Monday, November 15, 2010

Debt and Dogged Discipline

Over the course of college, I racked up a total of $16,500 in scholastic debt—not much by comparison to many of my peers, but still far more than I wanted. God willing, that will finally be paid off next month. I can hardly wait to click the button that will confirm the final electronic payment and free me once and for all from this chain.

Make no mistake: it is a chain, with a heavy ball at the end, and it can pull you down to the depths and drown you if you are not careful and disciplined in the way you handle it. I had little choice: my scholarships (the reason I have much less debt than I would have otherwise) required me to be a full-time student, and they fully covered only four years. A mistake with some paperwork one semester—unnoticed and unreported until it was too late—left me needing a loan to cover the remainder, and of course loans from the federal government never come in custom sizes, so I ended up with substantially more than I needed.

When Jaimie and I married last summer and I started my job, we resolved to pay down my debts as quickly as possible. When we finish my car next spring, God willing, we will have zero outstanding debts. That will be a wonderful thing; I can hardly wait. The path has been somewhat longer than we initially hoped, because sometimes life happens: a computer needs replacing, the car needs repairs, a friend has a financial need that we can help meet, etc. Even with all of that, we will still have paid down about $25,000 in loans in 22 months. On the one hand, that's a testament to the generosity of our God and the provision He has given us. On the other, it has happened because we have been disciplined with his gifts.

More on that in a moment, but first, you must understand that while I am pleased at how well we have done, it is deeply frustrating that we will have essentially lost that money. $25,000 would pay for seminary, or be a substantial down payment on a house, or open the door for us to adopt a child. It would be wonderful to have that money, instead of having it go to debts. So I strongly encourage anyone reading this post to consider before you go into debt. Sometimes it is unavoidable. For all other times, avoid debt like the plague. That includes college, especially if your degree will not land you a job that will let you pay the debt off quickly. It especially includes everything else but houses—don't ever buy a television on credit. It's not worth it (not least since, with a little discipline, you could save the same amount of money you would pay each month for 2/3 the time and buy a better TV at the end).

Now, how exactly did Jaimie and I manage to do so well? Even with a good job, it hasn't been easy. It has required us to sacrifice—not terribly painful sacrifices, but sacrifices nonetheless. We have made precisely two major purchases (over $100) since we got married: a new television, bought entirely with gift money, and a new computer for Jaimie when her old one died. The first was pleasure, but not something we took out of our budget; the second was a necessity for Jaimie's schoolwork. By contrast, a coworker hired at the same time as me bought a motorcycle and a new truck in the same period of time. (I intend no criticism: he's debt free and single; those were perfectly responsible decisions on his part. My point is simply that the money I make could readily be spent instead of applied to the debt.)

In addition, we kept a close eye on our budget. Initially I did that mentally, with fairly good results—but I soon realized that using a formal budget and tracking our expenses closely would allow us to be even more diligent about paying down these debts. So, at the beginning of this past year, we decided exactly how much we would put toward the debt every paycheck. With the exception of a few unavoidable pauses (like the month we bought Jaimie's computer), we have kept on that track. We have kept our other costs down by simply deciding how much we were willing to spend—whether on gas, on entertainment, or on groceries. If we don't have the money budgeted, we don't spend it. It's that simple.

Second, we have used a "snowball" approach to eliminating debt. This simple technique is recommended by most financial experts. You pay the minimum payment on all but one of your existing loans—the one with the lowest balance (or, if two have similar balances, the one of those two with a higher interest rate). You pay as much as you can afford on that one every month. (If, like us, you can afford to pay on it twice a month instead of just once, do it: you'll pay less interest.) Once you finish paying that loan off, you take all of the money you were putting into that loan and add it to your minimum payment on the next larger loan, and repeat until you're done. Each debt you pay off allows you to pay off the next debt even more quickly—it snowballs. Counterintuitive though it initially appears, paying off the smaller debts first allows you to pay down the larger debts much more quickly.

Again, that requires diligence. We didn't allow ourselves to spend more money entertainment after we paid off the first student loan (other than a celebratory pause—which is a good idea). We held our lifestyle constant (and we made wise decisions about that lifestyle from the getgo, choosing to live in a comfortable but inexpensive apartment rather than a more lavish one, and so on). We will do the same when we finish this second loan, and the same when we finish the car payment—so in another two years, we will have saved as much or more than we have paid on debts, God willing. And why should we up our standard of living? We have everything we actually need; we, like Paul, have learned to be content with what we have—all of which is more than nice enough for us.

Avoid debt. If you're in debt, be disciplined and get out. Is it hard? Yes, it is. It takes time. As my dad once commented about getting physically fit, it's a marathon, not a sprint. If you work at it faithfully and regularly, you'll get there, just as steady effort in the gym over a course of months will get you in shape. Little bursts of exercise never made anyone a successful athlete, and little bursts of financial wisdom will never get you out of debt. Work hard, be disciplined, thank God for his good gifts, and escape the slavery of debt. You will never regret it.

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