Upwards Church

When you’re ready to knock out debt,  Here’s a link to a debt_snowball. form

Explanation and Instructions: 

On the form, list your debts in order, from the smallest balance to the largest. Don’t be concerned with interest rates, unless two debts have a similar payoff balance. In that case, list the one with the higher interest rate first. As you start eliminating debts, you’ll start to build some serious momentum. These quick wins will keep you motivated, so you’ll be able to stay on track.

The idea of the snowball is simple: pay minimum payments on all of your debts except for the smallest one. Then, attack that one with intensity! Every extra dollar you can get your hands on should be thrown at that smallest debt until it is gone. Then, you attack the second one.

Every time you pay a debt off, you add its old minimum payment to your next debt payments. So, as the snowball rolls over, it picks up more snow. Get it?

Redo this sheet every time you pay off a debt so that you can see how close you’re getting to total debt freedom. 

The “New Payment” is the total of the previous debt’s payment PLUS the current debt’s minimum. As these payments compound, you’ll start making huge payments as you work down the list.

Special Thanks to Dave Ramsey & Financial Peace University. For more information visit: http://www.daveramsey.com/home

1.  Home Purchases

Nearly every family in America dreams of owning their own home. But many times they try to buy a home too soon after marriage or pay too much for a first home and end up in financial trouble. Unfortunately, quite often these families don’t realize that owning the home created their financial problems, because it took too large a portion of their spendable income. Because of this, inadvisable home purchases are the number one expense that leads to unmanageable debt.

The percentage of an average family’s budget that should be spent on a house payment is no more than 25 percent of Net Spendable Income (after tithes and taxes), according to financial author, Larry Burkett. Add to the mortgage payment the cost of insurance, utilities, maintenance, repairs, and telephone, and the percentage climbs to about 40 percent. Unfortunately, many couples commit to as much as 60 percent or more of their budget to housing. As such, there is no way that the family can handle that cost. If a family can afford to purchase a home within their budget that makes sense. But to destroy the budget just to get into a home is not logical.

2. Car Purchases
The second most common purchase that leads to debt is the purchase of a new car. Quite often couples who cannot qualify to buy a home buy a new car as a compromise. This is a major debt trap for couples, especially those who have a tendency to overspend, because they are generally not concerned with the overall price of the car—just the amount of the monthly payments.

A new car debt is actually harder to deal with than overspending on a home. In most areas of the country, homes can be resold at or above their original purchase price, because the market for used housing is consistently stronger than for new housing. But a family seeking to sell an almost new car to relieve debt is shocked to discover how little the car is worth on the open market. Most families owe more on a car that is one year old than its actual value. For families who can afford to do it, saving in order to purchase a good used car is a wiser decision than financing or purchasing a new car.

3. Emergencies
In order to plan a financial disaster, all a family has to do is fail to plan for predictable expenses that haven’t come due yet, such as automobile maintenance, emergency home repairs, or personal injury. Failure to plan for these is a major reason many families end up in unmanageable debt, because when the expenses occur they must be paid, so the only alternative available is often a credit card.

Why do people fail to anticipate these expenses that are inevitable? Generally because when they try to work them into their budget they don’t fit. So they simply ignore them until a crisis occurs. To do otherwise would require adjustments in the other areas of spending, such as housing, automobile expense, or recreation. Therefore, credit card debt invariably grows in order to absorb these non-budgeted, but predictable, expenses.

Conclusion

Without some kind of written financial plan (a budget) families will not realize that they have a financial problem until it overwhelms them. A budget balances income and expenses and reports on the status of income and expenses every month to avoid errors and expenses that led to unmanageable debt.   To download a free budget, click here.

Sources:

1. Larry Burkett, Debt-Free Living, Moody, 1989, pp. 97-102

2. Larry Burkett, Debt-Free Living, Moody, 1989, pp. 141-149

3. Larry Burkett, Biblical Principles Under Scrutiny, “ Avoiding Get-Rich-Quick,” Christian Financial Concepts, 1985

4. Larry Burkett, Money Before Marriage, Moody, 1996, pp. 27-28

5. Larry Burkett, The Complete Financial Guide for Young Couples, Victor, 1994, pp. 71-73

6. Larry Burkett, The Complete Guide to Managing Your Money, Inspirational, 1996, pp.492-493

Special thanks to Nelson Searcy Coaching for helping me to develop this resource. You may check his web site at www.churchleaderinsight.com

Darrell