How to Pay Off Debt (Psalm 37:21)—Here Are the Best Strategies!

Psalm 37:21 says, "The wicked borrows but does not pay back." Do you want to know how to pay off debt? Read or listen to this material from Your Finances God’s Way to learn the best strategies for paying off debt. Table of contentsStrategies to Avoid a MortgageFirst, Consider a RentalSecond, Live ModestlyThird, Purchase a Starter HomeTwo Pieces of Advice if You Decide to Purchase a MortgageFirst, Understand "Qualifying"Second, Choose a 15-Year Versus a 30-Year MortgageThe Best Strategies for Paying Off DebtSacrifice to Pay Off DebtLive Below Your Income to Pay Off DebtBuy Used to Pay Off DebtStay Home to Pay Off DebtFirst, Build RelationshipsSecond, Avoid ConflictThird, Invest in Your HomeFirst, Avoid LavishnessSecond, Avoid Unnecessary ExpensesThird, Avoid “Going Big”Fourth, Avoid Expensive HobbiesEnjoy Cheap or FreeKeep the End in MindContinue GivingPut Extra Money Toward DebtWhat About When You're Out of Debt?Possibly Missing Out on God's BestFootnotes When couples in the church I pastor give birth to a child, I try to bring them a meal, meet the baby, see if they need anything, and pray with them. When Robert and Katy Cunningham had their fifth son, I went to see not only them and their new baby, but also their new living situation. They (seven people, including five energetic young boys) had moved into a broken-down motorhome that was sitting on the property where Robert was building their house. They went to great lengths to observe Psalm 37:21. When I returned home, I told my wife two things. First, I shared how proud I was of Robert and Katy for their commitment to being debt-free and all the sacrifice that was involved in sticking with that conviction. Second, I said, “We don’t have very much to complain about!” Not long ago, Robert finished the construction. They were able to move out of the motorhome and into their new house debt-free. Maybe you have said, “People can’t buy a home with cash.” I have heard this argument many times, and Robert and Katy’s testimony (as well as many others) reveals it is not true. I have watched young and old people alike, inside and outside my church, purchase homes without mortgages. Here are three points of advice to help you do the same. Strategies to Avoid a Mortgage The biggest debt most people have is a mortgage. Here are three strategies to possibly avoid one! First, Consider a Rental Many people argue that it’s better to buy a house because if you rent, you’re throwing money away. The idea is the money would be better off put toward the cost of your house. This appears to be true until you consider how much of a mortgage payment goes toward the interest versus the principal. The money going toward the interest isn’t going toward the price of the house any more than rent goes toward the price of the house. If you want your money to go toward the price of the house, save up the money and buy your house with cash. Second, Live Modestly We have friends who lived in a basement until they could buy their first home with cash. Some other friends lived in a two-bedroom rental with seven children. Did these situations involve sacrifice and living modestly? Definitely. But how good do you think these people feel now as they live in their homes with no debt? Third, Purchase a Starter Home When I talk about buying a home with cash, it might be more accurate to say homes. Who says you need to live in your dream home in your twenties or thirties? A better approach is to purchase a smaller starter home with cash and save up for your next home. Then sell your starter home, which is hopefully worth more than when you bought it, and use that money, along with the money you’ve saved up, to purchase your next home. As your family and income grow, so does your home. Two Pieces of Advice if You Decide to Purchase a Mortgage If, for whatever reason, you still decide to go ahead with a mortgage, let me offer you two points of advice. First, Understand "Qualifying" Real estate agents and loan officers want you to sign for the most amount of money. This has left people with much larger mortgages than they can afford simply because they were told they “qualified.” They were locked into high payments that paralyzed them for decades, leaving them unable to save, be generous, or prepare for emergencies. A much wiser approach is a smaller mortgage that can be paid off faster and easier. Second, Choose a 15-Year Versus a 30-Year Mortgage There are many benefits to a 15-year versus a 30-year mortgage: lower interest rates less interest over the life of the loan quicker equity built into the property less likelihood of being upside down if the housing market crashes The only downside to a 15-year mortgage is larger monthly payments, but most people would be surprised to learn they’re not that much larger. For example: The monthly payment on a 30-year, $300,000 mortgage with a 4 percent APR is $1,432, for a total repayment of $515,609 ($215,609 in interest). The monthly payment on a 15-year, $300,000 mortgage with a 4 percent APR is $2,219, for a total repayment of $399,431 (interest $99,431). The difference is $787 per month, but the interest is more than cut in half: $99,431 versus $215,609, which saves you $116,178. The Best Strategies for Paying Off Debt Psalm 37:21 says, "The wicked borrows but does not pay back." What if you are already in debt, whether from a mortgage, credit cards, school loans, automobile loans, or all the above? You need strategies that help eliminate the debt you have. Sacrifice to Pay Off Debt Remember, every cent counts. All the money we avoid spending puts us that much closer to being debt-free. This requires being frugal and intentional with purchases. We must often say no to things we want. The most popular and effective approaches to finances can’t prevent us from having to go without certain enjoyments. While formulas and budgeting techniques can be helpful, there’s no substitute for sacrifice. Instead of being one strategy, think of this as the umbrella over all the strategies because each of them requires sacrifice. If we expect to eliminate debt, we must live in a way that others might consider extreme. Our society is so indulgent that if we live “normally,” we will never be debt-free. Live Below Your Income to Pay Off Debt The worst approach you can take with your money is spending it as though you make more than you do—living off $7,000 per month when you make $6,000. This will increase your debt month by month. The reasonable approach is spending at your income level—living off $6,000 when you make $6,000. But if you make $6,000 dollars per month, is the solution to live as though you make that amount? No. This will have you living paycheck to paycheck, spending all the money you make. You won’t increase your debt, but you also won’t eliminate any debt. The best approach is spending as though you make less than you do—living off $4,000 when you make $6,000. This will allow you to pay off almost $100,000 in four years (4 years x 12 months x $2,000 per month). Buy Used to Pay Off Debt As a ministry family, we’ve had lots of clothes and other items given to us. When all our bases weren’t covered, we were able to find what we needed at yard sales and thrift and consignment stores. When you need “new” stuff, you can spend a fraction of the price buying used. Stay Home to Pay Off Debt If you asked those who are closest to us, many people would say, “Scott and Katie never go anywhere!” Traveling is expensive. Eat, play, and laugh at home. You’ll save on gas, lodging, and put less wear and tear on your vehicles. There are three keys to success with this strategy. First, Build Relationships When your children feel connected to you and each other, they will be more interested in staying at home because this is where they can be with those who are closest to them. Limit screen time: If “family time” involves a television or computer, kids are more likely to feel closer to the electronic device than their family members. Look for ways to connect: Can Friday evenings become “game night” or “make your own pizza night”? We purposefully end each day in the living room with everyone relaxing, visiting, and mellowing out before evening prayer and bedtime. Second, Avoid Conflict It is especially important for parents to have a healthy marriage because they set the example and tone in the home. The love and peace, or contention and strife, between husband and wife trickles down to the children. Children want to be in a home filled with harmony, but they will want to move away from one filled with quarreling. Third, Invest in Your Home Doesn’t this conflict with our goal of saving money? Yes, but sometimes we need to spend money to save money. By staying home you’ll save money, and you’ll be more inclined to stay home if you have invested in it. Use some of the money you saved from not traveling and invest in your home to make it a place you and your family enjoy. Four Things to Avoid to Pay Off Debt First, Avoid Lavishness Even when you invest in your home (or making any purchases, for that matter), you should avoid extravagance. You can be nice, tidy, spacious, comfy, and modest. When eliminating debt, settle for simplicity. If you purchase new furniture, make sure it’s because you need new furniture. Buying new furniture simply because you’re bored with your current set is a waste of money and reveals a discontent heart. We still have much of the same furniture from when we got married. Proverbs 13:7 says, “There is one who makes himself rich, yet has nothing; and one who makes himself poor, yet has great riches.” Some people appear wealthy through their expensive homes, vehicles, and vacations, but if they’re buried in debt, they “[make themselves] rich, yet have nothing.