How to Live a Debt-Free Life
The following are some practical steps by Bro. Bo Sanchez on how we can be debt-free.
Step 1: Commit to becoming debt free now.
Bro. Bo says that not paying our debt is a spiritual issue based on Psalm 37:21: “The wicked borrow and never repay.”
Our commitment to becoming debt-free is not only a commitment to ourselves nor to our friends nor to our creditors. “It’s a commitment to God.”
This step is the beginning of all, we cannot strive for a debt-free life if we cannot decide to commit ourselves to it.
Bro. Bo shares this prayer for willpower: “God, I want to do Your will and I need Your power.” Let us do God’s will and ask for His power so that we can overcome.
Step 2: List down your debts.
Do you know how much debt you really have?
Most of us are afraid to add up all our debts, fearing the worst.
Bro. Bo encourages us to bring our fear into the light and offer it to God and ask Him for His help.
Psalm 34:4 says, “I sought the LORD, and he answered me; he delivered me from all my fears.”
After making the commitment to be debt-free, sit down and make a list of all the debts you have. Write the specific amounts and the corresponding interest rates, if any, of each debt.
Keep calm no matter how much your debt adds up to.
Step 3: Set up a repayment plan.
Getting out of debt has to be intentional, and this involves making a plan on how to repay your debt.
Bro. Bo shares three suggestions on how to setup a repayment plan:
Suggestion 1: Pay Off the Debt-that-Makes-You-the-Maddest Plan
This entails paying off first the debt or bill that makes you the most anxious and worried about. Doing so allows you to focus your emotional energy on your other debts.
Suggestion 2: Snowball Plan by Dave Ramsey (Financial Guru)
In this method, each debt is looked at separately and the smallest debt is paid off slowly first with any extra money, while the minimum on the other debts are being paid. Once the smallest debt has been paid off, the next one is paid with extra money while continuing to pay the minimum on the other debts.
Being able to cross out a debt from the list enables you to see that you are getting somewhere. When this happens, you feel charged with energy and momentum, “like a snowball that gets bigger and bigger until it becomes an avalanche.”
Suggestion 3: Laddering Plan
In this suggestion, you list down your debt from the highest interest to the lowest interest. The idea is to pay off first the debt with the highest interest while paying the minimum on all other debts. This strategy will help you save the most money over time, and similar to the snowball plan, enables you to gain momentum to be able to pay off the rest of your debt. I personally used this strategy recently to pay off a large amount of loan that I incurred to support the operation and hospitalization of my father after I realized the huge amount of interest that I have to pay if I will pay the loan for 3 years instead.
Step 4: Talk to your creditors.
Don’t hide from nor ignore your creditors. If you owe someone money and you haven’t been able to pay him back for some time, go and talk to him. Apologize for the delay in payment, and offer him an appropriate plan on how and when you will pay him back.
Do your best in paying off your debts because it pleases God and He can make your creditors your friends once more.
Step 5: Add no new debt.
This step is a must!
Incurring new debts while you are paying off your old debts will get you trapped!
As I have mentioned in previous articles, spend less than what you are earning. Doing so will enable you to increase the extra money you have to make larger payments on your debts and hasten the process of paying off your debts.
Of course, if there is a way you can increase your income (while still spending less), then it will be a big help!
Likewise, you can treat yourself with small rewards for every step to victory. Just ensure the rewards you give yourself won’t eat up your budget a lot.
Here’s to us getting a debt-free life!
Marj Baynosa is a chemical engineer and educator, who loves reading and writing in her spare time, especially on finance, faith, and other seemingly mundane things.