By: Kate Wallin
By most accounts, the average American college student will graduate with around $22,500 in debt. $22,500 dollars! And that’s just the average. Add in credit card charges, car payments, living expenses and you’ll find that number growing faster than the tweets when Governor Romney mentions “binders full of women.” And yet debt is something we rarely talk about.
Beginning the Conversation
There are a lot of different perspectives on debt, even many different Biblical perspectives. It’s no wonder when you consider that there are over 2,100 verse in the Old and New Testaments that address issues of money. Verses like Proverbs 22:7, “The rich rule over the poor, and the borrower is servant to the lender” or the words of Jesus when he says, “If you want to be perfect, go, sell your possession and give to the poor, and then you will have treasure in heaven. Then come, follow me” (Matt. 19:21) show the broad range of interpretations and explain the diverse opinions within the church. Still, its clear of one thing: debt can be a burden.
What is considered debt? Financial planner and money guru Dave Ramsey says that debt is anything you owe money for that does not appreciate. In more simple terms, that’s anything that won’t bring further satisfaction or use and is bought with money you don’t have. The two biggest causes of debt? New cars and credit cards. So are student loans actually considered debt? Not by this definition. But if you think about it, debt has a few common characteristics. It prevents freedom – you can’t live anywhere or do anything post-college with a load of loans to drag around. It can prevent giving and investment. But, most of all, it prevents peace.
So maybe student loans aren’t “debt” but those of us with them (read: all of us with them) can really benefit from the plans those in “real” debt use to regain their freedom and peace.
Get Debt Free (But still live your life)
The first principle that all financial advisors agree upon when it comes to getting debt-free is this: stop adding to it. If you’re a student and taking out loans, that doesn’t mean stop paying for or pursuing your education. What it does mean though is stop paying for things you don’t need. Impulse buys, online shopping, expensive overdue or overdraft fees – stop spending money on these items that drain your bank account and don’t help you in the long run.
Secondly, list all of your debts in the order of amount and while paying the monthly minimums, start to direct all your extra funds to paying off the smallest principle (total dollars owed) or the debt with the highest interest rate first. This will help you create what financial advisors call the snowball effect. The idea of the snowball is to build momentum in paying off your debts. Ramsey describes it this way, “Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.” After you’ve paid off the smallest debt, move your efforts and extra funds to the second smallest. The momentum of paying off one then the next will give you a sense of satisfaction and, like Ramsey said, help you stick with the budget.
Third and final piece of advice is this: work and budget. Work, work, work, work, work! The best way to pay off debt and regain freedom from the burden of thin bank accounts is to be putting money in the bank. Additionally, finding and sticking to a budget will help you to continue to enjoy your life while you make progress towards your goals.
In the end, though, whether you’re out, in or working your way out of debt, remember that we are blessed in order to be a blessing. And generosity will feel a lot better than buying something you don’t need with money you don’t have.