not been faithful in the use of worldly wealth, who will entrust you with true riches?” Spending money responsibly helps you be faithful in using worldly wealth. Today I’ll share some ideas about finding and plugging budget leaks.

We were on a discounted cell phone plan which expired in January. The February bill was quite a shocker as the bottom line increased over $50. We made a visit to our cell phone provider who reduced the fee immediately. It would have been easy to shrug our shoulders and just figure that the increase was part of doing business but by being proactive we were able to save $50/month which adds up to $600/year–not a drop in the bucket!!

If your phone bill has increased recently, talk to your provider and ask for a better rate, especially if you have been a good customer. If possible, switch to a lower-cost plan or even a cheaper service provider. Cellphone service is a competitive market with lots of options so be sure to explore all options available to you.

We live in Florida and the drafty windows and attic insulation are just as much a problem here as they are in areas further north. Most of the homes in our area use a heat pump, which does not blow warm air, so any air leaks and drafts seem to magnify the already cool air in the house during the winter. A few years ago, we replaced the single pane windows with double pane windows and also had more insulation blown into the attic. While it wasn’t cheap, we estimate that our electric bills have decreased by 15-25%. More money that’s not leaking out of the budget.

Creeping prices are another area where money leaks. One of the benefits of using a budget is that you have historic information on prices you pay for services, such as lawn care, the bug guy, or haircuts. As you monitor these costs it allows you to see where prices have increased substantially over a short period of time. When we did our last budget review we noticed that the prices for my haircut had increased substantially over the last 18 months. Time to find a new hairdresser because the prices have increased beyond what I choose to pay for that service.

Expensive name brand products are another way money disappears. Many generic brands are every bit as good as the name brands. If you are thinking of trying the generics, compare the labels before making your final decision just to see if there is a significant difference in ingredients. If I want to try a generic brand, I’ll buy the smallest size possible and try it for a few days before making a decision to buy the larger size. Many times a blind test reveals there is not a difference, but when we look at the name brand labels, we perceive a quality difference which may or may not exist. If you are going to stick with name brand products, know the target price you are willing to pay, use coupons and only buy them when they are on sale.

The next budget leak we are going to tackle is cable TV. We are defining the specific shows we enjoy watching, then looking for the various ways we can access them to figure out which services provide what we watch at the lowest price. The cable bill has risen astronomically so we are using the free one-month trial subscriptions to various streaming services to figure out which is right for us. It is definitely time to cut the cord on cable TV!

I love to read and it’s far too easy for me to spend money on books, even if I shop at the used bookstore. I know I can borrow free books at the library, but getting there is another matter. Plus, with all the ministry travel we do, I find it easier to read on my tablet rather than lugging around books. BookBub is a new site I discovered that sends out daily email with books that are free or less than $2.99. When you signup, you can choose the types of books (historical, fiction, Christian, etc.) and the authors you prefer. Then you will get a daily email listing the free or discounted books that meet your selection criteria. I’ve enjoyed this service because it’s given me access to free books by new authors as well as authors I already prefer. And since I only download the free books, I don’t waste money if I choose an eBook, then decide to delete it after reading a few pages.

Paying bank fees is another huge budget leak. Many banks offer free services based on direct deposit or having a specific amount in your savings account. Search the internet for banks near your home or office to determine if their free account offerings suit your banking style. Stick with in-network ATMs or get cash when you use your debit card at the grocery checkout. And a HUGE leak is paying overdraft fees. Account fees range between $7-$25 per month and overdraft fees range between $35-$71 per overdraft. If you are paying these fees you can stop a huge leak by analyzing your banking charges and doing everything you can cut the fees. I know we’ve saved hundreds of dollars by never overdrawing and not paying monthly account fees.

Food and drinks are another area where money can trickle through your fingers at an alarming rate. I don’t really enjoy cooking so it’s easy to justify takeout on those days when we are busy. However, by looking at the calendar each week and figuring out which days are likely to be busy, I can plan ahead and make meals that create leftovers to be used on the nights I know I won’t feel like cooking.
We know a couple where the wife is addicted to fancy coffee. She gets one everyday on the way to work, and on the weekends her husband goes to the coffee shop for her. She always gets the largest size, which costs about $5.00. That’s $35/week; $140/month and $1,820/year. Making coffee at home is considerably cheaper!

Paying attention to what, when, why and how much you spend allows you to plug those pesky budget leaks before they become full scale gushers.