How to be debt free

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How to be debt free

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When you’re in debt it’s much harder to be financially successful because so much of your money will need to go to making payments and paying interest. The sooner you can get your creditors off your back and become debt free for good, the better, as you can then divert all that wasted cash to doing big things.

Becoming debt free is easier said than done, especially if you have substantial credit card debt. The good news is, there’s a proven path to freedom from debt. If you’re ready to make 2019 the year that you kiss your debt goodbye for good, follow these five steps.

1. Stop getting deeper into debt

Before you can dig out of a hole, you need to stop digging it. If you’re ready to become debt free, it’s imperative you stop going further into debt. Commit now to no longer using your credit cards or otherwise borrowing any more money that you can’t pay back in full right away. You’ll need to be able to live within your means if you want to become debt free.

2. Save a small emergency fund

It may seem odd to devote extra cash to saving an emergency fund when your goal is to pay down debt. The problem is, if you don’t do this, it will be impossible to commit to not relying on debt any more. That’s because emergencies will happen, and you’ll be stuck borrowing to deal with them if you don’t have some cash set aside.

While you’ll ultimately want an emergency fund with three to six months of living expenses saved up, you shouldn’t try to save this much before working on making extra debt payments. You should, however, have a mini emergency fund of between $500 and $2,000 — depending upon your income and the likelihood of an emergency.

Prioritize saving this emergency fund ASAP and just make the minimum payments on your debt until you do. That way when something unexpected happens, you won’t have to break out the credit cards and lose your momentum by getting deeper into debt after you’ve been working hard to pay it off.

3. Make a budget and set aside extra money for debt repayment

To become debt free, you’ll need to throw extra cash at your creditors. Which means you have to find money to do that. The more money you can find, the sooner you’ll successfully pay off what you owe.

Start by tracking your spending for around 30 days to see where your money is currently going. Then make a detailed budget that accounts for every dollar of income — and make extra debt payments an essential line item in your budget. If you can’t find spare cash in your budget to pay debt, you’ll have to cut other expenses or increase income by doing overtime or taking on a side gig.

4. Use the debt snowball or debt avalanche method to pay down your debt

Once you’ve found extra cash in your budget, you need to allocate it appropriately. In other words, you need to decide which debt you’re going to make extra payments towards.

It’s best not to spread this extra money around towards all your debts, but instead to devote all your extra cash towards paying off one particular debt ASAP while making minimum payments on others. There’s two different approaches to deciding which debt to make extra payments to: the debt snowball and debt avalanche.

The snowball method of debt repayment says to pay off your smallest debt first, then roll the payments you were making on that small debt over to paying your next smallest debt. Continue doing this until all debts are repaid. The avalanche is a similar approach, but you start with the highest interest debt instead of the smallest debt.

The debt snowball method has been proven to work because scoring wins by paying off debt keeps you motivated. The avalanche method makes more financial sense, however, because you pay less in total interest over time by paying off your highest debt first. You’ll need to decide which approach is best for you.

You could also potentially take out a personal loan to consolidate all your other debt — if you can qualify for a loan at a low rate. This would mean you’d have to focus on just paying back one debt instead of many.

5. Track your progress to stay motivated

Finally, once you’ve started your debt payment plan, keep track of how you’re doing so you’ll stay motivated and eager to send extra money to debt repayment. You can monitor your progress using apps or a spreadsheet, or make a visual representation of your debt such as a thermometer picture you color in as you get closer to being debt free.

You can also keep tabs on your credit report to watch your debt balance go down, and your credit score go up as you make on time payments and reduce your debt balances.

You can become debt free in 2019.

By following these five simple steps, 2019 can be the year when you either pay off your debt for good, or get a lot closer to doing so. The important thing is to make a commitment and stay motivated until your very last payment is made. It may be a long slog, but it will be worth it in the end.

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About the Author

How to be debt free

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

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How to be debt free

Getting out of debt can seem impossible. While it’s challenging to pay down debt, in most cases, it can be done. Learn more about how to get debt free.

Determine Why You Want to Be Debt Free

Before you set a debt-free goal, take time to understand why you want to get out of debt. What is your motivation? What do you want to accomplish by getting out of debt? Not wanting to owe anyone makes perfect sense, but why don’t you want to owe money to anyone?

Once you’ve come up with your reasons for paying off debt, write them down. “I want to be debt-free because…” or “I want to be debt-free so I can…” Put your list of reasons in a place where you will see it all the time. This will help keep you motivated even when you feel like giving up. It puts your end goal right in front of you.

Review Your Options for Getting out of Debt

When it comes to getting out of debt, the (seemingly) easiest answer is to pay it off. But, you may consider some other options, including:

  • Enrolling in consumer credit counseling: A non-profit credit counseling agency can help you develop a budget and set up a payment plan with your creditors. Counselors offer financial education and ensure that your plan makes sense for your situation. Be sure to check the reputation of any credit counseling agency you’re considering.
  • Taking out a debt consolidation loan: With this type of loan, you pay off high-interest debt with a loan that has a lower interest rate. These loans may be personal loans or home equity loans or lines of credit. You can pay off debt more easily with a lower interest rate, but if you use a home equity product, you could lose your home if you stop paying.
  • Filing for bankruptcy: This is a last resort, but it can either wipe out your debt or allow you to make more manageable payments for three to five years, after which your debt is discharged. It’s expensive to file for bankruptcy, though, and it impacts your credit for 10 years.

You can also pay off your debt yourself. Figure out how much you can afford to pay on your debt each month. This may require you to scale back in some areas of your life. You may have to work some extra hours or find a way to make money on the side. Any of these options can work; the best way to get out of debt is the one that makes the most sense for you.

Set Realistic Goals

The amount of time it takes you to become debt free is directly related to the amount of money you can put toward your debts. The more you can pay, the sooner you can be out of debt.

Being reasonable is critical, because an unrealistic timeline that’s difficult to meet can kill your debt-free plan, leaving you disappointed and unwilling to try again. For example, an unrealistic goal would be to pay off $15,000 in credit card debt in one year on a $50,000-per-year salary and a $1,100 mortgage. If you can manage to pay $2,700 on your credit card each month, you can make it happen, but you’re unlikely to be able to stick to such a strict payoff plan.

A more realistic goal would be to pay off $15,000 in credit card debt in three years by cutting back and making a $500-per-month payment. This is definitely more reachable.

There are many online debt payoff calculators that tell you how much time it will take to pay off your debt based on the amount of money you can afford to pay. Some of them even let you enter several debts. You can also reverse it and figure out what monthly payment it will take to get out of debt within a certain period of time.

You can also use an approach like the debt snowball. With this method, you pay off your debts starting with the one with the lowest balance. You pay extra on the debt with the lowest balance and pay the minimum on your other debts. Once the first one is paid off, you apply what you were paying on that debt to the next-lowest debt.

The debt avalanche is similar to the debt snowball, but you pay off debts in order by interest rate. You pay off the debt with the highest interest rate first, then apply that payment to the debt with the next-highest interest rate.

Make a Commitment

Once you’ve clarified your goals and decided how you’re going to pay off your debt, it’s time to commit. Keep track of your progress by using a spreadsheet or a chart, or make use of debt reduction software to create a comprehensive plan. Seeing how far you’ve come can help motivate you to keep going.

Chances are that you’ll have other priorities come up. Weigh these priorities against your desire to be debt free. Some, like a vacation, may be less important than getting out of debt, or you might do a staycation rather than traveling. Others, like an unexpected medical bill, need to be paid. You might need to lower your debt payments temporarily and then get back on track as soon as you can.

Don’t Expect to Be Debt-Free Overnight

Paying off your debt is never as simple as racking it up. There’s no simple method for how to get out of debt quickly, and it could take several years to pay off your debt completely. Any extra money you put toward your debt helps though. If you get off-track, regroup and start again the next month. With time, you can be debt free.

I am working hard to be better with money. What’s your best tip for getting out of debt?

Debt Free in Three

Dear Debt Free in Three,

How to be debt free(Courtesy of Christian Economic Forum)

I am excited that you have a goal to be debt free. I am hoping that your phrase “debt free in three” is a three year goal — or maybe even less — to pay off your debt. What I want to address is your first comment about wanting to become better with money.

Stewarding involves the heart and what we believe about God.

If all we ever do at Crown is get people on a budget, out of debt, or to have more savings in the bank, then we’ve failed because fixing our money problems is not the goal — our hearts need to be changed.

People can retire as millionaires and die as billionaires. But, unless they turn to God for the forgiveness of sins and the gift of new life, they will remain paupers — eternally separated from Jesus Christ.

How To Know the Lord

Man’s relationship with God was broken when Adam disobeyed the Lord. The guilt had to be punished; the debt had to be paid. In the Old Testament, Passover and sacrifices foreshadowed a future event in which God provided the perfect sacrifice, a Lamb without blemish — His only Son.

Jesus is God’s gift to us. We can’t earn salvation. We don’t deserve it. We can only receive it by humbly trusting the Lord and His grace.

“If we confess our sins, he is faithful and just and will forgive us our sins and cleanse us from all unrighteousness.” (1 John 1:9 ESV)

“If you declare with your mouth, “Jesus is Lord,” and believe in your heart that God raised him from the dead, you will be saved.” (Romans 10:9 ESV)

Our goal is not simply to help you get out of debt and on a budget. Our goal is to lead you to God so that you can know Him as Lord and Savior. Stewardship is born out of this relationship. When you know Him, you then want to obey what He teaches about finances.

A Long-Term Plan

True stewardship flows out of love and gratitude for what He gave. Faithful stewards don’t see their lives, money, and possessions as their own. They acknowledge that everything they have belongs to God, and they manage it accordingly. They desire to handle money wisely, to care for the earth and others, and to further God’s Kingdom. They don’t order their lives so that they can spend whatever they want. They order their lives so that God can spend them however He wants. They are thinking not just about how to get to the end of this life comfortably but also about how to prepare for the life to come.

Larry Burkett said, “Most Christians are more than content to live out their lives surrounded by the trappings of our world, rather than to risk losing them in becoming a radical Christian— one who will put God first in all decisions, even when putting God first is costly.”

In a few years, everything you have will either be thrown away or will belong to someone else — your house, your car, your clothing, your books, and all of your most prized possessions. everything.

Guard yourself from the material distractions of this temporary life, and focus your time and money on the eternal. You’ll only spend a few years here on earth. Our deepest needs can never be met with more things; they can only be satisfied with more of Jesus.

Debt Free in Three

I encourage you to continue your quest to become debt free. God wants us free from all earthly masters. He identifies financial debt as a form of slavery. More importantly, recognize that Jesus paid a debt that He did not owe so that you could be free of the debt you could not pay. That is the debt you owe for your sin. When you confess that Jesus Christ is Lord and surrender your will to obey His, you will be set free of your sin and shame and the penalty of eternal separation from God. You will be set free by the Father, Son, and Holy Spirit. This is the beginning point of your stewardship journey. It is the best advice I could ever give you.

Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Seven Gray Swans: Trends that Threaten Our Financial Future. Be sure to follow Crown on Facebook.

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Are you ready to become debt-free? People who are debt-free often have a completely different mindset than those who carry debt.

Here Are 7 Habits Debt-Free People Avoid

Even though two people could have the same education, come from the same financial background and make the same amount of money, the difference in their financial pictures could be like night and day, depending on how they view money.

Debt-free people might have carried debt in the past or might have witnessed the havoc that carrying a large amount of debt has had on other people’s’ lives, vowing never to be in the same position. But the great thing is, when it comes to your money, no matter where you start, you get to decide where you go from there!

1. Ignore Accounts

Ignorance isn’t bliss when it comes to money, and those who are debt-free know this.

Though some might border on slightly obsessive, people who are debt-free are aware of their money and where it goes. They attach a high value to a dollar because they know how hard they had to work to make that dollar.

People who are debt-free are watchful over their money, and they monitor their accounts so they know where they are.

Tracking your spending — every dollar that comes in and every dollar that goes out — is one of the best ways to maintain control of your money and reduce how much you waste each month.

2. Neglect Saving

People who are in debt often work operate with a mindset of scarcity: the feeling of never having enough.

And often this actually causes people to avoid saving and continue spending because they associate cash flow with a sense of temporariness.

But if you allocated your money before it even comes in then you can avoid this mentality altogether by knowing that everything is paid for.

You might have heard this saying from people who have been successful in their finances: “Pay yourself first.”

People who are debt-free make it a priority above anything else!

Here are some resources to help you get started:

3. Get Duped by Smart Marketers

Let’s face it: When you want to become debt-free, you’ve got to become a fierce defender of your wallet.

People who are debt-free can smell a slimy sales gimmick from a mile away. You won’t see a debt-free person signing up for a “90-day same-as-cash” offer. They’re way too smart for that. And if they really want whatever it is, they’ll just save up the cash.

Though a “90-day same-as-cash” offer might seem like something smart people do to make their money work for them, many people do not pay these loans off before the due date. Then they’re stuck paying back interest at 24% to 38%. No thank you!

Debt-free people know the risks associated with this financial move, and if they want or need something, they’ll save up and pay cash instead.

4. Waste Money

Debt-free people do not waste money on unnecessary items. They are always checking to make sure there are no hidden fees on their bills and there are no fraudulent charges on their bank statements. And it’s highly unlikely you’ll catch them spending $800 on a pair of sneakers.

Sure, they might splurge once in a while. But it won’t be a big splurge, and it definitely won’t derail their overall financial plans. They avoid making unwise purchases, such as cars or homes they can’t afford, paying more than they have to on something, or spending too much on consumer items that lose their value.

Along with this, they have learned to squeeze every penny out of every dollar and have found ways to save where most people don’t think there is any room to save.

Here are some ways to help you avoid wasting your hard-earned money:

5. Become Addicted to Shopping

People who are debt-free know that having a focus on acquiring things can put them in a financial rut very quickly. So they do not become addicted to shopping, and they do not let possessions define them. Instead, they value relationships and experiences over things, and they learn to rein in unnecessary spending.

People who are debt-free do not let their money rule them; they rule their money and tell it where they want it to go. They are addicted to saving money versus spending it.

6. Succumb to Lack of Knowledge

People who are debt-free take charge of their financial education. Being debt-free doesn’t happen by luck or magic: It’s the result of educating themselves continually and applying what they’ve learned. They’ve taken responsibility for their finances, and part of that has to do with understanding how money works. If you’re truly committed to reaching financial freedom, you have to invest some energy to make it happen.

Case in point: the cost of the average home mortgage. Most people aren’t aware that by the time they finish paying on a 30-year loan, they will actually be paying more than double the home’s original value in interest. Once you learn that, it’s a big incentive to find a way to pay off your mortgage more quickly.

People who are free from debt understand the consequences of debt, and they understand why bad debt should be avoided whenever possible.

7. Waste Opportunities to Make Money

Those who are debt-free didn’t get there by accident. They are hard workers! Not only are they hard at work keeping their budget in check, but they are also work hard at whatever they do to pay the bills. After all, your income truly is your #1 asset to saving money, paying off debt, staying out of debt and saving for the future. So, if there is an opportunity to make money, debt-free folks aren’t going to waste it!

If you want to make more money, check out these ideas:

If you do find yourself in debt, don’t worry! There are plenty of people who have been where you are who are debt-free now. Not having the burden of debt is a wonderful feeling! And no matter where you find yourself financially, given time and effort, you can get to where you want to be.

If you want to be debt-free this year, here are some ways to get started:

This post may contain affiliate links or links from our sponsors. Read our disclosure policy here.

Today’s post is from a friend of mine, Jen Smith.

If you told me three years ago I’d be debt-free and inspiring others to get their finances together, I would’ve looked at you funny.

At the time, my future husband, Travis, and I owed a combined $78,000 in car and student loan debt. But after getting married in October 2015, we both decided paying off that debt was a priority — and 23 months later screamed, “I’m debt-free!” to whoever would listen.

Now on the other side, I look back at our journey to becoming free of consumer debt and remember all the emotions tied to different stages along the way. I’m usually a level-headed person, but I think I felt every feeling possible over those two years.

Some of those feelings were positive… and some weren’t.

Many people go through these feelings when paying off a huge amount of debt in a short period of time. Sometimes I felt guilty about the way I was feeling, and other times I wanted to hold onto a feeling even when I knew it was wrong.

The Five Stages of Paying Off a Huge Amount of Debt

Today, I want to share the big ones with you. Hopefully you can learn from my mistakes or better navigate your own debt-free journey.

Before committing to paying off debt, I had a serious case of FOMO (fear of missing out).

I didn’t want to spend my 20s living under a rock to make payments that would hardly make a dent on the amount I owed. I wasn’t just scared I’d miss out on the best years of my life — I didn’t think I could actually do it. I could barely get by without making huge loan payments. How was I going to live on even less?

So, my husband and I planned to take it slow.

Our original plan was to pay off our debt in five years. After a month, we reworked it to four years. Then, the next month we realized — if we went all in — we could feasibly do it in two years.

But we didn’t start on beans and rice; we strengthened our frugal muscles over time. And with every month the fear we couldn’t do it — or that we were missing out — became less of a concern. We learned to be OK with where we were.

Stress

I’m generally not a high-stressed person, but you wouldn’t have guessed that in our first few months of digging into our debt. Coming to terms with debt I’d ignored for years and working three to four jobs was a lethal combination. I was working online in the morning, going to my day job, coming home to a freelance assignment and then working at a foster home on the weekends.

I got shingles three months into this heavy workload.

Shingles is a dormant strain of the chickenpox virus that causes severe nerve pain. It’s usually seen in immune-compromised elderly people, but in rare cases, it can be brought on by extreme stress.

I wish I hadn’t tried to do everything all at once. I eventually figured out my physical limits and how to work multiple jobs. It’s different for everyone and definitely not worth stressing yourself into the walk-in clinic to pay off your debt.

Contentment

We had friends who liked to go out and spend all the time. We quickly realized we had to add some frugal-minded people to the mix if we didn’t want to isolate ourselves or overspend with our other friends.

Two years of not eating out or buying annual passes to theme parks (that’s a big thing here in Florida) showed us who were our real friends. We found people who want to spend time with us for our company, rather than just accompanying them on activities.

Now when I look around, I’m content with what we have. I find I don’t crave stuff and experiences as much as I used to because we’re not keeping up with the Joneses anymore.

Overwhelm

Halfway through paying off our debt, I hit a wall.

We’d paid off over $40K and still had another $38K to go. We hadn’t seen a penny of Travis’ paychecks since we got married — they all went toward paying off debt — and I didn’t see myself making it another year working weekends, missing vacations and saying no to things I really wanted.

That’s when I started writing about my experience and what I’d learned from the last year. I thought if I could help others do what I’d done, it would motivate me to keep going and hold me accountable.

I began writing on Facebook and Blogspot, and then started my own website and blogging for bigger sites. Sharing was one of the most cathartic and motivating things that got me through this journey.

Resentful

Sixty-three percent of millennials have more than $10,000 in student loan debt, and my Facebook friends are no exception.

Seeing these friends take trips and buy things when I know they make less than me and have six-figure student loan debt loads made me unbearably bitter.

Thankfully, I’ve never expressed my feelings out loud, because now I’m embarrassed by some of them. Everyone starts their journey at the right time for them — not when I think they should.

Some people are motivated by charts and interest calculators, while others are motivated by personal stories about paying off debt or actually doing the work. When their heart and brain align, they’ll be ready. Until then, all I can do is have grace for them and say no to their bad ideas that involve money.

Pride

Not the bad kind, the good kind. I don’t like to be the center of attention, but leading up to our debt-free moment, I gave myself permission to embrace our accomplishments. I let the encouraging words of others soak in and stopped belittling our achievement.

This probably sounds stupid, but for two years my husband and I flew way under the radar. We hadn’t taken any Instagram-worthy vacations or eaten at fancy restaurants — we focused on paying off debt. So when we made that last payment of $1,887.43, it just felt normal.

I’m really proud of us. My husband and I pushed hard through job layoffs, underemployment, getting kicked out of our apartment, and a heap of other things that could’ve caused us to slow down or quit. But we didn’t.

And I’m happy to say we’re not special either: If we can do it, you can too.

Jen Smith is a contributor to The Penny Hoarder, one of the largest personal finance websites with more than 19 million monthly readers. In 2017, the Inc. 5000 ranked The Penny Hoarder the 25th fastest-growing private company and the No. 1 fastest-growing private media company in the United States.

Take this advice and pay back what you owe

by Lynnette Khalfani-Cox, AARP | Comments: 0

Using your tax refund can help quickly erase your debt.

En español | When getting out of debt is a priority, there are several things you can do to eliminate that debt entirely — or at least pay off most of it — in 12 months or less.

Here are 10 tips and strategies to get you started on a debt-free life:

1. Bump up your debt repayment percentage

Putting at least 15 percent of your paycheck — or income from Social Security or pensions — toward credit card debt and loans will help you pay down those obligations much more quickly because most credit card companies only ask you to pay about 2 percent of the outstanding balance each month. Making small, minimum payments means that your debt balances are collecting interest as each month or each year goes by. Paying off large chunks of your debt within a few months could save you a significant amount of money on interest payments alone.

2. Use savings to pay down larger debts

Don’t be afraid to use a portion of your savings to pay down high-interest rate debts. Using cash reserves for debt repayment is a smart decision because you will stop accruing interest on those large balances. Although it may feel comforting to have some extra cash sitting in your bank account, the truth is that those funds aren’t really working for you — not with today’s record low interest rates. Don’t deplete your savings entirely. If you’re sitting on a pile of cash, do use some of those funds to eliminate your bills.

3. Negotiate for a lower interest rate

Call your creditors to negotiate a lower interest rate. You’ll be surprised how many creditors will be willing to reduce your interest rate based on your payment history and account standing.

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If you have maintained a good relationship for a few years, you may be in a much better position to qualify for a lower interest rate. This can help you save some money on interest payments as you pay down that debt over the course of the year.

4. Use your tax refund check to pay down debt

While it’s tempting to splurge on a high-ticket item or go on vacation with that tax refund check, a smarter money move would be to pay down some, or all, of your debt. Consider the value of reducing your monthly payments with a single lump sum debt payoff strategy. You’ll enjoy the benefits of a lighter debt load over the entire year and for years to come, instead of enjoying the short-term satisfaction of a purchase.

5. Sell items for cash

Put together a list of items that you could sell on eBay, Craigslist, or at a garage sale. Drumming up some extra cash by selling items you no longer need or are ready to part with — and using the proceeds to pay down debt — can help you rapidly lighten your debt load.

6. Consider cashing in your life insurance

Cashing in your life insurance may be a viable debt payoff strategy because it will give you a chance to pay down larger amounts of debt quickly. If you feel like you are drowning in debt and don’t have beneficiaries that need to benefit from your life insurance policy — for example a spouse or children — then it might make sense to use those funds to pay off debt.

This strategy doesn’t apply if you own a term life insurance policy. It only works for those with whole life policies that have built up cash value. It’s also important to note that even if you do have beneficiaries, you may be able to tap into part of the cash value of your whole life policy, getting cash for debt reduction and still leaving some life insurance proceeds to your loved ones.

7. Make more money

If you’re very determined to pay off that debt within the year, you should look for ways to increase your income and use that extra money to pay off debt as quickly as possible. Whether it’s taking on a part-time job or negotiating a raise with your boss, think of some ways to start earning more money for at least a few months and make debt elimination a high priority.

8. Do a credit card balance transfer

Most of us typically tear up all those credit card balance transfers that arrive in our mailboxes. But if you want to go on a tear with your debt reduction efforts, a balance transfer can help. By transferring high rate debt to a zero percent deal — one that lasts for 12 months or so — you eliminate all credit-card interest. That frees up cash flow, giving you additional money to knock out those credit card bills. Just read the fine print before signing up to make sure you are really getting that low rate.

9. Use a statute of limitations law to eliminate old debt

Some people pay off old credit card debts — really old ones — even when they’re no longer legally obligated to do so. We all want to repay our bills. But if times are especially tight and you just don’t have the money, you should focus on current debts and consider forgoing repayment of old bills that are 7 to 10 years old, or even older.

Each state has its own set of rules regarding outstanding debts. Some states don’t allow a debt collector to collect a certain type of debt after a certain period of time; others limit the amount of time when a creditor can sue you over an old debt. Either way, you should find out whether the statute of limitations has passed regarding an old debt you may owe. If it has passed, you can likely forgo repayment without worrying about financial, legal or credit consequences plaguing you.

For more information about dealing with old debts, contact your state Attorney General or the consumer protection agency for help and advice regarding your state’s statute of limitations on credit card debt.

10. File bankruptcy to discharge your credit card debts

Bankruptcy should only be used as a last-ditch option to rid yourself of debt. But under extreme circumstances — as when you have no income or you have completely unmanageable credit card payments or medical bills — a Chapter 7 bankruptcy filing is appropriate to discharge credit card bills in their entirety.

If you feel morally obligated to repay your debts, you can also look into Chapter 13, which reduces some of your credit card bills. Then you repay the remaining debt over a three- to-five year period.

Lynnette Khalfani-Cox, The Money Coach(R), is a personal finance expert, television and radio personality, and regular contributor to AARP. You can follow her on Twitter and on Facebook.

I am working hard to be better with money. What’s your best tip for getting out of debt?

Debt Free in Three

Dear Debt Free in Three,

How to be debt free(Courtesy of Christian Economic Forum)

I am excited that you have a goal to be debt free. I am hoping that your phrase “debt free in three” is a three year goal — or maybe even less — to pay off your debt. What I want to address is your first comment about wanting to become better with money.

Stewarding involves the heart and what we believe about God.

If all we ever do at Crown is get people on a budget, out of debt, or to have more savings in the bank, then we’ve failed because fixing our money problems is not the goal — our hearts need to be changed.

People can retire as millionaires and die as billionaires. But, unless they turn to God for the forgiveness of sins and the gift of new life, they will remain paupers — eternally separated from Jesus Christ.

How To Know the Lord

Man’s relationship with God was broken when Adam disobeyed the Lord. The guilt had to be punished; the debt had to be paid. In the Old Testament, Passover and sacrifices foreshadowed a future event in which God provided the perfect sacrifice, a Lamb without blemish — His only Son.

Jesus is God’s gift to us. We can’t earn salvation. We don’t deserve it. We can only receive it by humbly trusting the Lord and His grace.

“If we confess our sins, he is faithful and just and will forgive us our sins and cleanse us from all unrighteousness.” (1 John 1:9 ESV)

“If you declare with your mouth, “Jesus is Lord,” and believe in your heart that God raised him from the dead, you will be saved.” (Romans 10:9 ESV)

Our goal is not simply to help you get out of debt and on a budget. Our goal is to lead you to God so that you can know Him as Lord and Savior. Stewardship is born out of this relationship. When you know Him, you then want to obey what He teaches about finances.

A Long-Term Plan

True stewardship flows out of love and gratitude for what He gave. Faithful stewards don’t see their lives, money, and possessions as their own. They acknowledge that everything they have belongs to God, and they manage it accordingly. They desire to handle money wisely, to care for the earth and others, and to further God’s Kingdom. They don’t order their lives so that they can spend whatever they want. They order their lives so that God can spend them however He wants. They are thinking not just about how to get to the end of this life comfortably but also about how to prepare for the life to come.

Larry Burkett said, “Most Christians are more than content to live out their lives surrounded by the trappings of our world, rather than to risk losing them in becoming a radical Christian— one who will put God first in all decisions, even when putting God first is costly.”

In a few years, everything you have will either be thrown away or will belong to someone else — your house, your car, your clothing, your books, and all of your most prized possessions. everything.

Guard yourself from the material distractions of this temporary life, and focus your time and money on the eternal. You’ll only spend a few years here on earth. Our deepest needs can never be met with more things; they can only be satisfied with more of Jesus.

Debt Free in Three

I encourage you to continue your quest to become debt free. God wants us free from all earthly masters. He identifies financial debt as a form of slavery. More importantly, recognize that Jesus paid a debt that He did not owe so that you could be free of the debt you could not pay. That is the debt you owe for your sin. When you confess that Jesus Christ is Lord and surrender your will to obey His, you will be set free of your sin and shame and the penalty of eternal separation from God. You will be set free by the Father, Son, and Holy Spirit. This is the beginning point of your stewardship journey. It is the best advice I could ever give you.

Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Seven Gray Swans: Trends that Threaten Our Financial Future. Be sure to follow Crown on Facebook.

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Why Our Debt Is So High and How We Can Fix It

How to be debt free

Image by Chloe Giroux © The Balance 2020

The U.S. debt is the outstanding obligations owed by the federal government. On Oct. 1, 2020, it hit a new record by exceeding $27 trillion and it has increased by at least $1 trillion each year since 2007.

Over the past 15 years, Congress has made several attempts to lower the debt but haven’t been able to reduce the growth of what we owe. Since these attempts didn’t work, what can and should be done?  

Why the United States Still Has Debt

Most creditors don’t worry about a nation’s debt (also known as “sovereign debt”) until it’s more than 77% of gross domestic product (GDP); that’s the point at which added debt cuts into annual economic growth, according to the World Bank.  

In the second quarter of 2020, the U.S. debt-to-GDP ratio was a record 135.64%. Around $21.02 trillion of this debt is public debt, which is what the government owes investors. The retirement and disability funds of the Social Security program account for 13.3% of that debt.      

So what’s stopping the United States from eliminating its debt? There are three main reasons why:

  1. U.S. economic growth has historically outpaced its debt. For example, the U.S. debt was $258.68 billion in Aug. 1945 but the economy outgrew that in less than three years. By 1960, the GDP more than double. Congress believes that today’s debt will be dwarfed by tomorrow’s economic growth.    
  2. Congressional representatives have a lot to lose by cutting spending. For example, if elected officials cut Social Security or Medicare benefits, they could lose their next election.
  3. Raising taxes can be politically unpopular. For example, experts believe President George H.W. Bush lost re-election because he raised taxes after promising he wouldn’t raise taxes at the 1988 Republican convention. He raised taxes in 1990 to reduce the deficit, and voters remembered.    

U.S. Debt Milestones

Here are some debt milestones since 1929:

The Debt Exceeded On This Date
$25 billion 1934
$50 billion 1939
$100 billion 1943
$250 billion 1945
$500 billion 1975
$1 trillion 1982
$2 trillion 1986
$3 trillion 1990
$4 trillion 1992
$5 trillion Feb. 23, 1996
$6 trillion Feb. 26, 2002
$7 trillion Jan. 15, 2004
$8 trillion Oct. 18, 2005
$9 trillion Sept. 5, 2007
$10 trillion Sept. 30, 2008
$11 trillion March 16, 2009
$12 trillion Nov. 16, 2009
$13 trillion June 1, 2010
$14 trillion Dec. 31, 2010
$15 trillion Nov. 15, 2011
$16 trillion Aug. 31, 2012
$17 trillion Oct. 17, 2013
$18 trillion Dec. 15, 2014
$19 trillion Jan. 29, 2016
$20 trillion Sept. 8, 2017
$21 trillion March 15, 2018
$22 trillion Feb. 11, 2019
$23 trillion Oct. 31, 2019
$24 trillion April 7, 2020
$25 trillion May 4, 2020
$26 trillion June 10, 2020
$27 trillion Oct. 1, 2020

Congress has suspended the debt limit until after the 2020 presidential election. It wants to avoid a repeat of the 2011 and 2013 debt crises that hampered Congress during an election year.  

Four Ways the United States Can Pay Off Its Debt

In most discussions about paying off debt, there are two main themes: cutting spending and raising taxes. There are other options that may not enter most conversations but can aid in debt reduction, too.

Cut Spending

The 2010 bipartisan Simpson-Bowles report is a good example of how the government could cut spending to reduce debt. The report proposed balancing the budget through a mix of spending cuts and tax reform. Though Congress didn’t adopt the complete plan, the government implemented parts of it with some success. However, a 2015 report from the Committee for a Responsible Federal Budget indicated that, while a piecemeal approach reduced debt, full-fledged adoption of the Simpson-Bowles plan may have produced a significantly lower debt-to-GDP ratio.    

Raise Taxes

Raising taxes can generate revenue the government can use to pay down debt. However, if the government raises taxes too high, it can cut into tax revenue and hurt the economy. Finding that tipping point is a conundrum expressed by a concept known as the “Laffer Curve.” But even though tax cuts are tricky, they proved successful in the mid-1920s, the mid-1960s, and the early 1980s.  

Grow the Economy Faster Than the Debt

Increasing the GDP has a two-fold benefit: it generates extra revenue to pay down debt and it reduces the debt-to-GDP ratio if GDP growth outpaces debt growth. Therefore, driving economic growth is one way to reduce debt. However, Congress tends to disagree on how to create that growth. Most Democrats push increased spending, while most Republicans champion lower taxes.  

Shift Spending

Congress should shift spending from defense to job-creation areas like infrastructure and education. Almost 15% of government spending goes to the military. Yet past studies indicate that the money spent on the military is less effective in creating jobs as money spent in other areas. For example, education and mass transit spending could produce more than four times the jobs created by military spending. In many cases, job creation can help boost the GDP, which can help lower the nation’s debt-to-GDP ratio.