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3 Phases of the Debt Cycle and How to Get Out

by Chuck Bentley January 6, 2017

Originally posted on the Christian Post on January 6.

Dear Chuck,

I read your column about making New Year’s resolutions, and I’ve made mine: Get out of debt. It’s not my first attempt, but I’m hopeful that this time I can do it. I wish I had a more creative tale of woe, but it’s basically the same old boy-goes-to-college, boy-gets-loans-and-credit-cards, boy-wants-out! How should I get started?

Looking for a New Beginning

Dear New Beginning,

Congratulations on deciding to take another run at getting out of debt. I will address the student loans and the credit cards alike. And yes, you can do this! The final chapter to your tale should be three steps to boy-pays-off-all-debt!


Part I – boy-makes-a-plan

Your story is important and is shared by many. In fact, a Pew study found that nearly 7 in 10 Americans view non-mortgage debt as an unhappy “necessity.”  You’re actually in a minority who prefer to be free of your debt, as the study also found that only one in five said “no amount of debt is worth it, regardless of opportunities it might offer.”

Many chose to borrow because we believe that we have a chance for something valuable or perhaps because we think it’s our best option, today, to do something that is necessary. But the tragedy of debt is that it shuts down opportunity as some are pulled only to work to serve someone else’s interests – those to whom you owe the money.

Proverbs 22:7, “The rich rule over the poor, and the borrower is slave to the lender.”

In counseling people in debt, I’ve found that many promising young people would love to pursue their dream of teaching in the inner city or devoting their time to missions or working for a non-profit. But they don’t feel that they can because they need more resources to cover their obligations. The first step towards your dream begins with making a plan to free yourself from anchors in your life. And debt is dead weight.

Part II – boy-pays-off-credit-cards-first

Begin today by pledging to take on no new debt. You may hurt your credit rating if you shut down all credit cards, but you can cut them up so that you’re not tempted to add to the totals, keeping one under lock and key.

Your best protection against using credit cards is an emergency fund, so priority number one is to begin immediately to set aside $1,000 in a savings account. Get this done first so that you don’t need to rely on credit cards or other borrowing when your car’s transmission conks out or any other expenses pop up.

Priority number two is pay off the credit cards. Employ the Debt Snowball Calculator to attack your debts one at a time. Consider a tiny snowball that you roll and roll, until it becomes huge. In the same way, we start by tackling the smallest debt first, making the biggest payments you can, and after that is eliminated, you roll your resources into the next biggest debt, until you are free. This frees up more resources to apply towards paying off other debts but, more importantly, gives you a sense of victory. By the time you get to your biggest obligation, you’ve already accomplished a lot.

When you get credit cards under control, you will be able to keep one and pay off the balance each month. If you struggle to pay off the balance, stop using it and go to an all-cash budget.

Part III – boy-pays-off-student-loans

Ideally, debt should not be more than 5 percent of your overall budget. You can follow this link to a free budget guide from Crown, which can help you see all your obligations and what percentage we recommend for each item. Many free resources are available to you as you begin this journey.

You now have an emergency savings account of $1,000, no credit card debt, and lots more available cash – plus a functioning budget or cash management plan.  You are writing a great tale by now!  Before you are done, begin increasing your savings in the Emergency Account to 3 to 6 months of your living expenses and begin making extra payments towards reducing your student loan debt. Through diligence and discipline, you will see your dream accomplished in time.

If you don’t want to go it alone, carefully chose professionals who can help you with a plan. (Desperate people are too often victimized by those who just add to the problem.) Crown works with trusted partners, like those at Christian Credit Counselors, who have experience in helping people talk with their creditors and stick with a plan.

This is a great New Year’s Resolution but you may need to repeat it for the next several years depending on how much debt you have. As the Scripture says, don’t be a slave to debt. Galatians 5:1 says, “It is for freedom that Christ has set us free. Stand firm, then, and do not let yourselves be burdened again by a yoke of slavery.” Start praying now about what God would have you do with your career and resources as you have more options, as debt becomes your past and hope your future. And let us know how we can help as boy-becomes-debt-free.

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