This article is the third in a series on how to get out of debt. If you haven’t already, you should check out the previous articles:

• Step 1 – Declare War on Your Debt
• Step 2 – Stop Increasing Your Debt

Step 3 – Create a Budget & Stick to It

       I’ve said it a million times (OK, at least five times on here for sure) – you need to have and use a budget to achieve personal finance success! This is true whether we’re talking about paying off debt, saving for the future, planning for retirement, or becoming a generous giver. The budget is an essential tool for personal finance.

       But it’s especially true if you want to pay off your debt as quickly as possible! Knowing how much you spend will help you see where you can cut back and save the most money. Aiming for a specific amount in your budget will enable you make sure you have enough money left over every month to put extra payments toward your debt. If you don’t take the time to create a budget and stick to it, you’re putting a major hurdle in your path toward paying off your debt.

It Doesn’t Need to Be Complicated

       Now I want you to understand that budgeting is not complicated. It simply means writing down your income and expenses. It doesn’t matter how you do it – as long as it works for you. In fact, there are many ways to create a budget and track your spending. My favorite way right now is to use Mint. It’s easy, intuitive, and nearly automatic. You can have alerts sent to your email or phone when you approach certain thresholds in your budget (even for individual categories).

How to Get Started

       If you want to get started creating a budget but aren’t sure how (and you’re not going to use Mint or other software), then you’ll need to start tracking your expenses for three months. It’s not fun or exciting, but it will help you see exactly where your money is going every month. From there, you can build your budget and begin to set goals for how much you spend in each category every month.

Remember – It’s Only Temporary

       Finally, for those of you who hate the idea of a budget, I want you to remember that this isn’t forever. There will come a time when you won’t need to track every penny you spend. You will eventually gain control of your spending, have an emergency fund, and be paying all your bills on time. But to live without a budget, you must first live within one. Even after you’ve gained control of your situation, I think you’ll find that you’ll continue to keep updating your budget because it’s such a useful tool. If the idea of creating a budget and sticking to it drains all the joy out of your life, remember that it is only a temporary situation.

Get Free Updates!

       If you want to keep getting tips on how you can get out of debt and manage your personal finances well, make sure you sign up for free updates to Provident Planning! I’ll be continuing this series throughout the year while I also explore other aspects of personal finance.

       Let me know how you’re going to create a budget & stick to it in the comments below!

       This article is the second in a series on how to get out of debt. If you haven’t already, you should check out the first article: How to Get Out of Debt: Step 1 – Declare War on Your Debt.

Step 2 – Stop Increasing Your Debt

       If you’re committed to getting out of debt, you have to stop doing the things that got you there in the first place. How did you get in debt? By borrowing money. Sure, there may have been various reasons for why you borrowed the money. But the actual act of borrowing the money is what put you in debt.

       This may sound pretty stupid, but continuing to pile on more debt while you’re trying to pay off your debt is even dumber. It’s like trying to empty a bathtub with a spoon while the water is still gushing out of the faucet. You’re not going to get anywhere! Even if you’re paying off the debt faster than you’re accumulating it, you’re just prolonging the process. If you want to destroy your debt as quickly as possible, stop increasing your debt now!

       That means don’t borrow money for a new car (brand new or new to you). Don’t borrow money for a boat or that vacation you’ve been dreaming about. Don’t use your credit cards. In fact, cut them up, freeze them in a block of ice, stick them in a safety deposit box – do whatever you must to keep from using them! There’s a way to use credit cards effectively and wisely, but now is not the time. Stay away from them until you’ve paid off your debt!

       If you’re serious about getting out of debt, I want you to have the best possible chance of achieving your goal. And you’ll greatly improve your chances if you stop increasing your debt right now. So that’s step two – stop increasing your debt.

Get Free Updates!

       If you want to keep getting tips on how you can get out of debt and manage your personal finances well, make sure you sign up for free updates to Provident Planning! I’ll be continuing this series throughout the year while I also explore other aspects of personal finance.

       Let me know how you’re going to stop increasing your debt in the comments below!

       If you spend much time reading personal finance advice for Christians (either on Provident Planning or somewhere else), you’ll probably start to realize that it’s not all that different from other personal finance advice. Most of the good advice for Christians applies equally to non-Christians as well. Stick to a budget, spend less than you earn, avoid excessive debt, keep an emergency fund, minimize your taxes, don’t buy insurance you don’t need, save for the future – none of those things are particularly Christian in nature.

       There may be some points in which Christian personal finance and secular personal finance will differ, but, generally speaking, good personal finance advice is the same regardless of your religion. The difference – and this is a major difference – is in the ultimate purpose, the final goal, of following that good advice.

       As far as the world is concerned, it makes sense to make smart personal finance decisions because that’s what is best for you. Good money management will help you meet your goals, maximize your wealth, and get the most out of the money you’ve earned. And according to the world, that’s what you should do with your money. Use it for the things you want. Use it to meet your goals and fulfill your dreams.

       But for Christians, making smart decisions in our finances is not important just so we can maximize our wealth and meet all our desires. Our purpose is not to find fulfillment in this world and the things it offers. Our purpose is to honor and glorify God – to serve Him with our entire being in everything we do. Our goal is to do His will. And part of God’s will for us is to share His love by caring for those in need through generous giving. We don’t try to maximize our wealth for our own use. We try to maximize our wealth for God’s use.

       I want you to remember this as you read the articles I write. Many times there won’t be a Bible verse in a post. Personal finance in the Bible is more about the principles that should govern our decisions – not specific applications (like how to get out of debt). But it’s very important that we remember the purpose of seeking and following good financial advice.

       When I talk about spending less, it’s so we’ll have more to give. When I talk about earning more money, it’s so we’ll have more to give. When I talk about making smart financial choices, it’s so we’ll have more to give. It all comes back to giving – giving motivated by love that flows out of our response to God’s Gift to us.

       Yes, making good financial decisions will have benefits for you personally. But our focus as Christians is on the benefits those decisions will have for the Kingdom. In our efforts to follow good financial advice, let’s keep our eyes focused on Christ and our minds focused on how we can serve Him fully.

       The advice we follow may not be all that different from non-Christians. But the motivation, goals, and results should be very, very different. And that difference will serve as a witness for the power of God’s love working in our lives.

       What do you think makes Christian personal finance different? Let me know in the comments!

       If you want to get out of debt, you need a plan. This post is the first in a series that will show you the quickest way to get out of debt and get on with your life. You’re already off to a good start by taking the initiative to find this article.

Step 1 – Declare War on Your Debt

       If you really want to get out of debt, you have to be committed all the way. It won’t be easy. It won’t be quick. And it probably won’t be much fun (until you pay it all off). To reach your goal of becoming debt free, you must promise yourself that you’re not going to give up until you’re finished.

       Give your debt an ultimatum. Declare war! Proclaim doom and destruction on your debt. Write it down if you need to. This might sound silly, but my point is that you can’t accomplish your goal if you go at it halfheartedly. You need to be enthusiastic about your choice to get out of debt if you want to last until the end.

       So that’s your first step. That’s all you need to do right now. Commit to getting out of debt. Declare war on your debt!

Stay Tuned!

       If you want to keep getting tips on how you can get out of debt and manage your personal finances well, make sure you sign up for free updates to Provident Planning! I’ll be continuing this series throughout the year while I also explore other aspects of dealing with your money.

       Let me know if you’re committed to getting out of debt by leaving a comment below!

       Before you go shopping for a house, it’s important to set a limit for yourself on how much you’ll spend. If you’re paying in cash, it’ll be easy to set that limit. But if, like most people, you’ll be using a mortgage and a down payment to purchase your house, the question becomes how big of a mortgage can you afford.

The Quick Method

       The quick way to estimate how much of a mortgage you can afford is to take your gross (before-tax) annual income, subtract your debt payments, and then multiply by 3 (use 2.9 if the mortgage rate is 6%, 2.7 if it’s 7%, or 2.5 if it’s 8%). Here’s an example. Let’s say you earn $50,000/year before taxes and you pay $200/month for student loans (which works out to $2,400/year). Subtract your annual debt payments and you’ll get $47,600. Multiply by 3 (since mortgage rates are currently around 5%) and you’ll find that you can afford a mortgage of roughly $143,000.

       To translate that into a purchase price for the house, divide by 0.8 (assuming a 20% down payment). Doing so will tell you that you can afford a $179,000 home if you have a $36,000 down payment. Don’t forget that you’ll have to pay some closing costs on the mortgage as well (possibly an extra $2,000-3,000). Set your limit at the number you come up with, and do not go looking at houses above your price range.

The Better Method

       If you want a more accurate method with less math on your part, I highly recommend Dinkytown.net’s Mortgage Qualifier Calculator. By entering all the information it asks for, you can come up with a home price and mortgage amount that will be affordable for your situation. You’ll need to enter your annual income, cash on hand, mortgage interest rate, mortgage term, property tax rate, homeowner’s insurance, closing costs, and your debt payments.

       You can estimate your mortgage information by doing a few searches on Google. You can also find information on property tax rates and homeowner’s insurance costs for your area by searching Google. If you can’t find that information, call a real estate agent and ask them for some estimates. They’re very familiar with such costs and can help you guess at those costs.

What You Can Afford May Not Be What You Need

       Just because a calculator spits out a number telling you that you can afford a $200,000 house does not necessarily mean you need a $200,000 house. If your actual needs are less than what you can afford, by all means buy a less expensive house and use the money you save for your other needs. Buying more house than you need is unlikely to do you much good in the long run. You’ll pay higher property taxes, insurance rates, and maintenance costs for something you’re not fully using.

If There Are No Homes Available in Your Price Range

       Then you likely need to save a larger down payment or move to an area with a lower cost of living (if that’s an option). Stretching yourself to buy a house outside of your affordable range can easily lead to disaster when hard times hit. Beware of exotic mortgages (like interest only and other variations), and be very careful of ARMs (adjustable rate mortgages). The most manageable and safest mortgage is the traditional 30-year or 15-year fixed interest rate mortgage.

       Another option is to keep shopping around until you find a house within your price range. Patience is a powerful tool when buying a house. Rushing the biggest purchase in your life is not a wise decision. Don’t let the emotions of searching for a home control your decisions and put you in a financial bind.

       If you have any questions, leave a comment. I promise to respond as quickly as possible!

       A reader recently left a comment on my post discussing how much you should have in your emergency fund. Frank said:

Could you please show me in Scripture where it says believers are to have an emergency fund?

Thank you.

       I responded to Frank’s question in the comments, but I think this is an important enough issue to address in its own post.

       Not all personal finance advice can be backed up with a specific quote from Scripture. Does that mean it is bad or unchristian? Not in the least. If the advice follows the pattern of teaching and wisdom in the Bible, it can still be considered good advice for Christians despite the lack of a specific Biblical reference.

       For example, is there a specific Bible verse telling you that you should create a will? No. But it’s still a wise thing to do. Is there a specific Bible verse that tells us to update our résumés? Again, the answer is no, but that doesn’t change the validity of the advice.

       This concept doesn’t apply just to personal finance. Is there a Bible verse telling us to buckle our seat belts? Nope. But does that mean you’re trusting your seat belt more than God if you buckle it? What about looking both ways before you cross the street? Do you lack faith because you do this?

       The problem with applying the “show me in the Scriptures” test is that there is not specific advice for every single situation we will encounter in life. There are guiding principles and values that, along with God’s Holy Spirit, will help us discern the wise choices. But you’re not going to find Bible verses telling you to brush your teeth, stop eating at McDonald’s, or to take advantage of an HSA if you’re eligible.

       Scripture does contain many verses teaching us the importance of wisdom in handling our affairs. Here are a couple examples:

       The simple believes everything, but the prudent gives thought to his steps.

Proverbs 14:15 (WEB)

       The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.

Proverbs 21:5 (WEB)

       Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.

Proverbs 21:20 (WEB)

       The prudent sees danger and hides himself, but the simple go on and suffer for it.

Proverbs 22:3 (WEB)

       In fact, the entire book of Proverbs points to the importance of wisdom and its place in the life of those who follow God. But what about all the times Jesus told us not to store up treasures on earth? Or when He taught us not to worry about what we’ll eat and drink and wear?

       Tell me, what did Christ mean when He said do not worry or be anxious? What does it mean to worry or be anxious? Those words mean to be distressed, uneasy, and tormented with care about something (material things in this case). Christ’s solution was for us to “seek first the Kingdom of God”. Instead of being worried about how we’ll meet our material needs, we should be worried about how we’ll meet our spiritual needs – how will we serve God and draw closer to Him.

       You can be worried and anxious about material things whether or not you wisely plan ahead. I can have an emergency fund and still be worried about material things. I can not have one and still be worried about material things. Even if I have an emergency fund, I can stop worrying either because I have that money saved or because I trust in God’s provision. That brings us to the other main teaching of Christ about money.

       When Jesus taught about storing up treasures and serving Money what did He mean? What does it mean to be wealthy or rich or to have treasure? All those words denote an abundance, which means having much more than what is sufficient or needed. Jesus’ warnings about wealth were not to tell us that we should never use money appropriately to meet our needs. Jesus warned us instead of the danger in accumulating more than what we really need. He told us not to become consumed with money and wealth.

       There is a vast difference between being consumed with accumulating an abundance of wealth and planning wisely to have enough to meet our needs. In the same way, there is a huge difference between being occupied with worry and prudently foreseeing needs and dangers and preparing to face those situations. These two teachings that Jesus gave us are so often stretched to mean that we should never save anything at all for the future because that demonstrates a lack of faith. The truth is that Jesus taught us to:

1. Give God and His Ways priority in our thoughts and lives.

       

2. Avoid storing up more money than we will need. (That is, not to let becoming rich be our priority in life.)

       Proverbs commends wisdom and many New Testament verses speak to the importance of providing for your own family. We are not taught to make ourselves a burden to others when it is within our power to care for ourselves. Instead, we are taught that if there are any among us who cannot provide for themselves it is our responsibility as fellow Christians to care and provide for those people. Jesus’ teachings combined with the rest of Scripture in no way preclude us from saving for the future, using insurance, or utilizing money in any other wise manner. What is forbidden is making Money our god – giving priority to accumulating more money than we really need instead of serving God.

       The real issue then becomes finding contentment in Christ and determining our true needs. The danger we face is allowing the world to dictate our needs and success (a bigger house, a fancy car, expensive clothes, etc.) instead of learning to live on enough (our daily bread). That is the bigger issue here and the battle all of us Christians face. Once we have submitted to God in our discontentment and covetousness, we will be able to make Money serve us and God’s Kingdom instead of allowing it to be our master. But these are all topics worthy of their own discussion (contentment, defining needs, and avoiding covetousness).

       Please share your thoughts on this topic in the comments. I’m looking forward to hearing from all of you!

       If you realize that debt is slavery and you’re ready to break free, you’re already well on your way to becoming debt free. Half the battle of paying off debt is finding the motivation to bust through the chains and throw off the weight of debt. You can get out of debt, and this article will give you a plan that will lead to success.

Commit

       You must be fully committed to getting out of debt. If you want to get out of debt and stay out of debt, you must focus all your energy on making the changes necessary for success. You can’t keep doing the things you’ve been doing and expect to get out of debt. If so, you wouldn’t be where you are now!

       Before you read the rest of this article, you have to be fully committed to getting out of debt and staying out. You must know why you want out. You must know what your motivation is. You don’t need a grand, complex reason – you just need a reason that you believe in. If you’re really committed to paying off your debt and avoiding it in the future, then you will find success. If not, you might as well quit reading right here.

Establish an Emergency Fund

       Before you try to pay off your debts, you need to have an emergency fund. Any progress you make toward paying off your debts can be completely wiped out once the first emergency hits. Save up at least one month’s worth of your living expenses before focusing on paying off your debts. (But don’t forget to keep making the minimum payment on your debts!) Click here to read about where you should keep your emergency fund.

Set a Goal & Make a Plan

       If you’re ready to do everything necessary to get rid of your debt, great! Now you just need to set a goal. What debts do you want to get rid of? All of them? Everything except your mortgage? Decide right now, and write it down.

       Next, you need a plan. How are you going to pay off your debts? Which debt will you focus on first? What will be your next target? There are multiple ways to approach this. First, you’ll need to know the interest rate, balance, and minimum payment for all of your debts. Then, rank them using one of these three methods:

1. Highest Interest Rate First – Start your list with the debt that has the highest interest rate. Then put the debt with the second highest interest rate below that. Keep doing this until all your debts are listed. This is the best way to pay off your debts if you’re looking at the numbers only. (You’ll pay the least amount of interest this way.)

       

2. Lowest Balance First – Start your list with the debt that has the lowest balance. Then put the debt with the second lowest balance below that. Keep doing this until all your debts are listed. This method feels good psychologically because you’ll get some small wins fast, but it could cost you quite a bit in the amount of interest you’ll end up paying. (Depending on the interest rates of your debts and their balances, this method could cost you much more in interest because you could be paying higher interest rates for a longer period of time.)

       

3. Highest Stress Level First – Start your list with the debt that worries or stresses you the most. List the next highest stress debt below that. Keep doing this until all your debts are listed. This could be a good way if you worry a lot about your debts, but it could also cost you a lot in interest payments.

       Regardless of how you list your debts, how you’ll pay them off won’t change. You’ll have to pay the minimum payment on all of them regardless of where they’re listed. Then any extra money you can find will go toward paying the first debt on your list. After that one is paid off, you’ll put that first debt’s minimum payment plus any extra money toward paying off the second debt. You’ll keep repeating this process until you’re debt free!

       If you’re behind on your debts and your creditors are starting to tell you they’ll foreclose or send your debt to a collections agency, you’ll need to come up with a plan for how you’ll deal with the situation. Do not go to a debt management service. They cannot do anything that you can’t do by yourself. They’ll want to charge you fees for their service, and that’s the last thing you need while trying to get out of debt. You can negotiate with your creditors by yourself, but you’ll need to remain calm and be ready to compromise. You’ll have to work with your creditors to come to an agreement that’s good for both of you.

Make a Budget & Stick to It

       To attack your debt most effectively, you’ll need to make a budget and stick to it. You must know where your money is going so you’ll know where you can save and how much extra you have to put toward your debts. Once you’ve set your budget, you’ll need to stick to it or you’ll lose all the progress you’ve made in paying off your debts.

       Your budget does not need to be complicated. You simply need to list your income and your expenses in a way that makes sense to you and covers all your bases. Having this list will help you see where you can save the most money and help you determine how much you can put toward paying off your debts.

       Once you’ve got a budget, you need to find a way to stick to it. You can track your spending in a spreadsheet, make your savings, debt, and essential payments automatic, or use the envelope method (where you put each category’s budgeted amount in an envelope every month and only spend from there). Use whatever method you think will work for you. If it doesn’t work, ask yourself why and figure out what you should do instead.

Trim the Fat & Earn More

       To pay off your debt quickly, you need to find ways to save money and earn more. Look at your budget and figure out ways you can save on the biggest categories. Then focus on ways you save in the smaller categories. Do the easiest things first to get the most out of your time. Use the money you save to pay off your debts.

       Look for ways you can earn more money. Can you work overtime? Can you get a raise? Can you start a side-business? Can you sell some of your Stuff? Any extra money you can earn will help you pay off your debts faster.

Celebrate Your Milestones

       Find simple ways to celebrate your milestones. Treat yourself (or you and your spouse, or your family) to something fun when you eliminate a debt or at certain milestones. You could celebrate when you’ve paid off $500 in debt – then $1,000, $2,500, $5,000, $10,000, and so on. Set some milestones that make sense for you, and then celebrate when you reach them!

Share Your Story

       I’m confident you can and will pay off your debt if you follow this guide. If there’s anything I can do to help you, feel free to share your story here or contact me. If you’ve used these methods to get out of debt, share your story here and encourage others!