Revised GCM Finances Lesson 4: Getting Out of Debt (15 minutes)

This video segment is one of five lessons in the “Creating a Gospel-Centered Marriage: Finances” seminar.

The GCM series are marriage preparation and marriage enrichment level resources. If your marriage needs restoration level care consider one of the other options available at summitchurch.com/counseling, or visit bradhambrick.com/findacounselor for help finding a counselor near you.

If you are interested in the pre-marital mentoring program built around these materials, you can find everything you need at www.bradhambrick.com/gcm.

NOTE: Many people have asked how they can get a copy of the GCM seminar notebooks. You can request a copy from Summit’s admin over counseling at counseling@summitchurch.com (please note this is an administrative account; no individual or family counsel is provided through e-mail).

It is the rare (but wise) couple who begins planning (budgeting) before they begin doing (spending). From the moment he asks, “Will you marry me?” there are more expenses than there are funds available. Most couples have accumulated debt even before they start planning their wedding, honeymoon, and life together.

The absence of a financial plan generated a false freedom facilitated by debt. Hence, we tend to associate the elimination of debt more with the loss of freedom. But this perceived freedom was (a) never really ours and is (b) actually a delayed bondage.

In this lesson we will seek to answer the question, “How can we live debt free?” in two ways. First, we will look at the best way to get out of debt. In this section we will talk about the priorities and steps necessary to pay off your debt.

Second, we will look at ways to live more economically in order to accelerate debt elimination. But the focus of this section will not be mere frugality. The recommendations will focus on family practices that cultivate a healthy marriage. Most of what we did to get into debt did not significantly benefit our marriage. But the things that we do to get out of debt can generate both financial freedom and a lifestyle that enriches your marriage.

The things that we do to get out of debt can generate both financial freedom and a lifestyle that enriches your marriage. Click To Tweet

Debt Elimination Plan

You can wander into debt, but you will never wander out. Being free from debt will require an intentional, sustained, cooperative effort between you and your spouse. A plan for this effort will be provided below under the four headings: (1) have a budget, (2) first things first, (2) emergency fund, and (4) debt snowball.

Have a Budget… And Make Cuts

Without a budget, eliminating debt is the financial equivalent of a fad diet. It may work in the short-term, but it is highly unlikely to sustain the desired changes. The work that done in Lessons 2 and 3 is essential to creating a lifestyle of debt-free living.

Remember you are embracing a lifestyle. You are leaving the lifestyle of artificial freedom through debt-spending for the genuine freedom of being content with God’s provision. You are leaving the lifestyle of foolishly believing that “it will all work out somehow” for the lifestyle of resting in the security that wise planning provides.

If you are looking to eliminate debt, then you will need to make significant cuts in the fixed luxury and variable luxury portions of your budget. If further cuts need to be made, you will have to look at reducing line items in the fixed necessity and variable necessity sections of the budget. You must begin to spend less than you make before you can eliminate debt.

First Things First

Frequently, the impetus for wanting to eliminate debt is a financial crisis. A significant financial event (i.e., job loss, major home repair, car wreck, health issue, etc.) thrusts a financial crisis forefront of life. As the crisis climaxes, the situation is compounded by the intrusion of many new decisions and creditors calling demanding their money.

In this environment it is easy for “the squeaky wheel to get the oil;” whoever threatens the most, when you happen to have some money, gets paid. In the absence of a prioritized plan, however, haphazard efforts at paying debt can make a bad situation worse. If this is your situation, then it is imperative that you have a “first things first” mindset towards your debts. Before paying off any other debt, you should ensure that the following expenses are covered:

Home: When your home is in jeopardy, nothing else will feel stable. Your ability to make sound decisions will be impaired if you go into foreclosure or get evicted. If you are behind on your mortgage or rent, then you should catch up on this bill before any others and stay current on this bill even if it requires falling behind on other bills.
Food: If you are in a financial crisis, you should not be going out to eat (even fast food). But you should make sure you have adequate nutrition. Getting out of debt requires endurance and perseverance. Weakening yourself physically by inadequate nutrition is a foolish decision that will heighten your sense of desperation.
Essential Medical Care: Allowing yourself to deteriorate physically is always a bad investment. Make sure that you get proper medical care for any chronic conditions or injuries prone to deterioration. Risking being “out of commission” for an extended period of time is a bad choice any time (including a financial crisis).
Power and Water: If you are in a financial crisis, then luxury items in your budget are expendable. But the psychological effect of having your power or water turned off contributes to a sense of powerlessness that makes sound decision making much more difficult.
Transportation: It is important to have access to some form of transportation. If your community does not have public transportation, it becomes even more important to prevent your vehicle from being repossessed. Transportation is an important part of finding/maintaining employment and being able to provide self-care.

Your income should be able to cover these five necessities for a period of time while you work the rest of your plan. If not, tabulating these expenses will provide you with the amount of income you need to generate through a part time job in order to tread water financially. Until these expenses are paid (and the next two steps are complete), everything else should be considered luxury spending and avoided.

These priorities should empower two responses. First, you can maintain a sense of confidence that you are responding wisely during a difficult situation. In a crisis, wisdom does not always give a sense of peace, but you can have a sense of confidence that you are approaching a difficult situation correctly. Doubt is often folly’s foot in the door. In the midst of a crisis, doubt can quickly cause us to begin responding reactively (changing strategies with each new development).

Second, you can speak clearly, cooperatively, and with integrity to creditors. You owe them money and you should pay it. Until you are caught up on all your bills, your budget should be reduced to (a) the five areas discussed above, (b) paying minimal balance on each debt, and (c) paying extra on debts until you are “current.”

Emergency Fund

A not-so-obvious key to a functional budget and debt retirement is a financial safety net, often called an emergency fund. Your ability to execute a monthly budget or eliminate debt will be perpetually interrupted without an emergency fund. The beginning emergency fund should be $1000. This money should be in a savings account. This fund should be created as quickly as possible – do without luxury expenses, work a side jobs, or sell things you don’t need.

Most of the sincere attempts at budgeting that fail, do so because they create a “tight coupling” system. A tight coupling system is one in which every part of the system must work just as it was designed for any part of the system to function. A clock is a tightly coupled system. If one gear stops working, the clock ceases to tell the correct time even if all the other gears are in working order.

Without an emergency fund and a commitment to live on less than you make, your budget will be a tightly coupled system. When one line item expands unpredictably (i.e., the price of gasoline doubles) or intrudes unexpectantly (i.e., transmission goes out in your vehicle), the whole system (i.e., financial plan) fails or becomes invalid.

Debt Snowball

Now that you have a buffer, known as an emergency fund, between you and life, we need to talk through your strategy for retiring debt. Debt will not eliminate itself. Because of interest, if you do nothing, it grows. We must learn to be intentional and aggressive in our efforts to eliminate debt. Begin by retrieving the debt information you recorded in Lesson 2. Be sure to list your debts in order from the smallest total debt to the largest.

Lender / Item	Total Debt	Minimum Monthly Payment	Interest Rate	% MMP





	Total:	Total MMP:

The basic strategy of the debt snowball is to pay the minimum monthly payment (MMP) on each debt and put as much extra as you can towards eliminating the smallest debt. Once you have eliminated the smallest debt you put its MMP plus whatever extra you can towards eliminating the next smallest debt. Each debt that is retired increases the amount of money you can use to retire the remaining debts.

Question: What if we cannot make all the MMP’s? Be sure to cover the items in the “First Things First” section above. Calculate the total MMP for debts not including your “first things.” Then calculate the percentage of your total MMP represented by each debt. Next determine the total available funds to put towards debt retirement that month. Finally, determine what percentage of your total MMP you can pay and pay that percentage of each debt.

For instance, if your total MMP for a month was $500 (not including house/apartment and vehicle), but you only had $350 this month. You would pay 100% of your house/apartment and vehicle payments and 70% of each remaining MMP, because $350 is 70% of $500. With each partial payment you would include a letter similar to this one:

Dear Lender,

I acknowledge this payment is 70% of what I owe you. I am currently working a plan to pay all my debts in full and am seeking additional employment to be able to do so. I currently have $500 in minimum monthly payments on my debts and had $350 this month to put towards them. Included with this payment you will find a copy of the form I am using to keep track of my debts. I am committed to paying my debts with integrity and believe this is the fairest way I can honor each of the parties to whom I have financial obligations this month.

Question: Shouldn’t we start with the highest interest rate? While this a good question, the recommended answer is no one primary reason: motivation. The sense of motivation gained from seeing the total number of debts reduced is important for maintaining the morale necessary to complete this process.

Question: When do we get to start living on some of the money we are freeing up? The first criterion is that all debts must be current. There should be no luxury spending when you are behind on a debt commitment. As you retire debt you are simultaneously getting into a healthy budget. After you are current on your debts, the guiding principles should be freedom and wisdom. You must desire financial freedom more than temporary pleasure if you are going to “win” financially.

Debt-Free, Pro-Marriage Lifestyle

Having a clear plan is the first and most important part of a debt-elimination strategy. But it is not the only piece. As a family seeks to eliminate debt, they should also begin to arrange their life around healthy financial and relational practices. To this point, we have spent so much time focused on we’re eliminating that it would be easy to miss what is being pursued – an approach to finances that gives freedom and enriches your marriage.

Enjoy One Another

A gospel-centered married couple should enthusiastically affirm that “the best things in life are free.” Debt is usually an indication that we have begun to value stuff and activity more than relationship. God intended that the primary source of entertainment and satisfaction for married couples would be found in Him through each other. When we lose sight of this, our lives become much more financially complicated and busy than God intended.

This reveals one of the more poignant financial follies of our debt-sick culture. Our largest financial investment (our home) has become the place we spend the least of our time. Too often we think of “fun” as something we must do away from home. This is both bad economic policy and a corrosive marital habit. Unless we begin to counter this cultural preference, we will feel “cheated” when we take steps to enrich our marriage and live debt free.

Monthly Meal Calendar

This may not seem like the most spectacular suggestion, but the marital and financial benefits far exceed the common expectations from planning your family dinners a month at a time. A blank template for this is provided here. Consider the following 10 benefits of having a family meal calendar.

Food is a major line item in any family budget. A monthly meal calendar creates many ways to cut the cost of food while elevating the priority of having meals together.
Grocery shopping becomes easier and more economical. Shopping is more efficient (which protects family time) and more economical (less food goes bad as you only buy what you need).
Having a meal calendar promotes the importance of having a family mealtime. You give value and honor to the things you plan. No longer does there have to be “a reason” to sit at the table together. There has to be a reason not to.
Cooking becomes less stressful. What to fix and figuring out if you have the ingredients is the stressful part of dinner.
Become intentional about when to eat out. Eating out is a wonderful treat but should not be a way of life.
Having a meal calendar forces you to consider “date nights” each month.
You will eat healthier. A lifestyle of preparing last minute meals doesn’t tend to be a healthy life.
You will begin to view month as a whole. There are huge advantages to viewing this larger unit of time. You can see the critical times to protect in order to ensure you don’t go large stretches without time together as a couple.
Reveals the opportunity for community. Meals are a natural time to get to know neighbors and small group friends.
This is a quick and easy exercise after you do it the first month. After the first month you just update the evenings you have plans, add any new recipes you want to try, and juggle your favorites to fill in the rest.

Conclusion

This lesson creates significant momentum for the next. As you eliminate debt, you are training yourself in the practice of living on less than you make. This is the key to saving money and financial virtues (i.e., contentment, foresight, generosity). So, as you do the hard work of Lesson 4, know that you are also putting yourself in a position to quickly transition to the satisfying and rewarding work of Lesson 5.

Now you have (1) a workable plan and (2) a reasonable time frame for accomplishing what you knew needed to be done. Those are two hope-giving assets. The real hope that you have should now exceed any artificial good feelings you have had when you were living a debt-propped life.

That is another evidence of gospel-centered living – you can face hard realities with hope, because you trust that God’s wisdom is sufficient and His power is dependable to accomplish the task that has been set before you. No longer are you living in your own power / wisdom as a slave to your own desires that lead to debt. The gospel has freed you to live in His power and guide your life according to His wisdom that leads to freedom and life.