Debt Elimination
By Shauna Belknap, staff writer

While members of the church may have a healthy advantage over the national population when it comes to abstaining from smoking and drinking they don’t necessarily have the market cornered on financial independence. The average American family has ten thousand dollars of debt. And Utah has the highest personal bankruptcy rate in the nation, a statistic Paul Godfrey, associate professor with Brigham Young University's Marriott School of Management, is certain reflects Utah’s LDS demographic (Moore).

Why do many members of the church faithfully obey the Word of Wisdom while ignoring counsel from the prophet to avoid debt? Once you’re in debt the more important question might be, how do you atone and achieve financial freedom? The steps in eliminating debt sound simple, but they definitely require self-mastery and a keen appreciation of frugality.

In this era of drive-thru’s, e-shopping, ultimate makeovers, and 90-days same-as-cash it is easy to blur the line between want and need. As a population of skilled consumers credit is often seen as the sound way to get what is convenient, what is “deserved,” or at least what the neighbors seem to come by so effortlessly. Even in 1884 Joseph F. Smith recognized this problem:

We ought to use the best wisdom, judgment and understanding we can obtain in our temporal as well as in our spiritual affairs and concerns. … We are too selfish. It should not be “every man for himself,” but we are many of us covetous. We desire in our hearts to have everything our neighbor has whether we need it or not. In order to be like our neighbor; in order that we may associate with him, and that our daughters may associate with his daughters, and our sons with his sons, we must have as fine a house, as costly furniture, … and as many luxuries whether we can afford it as well as our neighbor can or not. Now, all this is extremely foolish. It is wrong… (Teachings 170.)

Over 100 years ago President Smith cautioned members against indulging in an excessive life-style regardless of cost, something President Hinckley continues to do today. But it can be difficult when the media promotes this sense of entitlement, and it takes effort to change one’s expectations from excess to frugality.

Baby-Step Your Way to Debt Elimination

1. Pay Tithing First
While getting into debt is often a mistake, striving to get out of debt is a righteous endeavor Heavenly Father sustains. It goes without saying He will bless members in their efforts to eliminate debt. But in order to obtain that help members must be willing to do all that is required of them. Lane V. Erickson, bankruptcy attorney, lists “paying tithing first…no excuses and no exceptions” as the first of five steps in achieving financial freedom (Erickson 66). He goes on to quote President Hinckley:

Some of you have money problems. I know that. There is never enough money in your homes. I know that. You are struggling to get along. What is the cure? The only thing I know of is payment of tithing. … It was God who made the promise that He would open the windows of heaven and pour down blessings upon those who walked honestly with Him in the payment of their tithes and offerings, and He has the capacity to keep His promise. (Erickson 66).

Paying tithing first illustrates one’s faith in the Lord, one’s willingness to do his will regardless of the sacrifice that may require. And who wouldn’t want to turn their heads heavenward and be showered with divine blessings?

2. Consider the Carbonated Factor
In David Bach’s book, The Automatic Millionaire, he cautions readers against what he calls the Latte Factor (for our purposes we’ll rename it the Carbonated Factor) (Bach 31). He explains that in managing finances it’s not about how much a person makes but about how much a person spends. You must look at those things purchased regularly that may not seem like a lot of money at the time but will add up in two weeks, one month, 5 years. What if you were to purchase one 32-oz soda every week day (un-caffeinated, of course)? Let’s say that costs about one dollar. If you buy one 32-oz soda 23 days of the month you have spent 23 dollars in one month, 276 dollars in one year. That could make a fair dent in a small credit card balance.

The Carbonated Factor doesn’t just apply to beverages. Consider your standard purchases in a month. How many small wants could be eliminated with some will-power? Hagen Dias = want. Diapers = need. And how many needs could be bought at a less expensive price? Generic brands, bulk foods, turning down the furnace a few degrees can all save just a little bit of money that adds up over time. Sit down and make a list of all the things you could do without or could do less expensively and you just might be surprised at how much you can save.

3. Create a Budget
Sometimes it is a little scary to see how bad the damage really is, but a problem that remains camouflaged is difficult to solve. Sit down and add up all the debt. What are you really up against? You may consider listing the debt from smallest to largest balance, or smallest to largest APR. Then list all the other bills that need to be paid, including groceries, car maintenance, insurance co-pays, personal allowances, etc. Now subtract all those items from your monthly income and you have a budget. (If you’re married, be sure to involve your spouse; it could be quite a shock to his system if you eliminated his wants in order to pay more than a minimum payment on one of your credit cards.) While there are many software programs that can help you manage your budget Microsoft’s Excel or Corel’s Quattro Pro are probably already on your computer and can be used to track your finances just as easily.

Once all significant parties are in agreement, follow your budget, being sure to make any necessary adjustments over time. Often it takes living the budget to see where all the money is really going in one month. You may have forgotten to include the garbage bill and need to revise your budget to include that expense for upcoming months. But also, don’t disregard your budget in order to allow $50 worth of pizza deliveries because it makes FHE more enjoyable.

4. Follow a Debt Elimination Plan
When creating your budget you must decide how much you will pay on each credit card balance. If possible you should transfer your debt to other creditors offering a lower APR. Be sure to read the fine print. Often creditors will advertise a 0% APR that changes to something much less reasonable after a few months. A low, fixed annual percentage rate is most desirable.
You may be at a point where just the minimum payment can be made on most, if not all, of your balances. Hopefully, after considering the Carbonation Factor, you will have found small ways to increase at last one payment beyond the minimum. Lane V. Erickson recommends Ezra Taft Benson’s program for debt elimination. According to this plan more than just the minimum payment is applied to one balance, or if possible, more than one balance. This assures the balance will be paid off more quickly, and once it is, that payment is “rolled over” into another payment (Erickson 66). You may choose to work from smallest to largest balance, or you can work from highest to lowest APR. Once you’ve paid off a few of these balances you will find yourself making larger payments to fewer creditors eventually catapulting you to financial freedom.

5. Reward Your Efforts
It is important to note your progress and give yourself a prize for your achievements. Take yourself out to a nice restaurant (paid in cash) every time you eliminate a balance, or treat your family to a nice steak dinner, courtesy of your back-yard grill. Be sure to talk about your success and express gratitude to Heavenly Father for blessing your efforts. A healthy pat on the back can often act as the push you need to continue moving forward.

6. Stay the Course
Once you become debt-free you can probably breathe a sigh of relief and loosen the purse strings a bit, but don’t throw all care to the wind. Re-evaluate your status and create a new financial plan (one that probably won’t include washing sandwich bags and aluminum foil for reuse). The new plan should include looking to future expenses and saving for bigger purchases (i.e. that new living room set you’ve been wanting or that bigger vehicle for your growing family). It should also include attending to a retirement plan and a healthy savings balance. But whatever you do, don’t forget the lessons learned, and the leverage gained from your new-found frugality.

Other Resources

- Dacyczyn, Amy. The Complete Tightwad Gazette. Random House: New York, 1998.
- Church website: Finances
- Living Essentials: Managing Resources
- Provident Living: Resource Management

Works Cited

- Bach, David. The Automatic Millionaire. Broadway: New York, 2003.
- Erickson, Lane V. “Five Steps to Financial Well-Being.” Ensign March, 2004: 66.
- Moore, Carrie A. “Morally Bankrupt? Most Religions Condemn Debt.” DeseretNews.com 17 Jan. 2004. Deseret News. 1 Feb. 2004.
- Teachings of the Presidents of the Church: Joseph F. Smith. Church of Jesus Christ of Latter Day Saints: SLC, 1998.

Tax Return Ideas

Courtesy of
Kathleen Gordon-Ross, senior editor

• A friend of mine uses her tax return to make an extra payment on her mortgage. One extra payment a year towards the principle on your mortgage can cut a 30 year mortgage to 15!
  
• Take Deal Divia's advice and get out of debt! Use your tax return to pay off (or make a dent in) your student loans, credit cards, car loan. Every little bit of extra money applied to the principle of those loans can save you a significant amount of money in interest!
  
• Take a small portion of your tax return and do something fun, then invest the rest of it in a mutual fund or other long/short term investment plan for something big - your child's education, new furniture, down payment on a house or car, a nice vacation.
  

Here are some unconventional things you can do with a little bit of extra cash:

• Not loving your car and wishing you could afford a new one? Have it detailed - you'll be amazed at how good ... how new your old car can look when three guys spend 3 hours cleaning every nook and cranny of your car. (Cost $100+ for a car, $200+ for an SUV/minivan)
  
• Get ready for summer and redecorate a room with a new coat of paint.
  
• Take a weekend get away - find cheap airfares and visit a new city, rent a room at a bed and breakfast, visit a good friend you haven't seen in a while, take an unplanned temple trip.
  
• Buy flowers and vegetables for your garden.
  
• Have a family picture taken and framed.
  
• Invest in a good set of luggage. Right now you can find some great deals on luggage since many stores are clearing out last years design.

Ways to Avoid The
Holiday Cash Crunch

• Make a list at the beginning of the year of the individuals who you give holiday gifts to. Sometimes we have hearts that are bigger than our wallets, be careful how many people you put on your list. I am sure your friends would rather not have gifts than know that you went into debt to get them a gift.

• Plan ahead, after your list has been made, jot down some ideas of what your budget will be for each individuals gift.

• Once a month through out the year purchase gifts for the people on your list. If you know what you want to buy, this allows you to watch for the sales. You are also able to spread your expenditures out through out the year instead of spending one big chunk in December.

• Can you make the gift instead of buying it? I know my sister needs bed linens, this year I intend to sew her a duvet cover. Check out Crafty Chic for more great homemade gift ideas.

• Help your children to understand that there is more to Christmas than getting gifts. If you don't have gift greedy children, then your holidays will be more affordable and your children will be happier.

Additional Resources:

Mormonchic.com's: Create a Household Budget