Session 3: Steps to Get Out Of Debt

Session 3: Steps to Get Out Of Debt Presentation by: Thomas R. Copland, CA Thomas R. Copland 1 To obtain a practical understanding of how to reduce your debt, with the long-term objective of becoming totally debt-free. 2 1

Since God warns of the dangers of debt and clearly discourages debt, it is God's best for all Christians to have a plan to become debt-free. 3 1. Pray and ask God for His wisdom and His specific direction as to what you should do to become debt free. God instructs us, If any of you lacks wisdom, he should ask God, who gives generously to all without finding fault, and it will be given to him. (James 1:5) The LORD will guide you always; He will satisfy your needs in a sun-scorched land and will strengthen your frame. (Isaiah 58:1) 4 2

I ve had the privilege of helping over 2,000 people reduce debt and over 300 individuals and couples to become totally debt free. Although there were some similarities, no two were exactly the same. God knows the best approach for you and He will direct you [Psalms 32:8] as you spend time with Him in prayer and in His Word. "I am the LORD your God, who teaches you what is best for you, who directs you in the way you should go. (Isaiah 48:17) 5 2. Regularly study and meditate on God s Word. Your statutes are my delight; they are my counselors" (Psalm 119:24) Your word is a lamp to my feet and a light for my path. (Psalm 119:105) Do not let this Book of the Law depart from our mouth; meditate on it day and night, so that you may be careful to do everything written in it. Then you will be prosperous and successful." (Joshua 1:8) 6 3

2. Regularly study and meditate on God s Word. When an individual or couple has encountered financial difficulties, generally it was because they violated one or more of God's financial principles, perhaps unknowingly. Can you think of any? Provide a reference to scripture if you can. 7 Some examples of Christians violating God s principles would include the following: 1. Having no savings for unexpected expenditures (Proverbs 21:20) 2. Taking on too much debt (Proverbs 22:7) 3. Buying things they really do not need because of covetousness (Exodus 20:17) or a lack of contentment (Hebrews 13:5) 4. Giving God the leftovers instead of the first fruits (Proverbs 3:9&10) 8 4

Some examples of Christians violating God s principles would include the following: 5. Co-signing a loan, for which the Bible uses the term "striking hands in pledge," (Proverbs 22:26, 27). 6. Getting involved in an investment that they did not understand (Proverbs 19:2) and that was not biblically diversified (Ecclesiastes 11:1, 2) 7. Not having a budget (Luke 14:28 30), and as a result making financial decisions based upon "gut feel" and not the facts of their finances (Proverbs 27:23) 9 3. Evaluate your present financial position assets, liabilities, revenues, and expenses. "Be sure you know the condition of your flocks. Give careful attention to your herds." (Proverbs 27:23) 10 5

4. Develop and implement a cash flow plan/budget. Financial Planning Is Biblical (See Luke 14:28-30, Proverbs 21:5) A properly implemented budget will enable you to spend less than you earn to generate a surplus to pay down debt. Make prayer the foundation of your financial planning meetings. As you pray, ask God to reveal to your heart and mind His plan so you can reduce your debt and manage God s money God s way. Commit to the Lord whatever you do and your plans will succeed. (Proverbs 16:3) 11 5. Ask God to enable you to be content with his provision. So often people get into financial trouble by taking on too much debt because of a lack of contentment. This can come in the form of selfishness, covetousness or greed. Contentment is the antidote to these worldly attitudes. The apostle Paul said, "For I have learned to be content whatever the circumstances..i have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do everything through Him who gives me strength." (Philippians 4:11 13) 12 6

6. With your surplus of cash, pay off the most expensive debt and the non-deductible debt first. 13 7. In dependence upon God, follow up and persevere until you are debt free. God has promised us, Even to your old age and gray hairs I am He, I am He who will sustain you. I have made you and I will carry you; I will sustain you and I will rescue you." (Isaiah 46:4) Even if finance is not your area of expertise, God has promised that He will provide what we need. Jesus said, "My grace is sufficient for you, for My strength is made perfect in weakness." (2 Corinthians 12:9, NKJV). 14 7

1. Pray and ask God for His wisdom and His specific direction as to what you should do to become debt free. 2. Regularly study and meditate on God s Word. 3. Evaluate your present financial position assets, liabilities, revenues and expenses. 4. Develop and implement a budget. 15 5. Ask God to enable you to be content with His provision. 6. With your surplus of cash, pay off the most expensive debt and the nondeductible debt first. 7. In dependence upon God, follow up and persevere until you are debt free. 16 8

If you fully obey the LORD your God and carefully follow all his commands I give you today, The LORD will open the heavens, the storehouse of his bounty, to send rain on your land in season and to bless all the work of your hands. You will lend to many nations but will borrow from none. (Deuteronomy 28:1, 12) 17 Jim and Jennifer are married and they both earn average incomes. By the end of their first year of marriage, they noticed that their credit card balances had increased. They thought that this was no problem due to some one-time expenses that they incurred as newlyweds. However, over the next two years, the balances on their credit cards and personal line of credit increased substantially. They did not understand why this was occurring. 18 9

As a result, they decided to study what the Bible says on finances. They were amazed how much God's Word had to say on finances. Jim and Jennifer realized that they had inadvertently been violating a number of biblical principles. Over the next several months, they made it a priority to learn what God has to say on finances in His Word. Next, they recorded all their expenses for two months, which revealed that they were spending more than they were earning. This explained why their debts had been increasing. Jim and Jennifer developed and implemented a budget to ensure that they were spending less than they were earning. They purposely used the surplus to pay down debt. 19 Jim and Jennifer first focused on paying off their credit cards, as the interest rates were very high. They destroyed all credit cards except one each which they agreed to use only if absolutely necessary. Next, they paid down their personal line of credit. In the process, it was necessary to significantly reduce their expenditures and lifestyle. Although this was difficult, they prayed and trusted God to enable them to persevere. 20 10

Within three years, Jim and Jennifer had paid off all their credit cards and their personal line of credit. They both felt like "100 pounds was lifted off their back". They didn't realize the burden of their debt load. Today, they have developed a new budget where the surplus is being applied against their mortgage. They learned that by paying just $400 per month extra against their mortgage, they will save about $50,000 in interest and be totally debt-free within nine years. Jim and Jennifer regularly thank the Lord for the financial wisdom in His Word and how God has enabled them to be content with a reduced lifestyle. 21 1. List below the actions that Jim and Jennifer originally took that were not consistent with God's principles. Please provide a reference to Scripture for each point. 22 11

1. List below the actions that Jim and Jennifer originally took that were not consistent with God's principles. Please provide a reference to Scripture for each point. 1. They did not know where their money was being spent [Proverbs 27:23]. 2. Jim and Jennifer were not aware that their spending was greater than their income and that they were accumulating debt. [Proverbs 22:7]. 3. They had not developed and implemented a budget [Luke 14:28-30]. 4. They had not been content to live within God's provision [1Timothy 6:6-8]. 23 1. List below the actions that Jim and Jennifer originally took that were not consistent with God's principles. Please provide a reference to Scripture for each point. 5. Jim and Jennifer had no savings for unexpected expenditures [Prov 21:20]. 6.They were not aware of what God's Word says on finances [Psalms 119: 105]. 7. They did not seek God's counsel in respect of finances [1 Kings 22:5]. 8. They made financial decisions based upon " gut feel" and personal desires rather than their "financial facts" [Proverbs 24:3,4]. 24 12

2. List below, the actions that Jim and Jennifer are now taking which are consistent with biblical principles. Please provide a reference to Scripture for each point. 25 2. List below, the actions that Jim and Jennifer are now taking which are consistent with biblical principles. Please provide a reference to Scripture for each point. 1. They have studied and implemented God's Word on finances (Joshua 1:8). 2. Jim and Jennifer, now understand their financial position -i.e. their debt load, and where their money is being spent etc. (Proverbs 27:23). 3. They are diligently planning their finances by using a budget (Proverbs 21:5). 26 13

2. List below, the actions that Jim and Jennifer are now taking which are consistent with biblical principles. Please provide a reference to Scripture for each point. 4. Jim and Jennifer are making debt reduction a priority (Deuteronomy 28:1,12). 5. They reduced the temptation of easy credit by destroying all credit cards and using the remaining card only when absolutely necessary (1 Cor 10:13). 6. They have sacrificed by reducing their lifestyle (Luke 9:23). 27 2. List below, the actions that Jim and Jennifer are now taking which are consistent with biblical principles. Please provide a reference to Scripture for each point. 7. They learned to be content in dependence upon God (Philippians 4:11-13). 8. They persevered with debt reduction and a moderated lifestyle (James 1:4). 9. Jim and Jennifer trusted God to enable them to implement His financial principles (John 15:5). 10. They regularly thank God for His financial wisdom and for enabling them to be content with a reduced lifestyle (Psalms 118:1). 28 14

3. What do you think Jim and Jennifer will experience in their finances when their mortgage is completely paid off? 29 3. What do you think Jim and Jennifer will experience in their finances when their mortgage is completely paid off? They will likely feel a real sense of relief and accomplishment. They should experience a godly sense of freedom, and the flexibility to do other things, including giving more to Gods work, taking that special family vacation, and saving for retirement etc. They will likely sense God's blessing upon their lives. 30 15

4. Please review the "before" and "after" schedule of expenses for Jim and Jennifer in the slides that follow. Please note some of the areas where they reduced their expenses. 31 Jim and Jennifer s Financial Situation before implementing God s Financial Principles 1 DONATIONS 250 2 HOUSING Mortgage/rent 1000 Property Taxes 250 Electricity 250 Gas 200 Water 50 Telephone 100 Maintenance 150 Insurance 50 Total Housing $2,050 32 16

3 FOOD 700 4 AUTOMOBILE Replacement 0 Gas & Oil 400 Insurance 250 Maintenance 150 TOTAL AUTO EXPENSES: $800 5 DEBTS Credit cards Loans-plc 400 min payment 100 min payment Other TOTAL DEBT SERVICE: $500 33 6 ENTERTAINMENT & RECREATION Eating out $250 Vacation 150 Sports/Gym 100 TOTAL ENT/REC: $500 7 CLOTHING 350 8 INVESTMENTS (e.g. RRSP, RESP etc.) $0 9 Health care $75 34 17

10 INSURANCE- life & disability 100 11 MISCELLANEOUS Education Gifts $125 Other* $250 Total Miscellaneous $375 TOTAL EXPENSES: $5,700 TOTAL REVENUES (FORM 2): $5,000 MONTHLY SURPLUS (DEFICIT): ($700) * Miscellaneous - Other includes expenses that do not fit elsewhere, such as transit, allowances, toiletries, cosmetics, etc. 35 Jim and Jennifer s Financial Situation after implementing God s Financial Principles 1 DONATIONS 500 2 HOUSING Mortgage/rent 1000 Property Taxes 250 Electricity 250 Gas 200 Water 50 Telephone 100 Maintenance 50 Insurance 50 Total Housing $1,950 36 18

3 FOOD 500 4 AUTOMOBILE Replacement 0 Gas & Oil 250 Insurance 125 Maintenance 75 TOTAL AUTO EXPENSES: $450 5 DEBTS Credit cards Loans--plc 400 min payment 100 min payment Other TOTAL DEBT SERVICE: $500 37 6 ENTERTAINMENT & RECREATION Eating out $50 Vacation 50 Sports/Gym 0 TOTAL ENT/REC: $100 7 CLOTHING 100 8 INVESTMENTS (e.g., RRSP, RESP etc.) $0 9 Health care $75 38 19

10 INSURANCE--life & disability 100 11 MISCELLANEOUS Education Gifts $75 Other* $150 Total Miscellaneous $225 TOTAL EXPENSES: $4,500 TOTAL REVENUES (FORM 2): $5,000 MONTHLY SURPLUS (DEFICIT): $500 * Miscellaneous - Other includes expenses that do not fit elsewhere, such as transit, allowances, toiletries, cosmetics, etc. 39 4. Please review the "before" and "after" schedule of expenses for Jim and Jennifer above. Please note some of the areas where they reduced their expenses. Some of the decisions that Jim and Jennifer had to make included the following: - Jim did more of the house maintenance and the auto repairs himself. - they decided not to travel anywhere for a vacation for three years but only did inexpensive day trips from their home during vacation. - Jim and Jennifer cancelled their memberships at the gym and worked out at home. - Jennifer reduced her clothing expense and Jim stopped buying new tools. 40 20

4. Please review the "before" and "after" schedule of expenses for Jim and Jennifer above. Please note some of the areas where they reduced their expenses. Some of the decisions that Jim and Jennifer had to make included the following. - They sold one of their two automobiles and shared the remaining one. - They substantially reduced their entertainment and recreation expense. - They purchased their groceries from a discount store. - They both became much more careful as to what they purchased in general. They always asked themselves, was the item truly a need or just a desire? 41 4. Please review the "before" and "after" schedule of expenses for Jim and Jennifer above. Please note some of the areas where they reduced their expenses. As can be seen above, Jim and Jennifer originally had a deficit of $700 per month and after they implemented God's financial principles, they had a surplus of $500 per month. They reduced their expenditures by $1,450 per month and increase their giving by $250 per month to bring it up to 10%. 42 21

Ron is a single man who shortly after he became a Christian decided to learn what the Bible said on finances. Ron was amazed that God s Word contains so much wisdom on finances with over 2000 references to money and material things. Ron sensed that God was directing him to start his own business. It was somewhat frightening, because Ron had almost no customers and he owed a lot of money. Nevertheless, he obeyed God's directive for his life and started the business, that God had called him to. 43 Ron habitually spent quality time with the Lord and in His word asking God to help him implement biblical principles in both personal and business finances. Ron learned that God discourages debt and that God's best is to be debt-free. As a result Ron committed to paying off all his debts as quickly as possible. However, Ron also learned that God wants his children to give to His work and that the guideline in Scripture was 10%. Initially, Ron felt that he could not afford to give to God's work because of his significant debt load. However, as he continued to study God's Word, Ron realized that he had a "dual responsibility"-i.e. to pay all of his debts [Romans 13:8] and to give God the first fruits [Proverbs 3:9, 10]. 44 22

In faith, Ron started to give 10% to his church. This was really difficult because his income was modest and the cash flow in the business was very tight. God honoured Ron's sacrifice and his faith, by blessing Ron s business way beyond his imagination. Within three years, God had given Ron a business that would normally take about 20 years for the average entrepreneur to build! Customers came from sources that Ron never imagined and in ways that clearly indicated that they were a blessing from God, not as a result of Ron's hard work. 45 Also, within three years, Ron was totally debt-free both corporately and personally. Ron frequently thanks God for His wisdom in the area of business and personal finances. Today Ron and his wife continue to habitually study and apply God's financial principles. They both enjoy the freedom of being debt-free, experiencing God s peace in the area of finances and the joy of being able to give generously-way beyond 10%. 46 23

1. What do you think had the biggest impact on Ron in changing his thinking with respect to debt, giving and in general, managing money? 47 1. What do you think had the biggest impact on Ron in changing his thinking with respect to debt, giving and in general, managing money? Ron studied God's word on finances and as a result God changed Ron's thinking with respect to money (Romans 12:2). Ron's testimony is an example of God accomplishing, what he desires, through His Word. So is my word that goes out from my mouth: It will not return to me empty, but will accomplish what I desire and achieve the purpose for which I sent it. (Isaiah 55:11) 48 24

2. When a Christian is in debt, do you think they should focus on paying off their debt and defer giving to God's work until they are debt-free? Or is it important to give regularly to God's work even when you are in debt? Please explain your answer and provide references to scripture. 49 2. When a Christian is in debt, do you think they should focus on paying off their debt and defer giving to God's work until they are debt-free? Or is it important to give regularly to God's work even when you are in debt? Please explain your answer and provide references to scripture. Since God instructs us to give Him "the first fruits (Proverbs 3:9, 10) and since God discourages debt (Proverbs 22:7) and since it is God's best for a Christian to be debt free (Deuteronomy 28: 1-12), then a Christian has a "dual responsibility" to give to God's work (1 Timothy 6:17-19) and to pay down debt as quickly as possible (Romans 13:8). 50 25

3. God is all-powerful, all-knowing and present everywhere. God demonstrated His awesome power in so many places in Scripture. Please list below some instances [with a Scripture reference], where God provided in a financial or material way. 51 3. Please list below some instances [with the Scripture reference], where God provided in a financial or material way. I. In Luke 5:4-9, God provided a huge catch of fish for Simon Peter and his partners, as a result of his obedience to the Lord. II. God used Elisha in 2 Kings 4:1-7, to provide oil to the widow so that she could pay her debts. III. In 1 Chronicles 29, God provided all of the materials needed for the building of the temple. God blessed greatly and David praised the Lord in the presence of the assembly acknowledging that it all came from God (1 Chronicles 29:11-14). 52 26

3. Please list below some instances [with the Scripture reference], where God provided in a financial or material way. IV. Jesus Christ miraculously fed 5,000 people with five loaves of bread and two fish [Mark 6:37-44]. V. God provided the Israelites with food [i.e. Manna] every day for 40 years [Exodus 16]. VI. In Nehemiah, chapters 1 to 6, God provided the materials and the labor that were necessary to rebuild the wall. All throughout the Bible, whenever God met a need, He did it with no debt. 53 4. In light of God's awesome power as demonstrated by the miracles that God did in Scripture, is it unrealistic for a Christian who has a lot of debt to give to God's work at the same time that he is paying down his debts? Why or why not? 54 27

4. In light of God's awesome power as demonstrated by the miracles that God did in Scripture, is it unrealistic for a Christian who has a lot of debt to give to God's work at the same time that he is paying down his debts? Why or why not? No, God can and will bless the Christian who puts Him first, by giving the first fruits to His work. [Proverbs 3:9, 10]. A Christian has a dual responsibility i.e. to pay down debt and give to God s work, it s not one or the other. 55 28