Today I just want to give you a quick update to let you know that I’ve recently updated my Bible and Money page.  The Bible and Money page is a collection of most of the Bible and Money articles I’ve published on this blog.  The more articles I write, the more selective I am about what gets included on this page.  Anyway, if you haven’t checked it out lately, you should take a look.

The page also has a link to download my free eBook – The Bible and  21st Century Finances.

I did that eBook as a foundation to a series of books I plan to write (Lord willing).  The Bite Size Personal Finance Series focuses on specific personal finance topics.  Just to let you know – the first book is schedule to be released at the end of August.  If you are interested in learning more about budgeting you’d better stay tuned.  Be sure you’re on one of my email subscriptions to get a special price (available only to my subscribers) when the book is released.

While I was updating the page, I came across several of my articles and here is a  list of …

Craig’s 10 Favorite Bible and Money Posts

How to Determine Your True Net Worth

A Million Dollars: So What’s the Bad News

Should a Christian Declare Bankruptcy?

Borrower is Slave to the Lender | The Point

Christian Giving: Seeking A Healthy View of Giving and Tithing

Proportionate Giving

Is the Church Immune to Wealth, Power, and Abundance?

What is the difference between biblical finances and personal finances?

How Wealth Can Strengthen Your Relationship With God

Is God or Man the Source of Financial Increase?

So, why are these my favorites?

I think I like these posts because in these posts I add something new to the discussion about biblical finances.  I want to be a resource to help us grow in our thinking and development.  I certainly am not always correct, but I enjoy exploring old topics in a fresh way.  I think these articles give us a reason to think.  And, last I checked, thinking is a good thing.

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I thought we’d better sneak this post in before it gets too warm – a snowball is always easier to visualize in the winter.

Editor’s Note: What a great line, eh?  Unfortunately, I wrote this post months ago, but since it was such a good line, I decide to keep it in this post even though it is now the hottest time of the year.

What is the Debt Snowball?

The debt snowball is a common approach or strategy for how to pay off your debts.  It is commonly identified as Dave Ramsey’s method, but Ramsey was just the one who popularized it.

The Illustration:

Take a small ball of snow and roll it around your yard on a day when the snow is a little softer.  The sticky snow picks up more and more snow, and so it becomes bigger and bigger as it is rolled around the yard.

The debt snowball is a method that allows you to gain more and more momentum as you pay off your debt.

How Do You Set Up A Debt Snowball?

I have a free downloadable Excel debt snowball spreadsheet.

Basically, you need to get a list of all your debts and the total amount owning.

List them in order from the smallest outstanding balance to the largest.  Pay minimums on everything except the account with the smallest balance.  Once you pay off the smallest balance, take what you were paying on the smallest account and now apply that to the next smallest balance.

For example, if you were paying $125 per month on the smallest balance and $57 on the second smallest, when you pay off the smallest, take that $125 plus the $57 so you can now pay $182 per month on the next debt.  Keep applying payments to debts until you have everything paid off

Is there A Better Method Than the Debt Snowball?

This, my friends, is the million dollar question.  Some say yes and some say no.  Mathematically, it would make more sense to pay off the loan with the highest interest rate first.  However, the debt snowball wants to capitalize on passion and focus, not math sense.  Ultimately, I think passion can make up for any mathematical disadvantage.  In the end, there is no way to conclusively find out which its a stronger factor – math or focus.

7 Tips For Successfully Paying Off Debt Using A Debt Snowball

1. Intensity is your best friend.  Use it to your advantage.
2. It is important for both the husband and wife to be on board with the plan.  This is especially true when you have marriage and money problems.
3. Set up a worksheet and have your projected debt payoff date in front of you.  Aiming for a goal will always produce better results.
4. Make a commitment to use any unexpected money towards debt repayment.  Here’s how to set up a budget for unexpected income.
5. Sometimes you will need to get a part time job just to get the initial traction.
6. Setting up the debt repayment plan and getting motivated will take more effort to start than maintain.  Leave yourself time to get the snowball started rolling.
7. Your income will be your greatest tool through this process, so be sure you are keeping a budget.

What are your thoughts about the debt snowball?  What method do you use for getting out of credit card debts and other debts?

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For a long time I’ve been on the frugal or cheap fence.  One day I think frugal accurately describes me, and then the next day I jump ship and find myself firmly planted in the cheap camp.

Here’s another question we can ask to help differentiate between frugal and cheap.

Do you buy things based on what they cost, or do you buy things based on what you get?

I think that cheap people buy based on what things cost.  In my recent post How To Get A Good Deal When Shopping, I talk about the importance of value.  As yourself, what do I get when I buy this item?

There are, for example, some things you can purchase that cost more money in the short term, but in the long term actually result in a greater money savings or additional money earning opportunities.

Four Positive Examples of  Expensive Shopping

Debt Goal

I’ve been a Debt Goal affiliate for several months.  Debt Goal is a product that helps people in debt get organized to pay off their debts.  It is a subscription membership that costs $14.95.  For that $14.95, you get access to a personalized debt reduction plan that tracks your progress and helps you make adjustments to your debt repayment plan.

However, when I’ve read Debt Goal reviews there is always the statement – people in debt shouldn’t be paying $14.95 per month for a debt product.  In fact, I’ve had similar thoughts.  But, that is evaluating Debt Goal based on what it costs.

What if we turned things around and evaluated it based on what you get?

If Debt Goal is the missing ingredient that finally helps you get out of debt then you could be saving hundreds of dollars a month in debt related interest rates.  Sure, Debt Goal isn’t for everyone, but if you’re looking for a way to get out of debt, you should at least check out the free trial (click here for a free trial) so you can see if what you pay is worth what you get.

Quality Clothing

I’ve got a few pieces of high quality clothing in my wardrobe.  Specifically, I have a pair of Columbia GRT hiking pants.  I got those pants on sale and paid about $25 for them (that’s expensive shopping in my house since we buy second hand clothes:)).  However, I’ve worn those things a lot and even in some very rugged conditions.  Now, four years later, they are still in my wardrobe (but the sun has changed the color).

Had I been thinking about what I paid, I never would have bought the pants, but since I made the decision based on what I got in return, then I actually ended up with a great deal.

Blog Products – Market Samurai

Before I started blogging, you would hardly ever see me spend money.  But, once I started my own small blog business I’ve been spending money like Donald Trump.  Last year, I bought an eBook for $97.  Crazy, right?  So what cause the Scrooge to Trump transition?  Well, it turns out that book saved me a ton of time, a bunch of hassle, and even resulted in some additional profits.  If I was still buying based on cost, I wouldn’t have the book, but I also wouldn’t have the extra income.

A few months ago I purchased Market Samurai (here’s my Market Samurai review).  I added that to the other blogging products I already pay for.  So, why would I drop another $100 for one product?  I certainly didn’t want to pay that money, but I knew that it was a product that would help bring value to my blog.  Since search engine traffic provides over 75% of my traffic, knowing what I can rank for when I post is important.  So important, that I willingly bought Market Samurai – not because of what it cost, but because of what I received.  And, it was worth it.

Organic Foods

We buy organic food, but the only reason is that everything we buy here in Papua New Guinea at the market is organic.  However, my wife and I have been talking some about buying higher quality food products.  Sure, you do have to spend more money to buy natural or organic food, but you also get something more valuable in return.  Look, I’m not a health nut, but if buying more expensive food is healthier and makes you feel better, then you are getting something more for that money you spend.  But, that requires a shift in thinking from what you spend to what you get.

Do you buy based on what you spend or what you get?  What things do you think are worth spending more money to buy?  When is expensive shopping good?

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I want to hire some writers for projects unrelated to Money Help For Christians. 

Ongoing Writing Position:

I’d like to hire a writer who is (1) a Canadian living in Canada, (2) a Christian, and (3) knowledgeable on the topic of personal finance (from a Canadian perspective).  I’m not looking for a professional freelancer, just someone who enjoys writing.  The applicant would write articles on a weekly basis.

Random Article Submissions:

I’m also looking for people to write articles on personal finance.  There is no ongoing obligation or commitment.  Just submit the occasional article at your convenience. 

If you are interested in getting more details, please send an email to mhforc [at] gmail [dot] com for more information. 

Weekly Roundup

Since I talked about a Roth IRA conversion this week, I thought I should point out Joe Taxpayer’s post called Roth IRA Conversion Fail.  There are reasons why you might not want to convert to a Roth.

Congrats to Tom at Canadian Finance Blog – his consumer debt is paid off.  He is now asking the question what’s after paying off debt?  One of the false assumptions about debt free living is that financial decisions will be easier.  Truth be told, you have a lot of important decisions to make still.

Len Penzo reminds us of the joy of being a parent as he stands in amazement as his son racks up a $1,055.20 cell bill.  Turns out there was an error.  Is anyone else worried about arthritis in teens because of all this texting? 

Over the last few years I’ve been noticing a lot of great business ideas.  Unfortunately, time is the issue.  However, if you want to increase your home based earnings, check out 24 Top Legitimate Home-Based Business Ideas & Opportunities.

On a similar note, Kevin at Invest It Wisely shares tips on escaping the rat race.  With all my negative exposure to rats over the last month, I’ll never be happy with the term ‘rat race’.

At Cash Money Life, Ryan asks How Do Banks Make Money by Offering High Interest Rates?  When I was in the 6th grade, a friend said that he would never bank again when we learned that banks make money.  If they offer a service to people, then they can make all the money they want.

Frugal Dad talks about Children of the Recession: How to Insulate Kids From Financial Fears. 

Carnvials

Festival of Frugality, Yakezie Carnival, Carnival of Money Stories, Carnival of Personal Finance,

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Here is a trustworthy statement – how people spend personal funds is typically how they spend church funds.

I’m a frugal guy.  When I had a church budget as a youth minister, I always came in under budget.  Now as a missionary, I rarely spend all of my working funds.  There are other people I know who would burn through money in their homes and when entrusted with church funds, they do the same.

I’ve seen that time and time again. Church leaders make decisions for church funds based on their beliefs and practices with their own funds.  I’ve put this post together with some random thoughts regarding churches and building campaigns.

Considerations for Churches in a Building Campaign

On Borrowing Money For Churches

Borrowing in the Bible is never expressly forbidden, but you won’t find much support for the notion of borrowing.

Larry Burkett writes, “On average, Christians pay 400-500 percent more in interest per year than they give to God’s work” (from Money Matters).

I would never, never, never encourage a church to borrow money from church members through bonds or anything similar.  There is too much at risk.  Money complicates almost every relationship.  Don’t put a money stumbling block between the leadership and the congregation.  If things go wrong, there is far too much at risk.

Church Building Program | How Much Should Churches Pay For Buildings?

Churches should only borrow a reasonable amount of their contributions after pledges.  I’d say a reasonable amount would be payments between 15%-30%.  That is based on absolutely nothing more than my feelings and personal opinions.

Thus, if a church collected $10,000 a month, their building payments should not exceed $3,000.

Just read this reader story:

It all started in 2000 with a new pastor that had a vision to grow in numbers. We started by with a building campaign to have better exposure in our town. We bought 20 acres and built a 16,000 sq ft building. That was the first step. We held a fundraising dinner and asked people to give …. We were a church of about 350 and took the road of $800,000.00 in debt to build. We had pledges of about $200,000.00 from that dinner and moved forward. Only about $100,000.00 of that came in. … We moved in the new building around July of 2001. Then we need to renovate the old building to become a youth center. So another 200,000.00 was borrowed along with some [loans from members of the congregation]. So 2 years in and collecting about $2000.00 a month toward our building campaign which had a loan payment of approx $9000.00 a month. ($7000.00 short a month). Mean time the stress on the Pastor was beginning to show. Tithes and offering were down, we had to cut stuff in the budget, (i.e. benefits to staff, ministry outreach, etc.) The congregation was slowly shrinking because of the direction the Senior Pastor was leading. There were sermons on if you’re not with us you’re against us. Long story short, about 6 years in, [we were] without a senior pastor, 1.2 million in debt and just hanging on.

This is the real world.  The project began with the best intentions, but at the end, there was a significant emotional, financial, and spiritual cost.  Debt’s destructive claws gripped too tightly.

Remember: if God can provide tomorrow, he can also provide today. All church building projects must walk a fine line between trusting and testing.  However, far too often churches think, ‘Let’s get the biggest loan possible and then trust God to provide’.  That can be a dangerous game to play because it borders on testing God.

On Leadership and Church Building Projects

The responsibilities of the building project should not be placed on the church staff who have a pastoral call. Building projects and campaigns often take precedence over everything else.  In the case above, even the preaching schedule and agenda can be consumed by the one thing that is at the forefront of everyone’s mind.  As a minister, I can say ministers carry a tremendous amount of burden just trying to care for the souls of the members and the lost.  If there is no one in the congregation qualified to oversee the building project, consider outsourcing the job.  Keep a Kingdom focus at all times.

Don’t manipulate from the pulpit. There is an occasion to preach about giving from the pulpit.  However, manipulating people to give to a building campaign is a gross misuse of pastoral authority.  Your building project is not the only thing God is doing in the world.  If members feel called to participate in other good works, then you should encourage that as a participant of kingdom work.

Pray, pray, pray, and then think.

Contact a consultant. Depending on your denomination or church structure, you should be able to find someone who have been involved in at least one building campaign.  Call them up and ask for their ideas and suggestions regarding your own building campaign.  Never go forward without the advice of wise Christians.  There are some people who work exclusively in the industry as consultants for churches entering a building project.

Maintain a spiritual focus. Our church was actually defrauded when we bought church land.  That was over four years ago, and the wounds are still as fresh as if it were yesterday.  We are at an important junction because we are deciding how to proceed as far as ongoing legal action.  At all junctions as a church leader, I’m encouraging the congregation to consider the spiritual impact of every decision.

My Prayer

I pray that God will use church building projects for His Glory.  I pray that those who desire to build a name for themselves via a building project will be humbled.  This is not our work, but the work of God.  May He lead churches through this very important stage of development.  Grant us all the wisdom we so clearly lack.

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As you probably already know, 2010 is a great time to convert your Traditional IRA to a Roth IRA.  The year is now more than half over, so I thought I’d share my thoughts on the Roth IRA Conversion.

In 2010, you can convert a Traditional IRA to a Roth IRA even if you make over $100,000.  Also, you will pay taxes over a two year period and the first payment (1/2) isn’t due until April 2012 and the other half will be due by April 2013.  Here is a full list of 2010 Roth IRA conversion rules.

Even though I knew converting in 2010 would provide some distinct advantages, my wife and I decided to do it back in 2008.  Here’s why …

Why we Converted our Traditional IRA to a Roth

1. Bookkeeping – Keep everything in one account – Basically, over several years we had been lazy and accumulated some 403bs here and some there.  My wife had a Roth IRA and 403bs through two different organizations.  We didn’t roll anything over when she left old employers.  We decided that everything was getting hard to track and properly diversify, so we wanted to roll everything into one account.
2. Economic Meltdown – Since around 2007, I’d toyed with the idea of converting my Roth IRA.  By the middle of  2008 when our account values were cut almost in half, I decided that I would take advantage of the economic downturn and convert our traditional IRAs to a Roth.
3. Anticipated income increase (also higher tax bracket) in the future – My wife is currently a stay at home mom.  However, since she has a Master’s Degree in Education, we anticipate that sometime she will go back to work.  Being in a lower tax bracket now made this a perfect time for us to convert to a Roth IRA.

Should You Convert To A Roth?

Because this is a very complex situation, you should ask your tax accountant to help you think through all of the various implications.

The best piece of advice I’ve heard on the topic is to consider diversifying your investment vehicle – not just your investments.  In other words, have some money in a Traditional and some in a Roth.  This way you are in a position to financially benefit regardless of your tax bracket at retirement.

Since there are so many unknown retirement variables, you should think through this decision carefully.

Free Money Finance quoted the following from this piece from Kiplinger:

1. Can you afford to pay the tax on the conversion with money from outside your IRA?
2. Do you expect to be in a higher tax bracket in the future?
3. Will you need your IRA money in retirement, or do you think you’ll be able pass most of it on to your heirs?
4. How long do you plan to keep the money in the account?
5. Do you plan to pay college bills soon?

What if the government changes rules regarding the Roth IRA?

Well, that is bad new for me.  This is also one of my major concerns.

One of my regrets about converting is that the government has been known to do whatever it wants regardless of former laws.

Also, what if, despite all your best guesses, tax rates are lower in the future?  If you are diversified (some Roth IRA and some Traditional IRA) then you are in a position to benefit either way.  At least you are in a position where you won’t be financially hurt.

What if a Roth conversion isn’t right for you, but you still like the Roth IRA?

Perhaps you have run the numbers and converting your Roth is appealing, but you don’t have the money for the taxes.  In this case, you should simply start a Roth and contribute future retirement savings into that account.

Did anyone convert or plan to convert a Roth IRA this year?  What are your thoughts on it?

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One of the negative results of borrowing money and being upside down in debt is that there might come a time when you need to come face to face with some very tough decisions:

Can I afford to keep the house? Can I afford to keep the car payments?

The Danger of a High House or Car Payments

I live in a place that gets a lot of rain.  With rain comes mud, and with mud comes slippery roads.  I’ve had several times (fortunately not recently) where I’ve got stuck in a big patch of mud.  No matter how much I pumped the gas, I simply was not able to make any traction.  The tires turned, but the vehicle went nowhere.

The problem with a big house payment or expensive car payment is that you won’t have any spare funds to apply towards debt repayment.

Unfortunately, the issue with debt is that there is really no such thing as treading water.  If you are making minimum payments and have multiple debts, you are actually falling farther and farther behind.  You are not really making progress.  Something must be done, something drastic, something that will help you make some real progress getting out of debt.

Guidelines for Deciding if you Should Sell the House

When it comes to deciding if you should sell the house, you need we need to think about the issue in progressive stages.  As such, we need to recognize that there is a great place to be, an OK place to be, and a dangerous place to be.

In my opinion, when your house payments (including utilities, insurance, mortgage payments …) start getting above 40%, you are entering into a danger zone.  This does not mean you must sell the house, but depending on your level of debt and your spending habits, at 40% you definitely need to start paying attention to the cost of the house.

Conversely, the higher your house percentage, the less traction you will be able to get on your debt.  The less traction you get, the longer you stay in debt.

If you could sell your house at 40% of your income and rent a house or apartment at 20% of your income, think about how much faster you could get out of debt.

Guidelines for Deciding if you Should Sell the Car if You Can’t Afford Car Payments

Once again, we need to think about the decision to keep the car in terms of a scale.  The closer you get to the danger zone, the more pressing it is to sell the car.

If you put your numbers down on paper and they do not make sense, there is no way to keep the car.

The Value of Conservative Thinking and Conservative Math

By nature, I am a conservative person.

When I went the Grand Canyon, I didn’t walk right over to the edge.  I was comfortable staying away from the drop off point.

Often when people ask, “Can I afford … ” what they are really saying is how close can I get to the edge without having to pay the ultimate price? I think we need to ask ourselves why we are so anxious to get to the brink of our spending capacities.

Isn’t it possible we could be happier if we spent less and stepped away from the edge of financial suicide?  For this reason, I would always rather sell something than cripple my entire financial plan.

At what point do you think someone should consider selling their house or car?  How much is too much for car payments and house value?  Why do you think we always want to spend as close to our capacity as possible?

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I want to apologize to anyone who left a comment at MH4C between Monday and Wednesday.  Unfortunately, I was trying to upgrade a different site and I experienced some problems.  My host told me that I could wipe out everything from the last 4 days and reset things.  I thought that only applied to my personal blog, so I told them to go ahead.  In the end, I found out it affected all my blogs including MH4C.  I got all the posts back up, but the comments were lost.  Sorry.

Good Articles From This Week

One Money Design asks Are You Making These Mistakes When Hiring a Financial Adviser?

Green Panda Treehouse shares 5 Things You Need To Look At When Trading ETFs

Bargaineering tells us about Free Amazon Prime for Students

Digerati Life shares Cheap Wedding Ideas On A Small Budget

Oblivious Investor teaches us tips for Calculating Real Estate Investment Return

Free Money Finances asks Will Following the Bible Make Your Career Successful?

The Saved Quarter has The Best of Yakezie.

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Carnivals I participated in this week:

Christian Finance Blog Carnival, Festival of Frugality, Carnival of Personal Finance, Carnival of Financial Planning.

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The following is a guest post by Cary McCall.  While reading a post at One In Jesus I saw Cary made a comment about debt forgiveness for ministers.  I asked him to explain more and he sent me this post.  I read it and even got permission from the website owner, Jay Guin to use this post that he also has on his website.  If you have any questions either Cary or I could try and answer them in the comments.

One of the most burdensome financial obligations faced by many young ministers is an increasing student debt load. The rising cost of higher education is forcing many to rely heavily on financial aid, both for undergraduate and graduate educations. This is compounded for ministers who have sought education at private Christian universities, some of which have tuitions surpassing $700 (or more) per credit hour. The Master of Divinity, the most common ministry degree for preachers, is 84 hours. Although some schools help with scholarships and grants, most students end up with significant amounts of debt.

Most churches try to offer reasonable living wages to their ministers, but with heavy debt obligations, many ministers still struggle to keep things under control financially. Many ministers have no choice but to take on second jobs or rely on spouses to make up the difference in needed family income.

However, as of July 2009, many ministers now have a way to substantially reduce, and in some cases eliminate, the burden of their student loan debt. This is made possible by taking advantage of two programs now offered by the Federal Government: Income-Based Repayment and Public Service Debt Forgiveness.

About Public Service Student Loan Debt Forgiveness and Income-Based Repayment

Public Service Debt Forgiveness is part of the federal College Cost Reduction and Access Act of 2007. This program discharges the remaining principal and interest after 10 years of monthly payments on loans serviced through the Direct Loans program of the Department of Education and applies to those who work in any number of public service fields. By law, this includes employees of all non-profit 501(c)(3) organizations, which includes the vast majority of ministers. However, Public Service Debt Forgiveness is only of limited value by itself because standard repayment plans have debts completely paid off in ten years. The only option for reducing actual payment amounts before the end of ten years was the Income Contingent Repayment plan.

Income-Based Repayment is a new payment plan made available on July 1, 2009. This plan, combined with Public Service Debt Forgiveness, is what produces the most value for most ministers. Income-Based Repayment introduces an entirely new formula for calculating monthly payments based largely on Adjusted Gross Income (taxable income), marital status, and family size. Ministers gain a distinct advantage in these calculations in that significant portions of income are not included in most ministers’ Adjusted Gross Income. A married minister (filing separately) with two children, a $50,000 per year income with $17,000 in housing and other allowances, and a balance of $35,000 will most likely have his monthly payment reduced to zero under Income-Based Repayment. Assuming ten more years of work in ministry, his entire balance will have been covered by the federal government.

Qualifying for Student Loan Debt Forgiveness and Income-Based Repayment

Loans qualifying for both Public Service Debt Forgiveness and Income-Based Repayment must be serviced by the William D. Ford Direct Loans program through the Department of Education. However, loans serviced through other providers may be consolidated into the Direct Loans program for free at any time so long as they are Federal Family Education Loans (usually subsidized and unsubsidized Stafford, Perkins, SLS, or Grad PLUS loans).

Once loans are consolidated into and serviced by the Direct Loans program, the borrower may enter the application process for Income-Based Repayment. After 120 monthly payments under the Direct Loans program while employed in a qualifying public service position, the borrower may apply for Public Service Debt Forgiveness.

How Do I Have My Student Loan Debt Forgiven?

The consolidation and payment plan enrollment process is relatively simple, although it can take up to several months to complete.

Step 1: If you are a minister employed by a church that is officially registered as a 501(c)(3) non-profit organization? If yes, ask yourself if you truly believe that you will work in ministry for the next ten years. If yes, continue.

Step 2: Determine if your current loans are eligible for consolidation into the Direct Loans program. Any kind of Stafford, Perkins, SLS, or Grad PLUS loan counts.

Step 3: Determine if Income-Based Repayment plan will benefit you. Use this calculator at to determine if it will lower your current monthly payment.

Step 4: Consolidate loans into the Direct Loans Servicing Center by initiating the process at www.loanconsolidation.ed.gov . This can take several weeks, and up to two months in some cases.

Step 5: Enroll in the Income-Based Repayment Plan through the Direct Loans Servicing Center.

Step 6: Make 120 of your new monthly payments.

Step 7: Apply for Public Service Debt Forgiveness.

Additional Information Regarding Non-Profit Workers Student Loan Debt Forgiveness

• For married ministers, the IBR formula is most advantageous for those filing taxes separately from their spouses. However, as of July 1, 2010, the law allows couples filing jointly to include the loan balances of both individuals in the formula. Forgiveness will not extend to spouses, however, unless they work in qualifying employment and apply the same processes to their own balances.
• Before the Public Service Debt Forgiveness provision, all loans amounts that were forgiven were considered taxable income. Under the new law, the amounts forgiven under Public Service Debt Forgiveness will not be taxable.

Personal Experience

I work as a campus minister with a student debt load of approximately $32,000, the vast majority of that amount coming from two years of graduate seminary. Under the standard repayment plan I was enrolled in with Sallie Mae (a popular loan servicer), I was paying almost $400 per month. The IBR plan with my current Adjusted Gross Income – even as a single minister with no family – has produced a new monthly payment of zero. It looks likely that this payment amount will continue into the future, and will be all but guaranteed if I become married and start a family.

Resources For Further Research on Debt Forgiveness

• IBR Info – www.ibrinfo.org – Lots of clear, easy to understand information on the IBR plan and PSDF.
• Informative Brochure – www.ibrinfo.org/files/IBRinfo_brochure.pdf – Brochure outlining the basics of IBR and PSDF.
• IBR Calculator – studentaid.ed.gov/PORTALSWebApp/students/english/IBRCalc.jsp – The IBR calculator from the Department of Education’s website.
• Direct Loan Consolidation – www.loanconsolidation.ed.gov – The starting place for consolidating qualifying loans into the Direct Loans program.
• Direct Loans Servicing – www.dl.ed.gov – the Department of Education’s loan servicing division which handles all loans that qualify for Public Service Debt Forgiveness.

Editor’s Note: In some follow-up discussion with Jay and Cary it seems like your church should have 501(c)(3) status for you to be eligible.  If you plan to follow this strategy it is recommended that you check the 501(c)(3) status of your church.  If they do not have 501(c)(3) status then they can apply for it for the cost of $850 plus legal fees.

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On a recent post telling how to deal with credit card debt problems, I shared some advice and resources for getting out of debt.  In that same post, Darren (from More Than Finances) asked what I thought about 0% credit card transfers.  I gave a quick answer and thought I’d deal with it in more detail today.

From a purely mathematical standpoint, there is no denying that taking advantage of 0% balance transfers or credit card consolidation into a lower interest makes sense. But, those who argue against these tricks do so from the perspective of psychology.

Common Arguments Against Credit Card Consolidation & 0% Balance Transfers

1.  They detract your focus and they ease the pain of debt.

There are some people who spend their energy shuffling, reorganizing, and re-categorizing debt, and somehow they feel like they are making progress.  However, in the end they have done little except delay the inevitable.  The payments are is still there.

They get a 0% credit card balance transfer not to help them get out of debt, but to continue to owe money.  They use such mechanisms or hacks to beat the system.  Unfortunately, the only result is a deeper pile of debt.

When it comes to paying off credit card debt, (or any debt) there is no fancy footwork that will solve the problem.  The problem can only be solved by your intensity and your willingness to put more and more money towards the principle of the debt.

Dave Ramsey reports, “A friend of mine works for a debt-consolidation firm whose internal statistics estimate that 78 percent of the time, after someone consolidates his credit-card debt, the debt grows back.  Why? He still doesn’t have a game plan to either pay cash or not buy at all …” (Total Money Makeover, 48).

In other words, if you want a debt-consolidation to work or a balance transfer, you need to be rare.  You need to so something that only 22% of people do – take a baby step forward on getting out of debt and keep on going.  But, just because only 22% of people can do it, doesn’t mean you can’t be one of those people.

2.  Misuse of time and creative energy

In addition, it is possible that you can spend a substantial amount of time looking for the next offer that your time would have been better spent getting a part-time job and setting up a budget.

Some people literally spend hours scouring the web looking for the lowest credit card interest rates or 0% balance transfer opportunities.  If those hours could be spent working, it is likely the person would be making more debt repayment progress.

3.  Near addictive dependence on others

You check the mail – no credit card offers.  You look online, no lower interest rates.  You spend all of your emotional effort and time depending on someone to offer a bonus that will help ease the burden of your credit card debt.  However, you would be better off focusing on the factors you can control (income and spending) instead of waiting for a company to come and ‘save’ the day.

A Viable Way To Use Credit Card Debt Consolidation and Balance Transfers to Help You Get Out of Debt

However, it seems as though a person who finally gets it would be able to find a small victory through either/both a debt-consolidation and balance transfer.  If there is a system in place to help serve your cause, then by all means, take advantage of it.  If you really hate paying interest, you’ll naturally be drawn to these options.

If I ask you what is your game plane and you say, “Debt consolidation or balance transfer”, then I know that you will not get out of debt.  That is not a game plan.  It may be a part.  It may be a component.  But, it is not a game plan.  You are still relying on some type of a maneuver to get you of of debt, and it simply will not happen.

However, if I ask you what is your game plan and you say, “I’ll cut spending — make extra principle payments — get a second job — sell the car — and consider a debt consolidation or balance transfer”, then I think you’re on the right track.  It is part of an actual plan.

You’re Ready To Consider Credit Consolidation or Balance Transfer When …

1.  You have addressed the causes of your debt.

Larry Burkett says this, “The symptom is that you have a lot of high-interest debt, but that’s not the problem.  The problem is that you’re spending money you don’t have, buying things that you can’t afford, and not paying your bills on time.”

2.  You’ve charted out a game plan for paying off all the money you owe.

You have charted out your repayment plan.  You have made an agreement to cut out some of your spending.  You are determined to pay off everything you owe.  In fact, you are so sick of your debt that you want to do it as quickly as possible with as little interest as possible.

If you read how to get out of credit card debt or how to deal with debt problems and it seems like too much work, save yourself the effort of a consolidation or balance transfer.

2.  You’ve changed.

You haven’t just talked about how you will change.  You haven’t imagined what a new disciplined self would look like, but you’re actually doing it.  You’re making hard decisions and doing what is necessary to get out of debt.

Credit Card 0% Balance Transfer: Put to the Test

Imagine you have $10,000 in credit card debt and your interest rate is 14.43% (the national average).  You’re serious about getting out of debt so you plan to pay the required monthly payment of $175 per month, plus an extra $275.  It will take you four years to pay off your credit card debt (assuming you don’t take on any new debt).

However, you just found out that you are eligible to transfer that money to a 0% 6 month introductory interest rate.  After that six months, your rate goes back up to 14.43%.  You decide to transfer your balance.

Over that 6 month period, you would save $688.55 in interest (see this calculator and this repayment calculator).

During that 6 months when you had a 0% rate, you still continued to pay $450 per month.  At the end of the six months, your principle will be reduced to $7,300.  From there, you keep making your $450 payment when the rate goes back to 14.43% and you will pay off your debt in 33 months.  This means you get to be out of credit card debt a full 15 months sooner.

Wow, that’s cool.

Credit Card Consolidation: Put to the Test

Imagine you have $10,000 in credit card debt and your interest rate is 14.43%.  Over a five year period, that is $1,704.83 in interest.

However, if you consolidated your debt at 10%, you would pay $1,105.32 in that same time period.  That is almost a $600 savings.  In addition, more of your payment would actually go to principle and you would also pay off your debt faster.

Lending Club as a Credit Card Consolidation Option

Last month I introduced the value of Lending Club for investors.  Lending Club allows you to lend your money to interest borrowers.  However, Lending Club also has a feature for those who are looking to consolidate debts or refinance credit cards.  The rate you can secure will depend on your credit score. You can find out the available rate after completing a short application online.  Rates start at 7.93% and increase based on your credit score.  With a good credit score, you should expect to find something around 10% for credit card consolidation.

I like that Lending Club cuts out the middle man (the bank). As such, you can typically find better rates by using Lending Club.

Advantages of Lending Club

• Fixed interest rate
• No prepayment fee
• Minimal fees
• Easy online application process

Visit Lending Club to see if their consolidation is right for you.  But, remember if this is your only game plan, it won’t work.  Get your debt repayment plan in place, and then add Lending Club to the mix to give you an extra advantage.

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