Defeating debt

Patience, discipline are essential to emerge from credit card mire

Terminal debt.

It's a painful condition of the times in this day of quick-and-easy loans and dogged credit card marketing. Perhaps never before has credit been so accessible, and its attendant debt so burdensome. Everyday folks — including a sizable chunk of Church members — are tumbling, day by day, down a greased slide of bills and rising interest rates.

Many are left depressed and resigned to a life lived under debt's heavy thumb.

Michael G. Peterson meets such people every day. An executive at a non-profit credit counseling organization in Midvale, Utah, Brother Peterson works with a variety of clients. Some make $20,000 a year — others bring in six-figure incomes. Many are Latter-day Saints. But almost all say they are financially enslaved and wish to be liberated from unceasing collection calls, late fees and fattening monthly payments.

Rising mortgage rates and high-end auto loans are responsible for a portion of the heartburn. But it's those thin, inconspicuous plastic wafers in the purse or wallet that can be blamed for most family money troubles, Brother Peterson said.

"People are just whipping out those credit cards for whatever they want, and we continue to add to our debt."

The average American is carrying an increasing amount of credit card debt. The reasons behind such trends are legion, but Brother Peterson identifies a couple of the most common causes. For one, the credit card industry has been tenacious in marketing the treacherous notion "that you can have it now, and not worry about it."

And second, "We don't teach our children how to handle and use a credit card," Brother Peterson said. So-called "major purchases" such as homes and vehicles are approached as financial milestones, transactions executed a few times in one's lifetime. But credit cards exact no such deference. They can be used in a single afternoon to pay the electric bill, buy a video game and treat a buddy to lunch. Soon, card holders are paying hundreds, even thousands, each month to simply fend off the interest attached to their balance. Such debt can carry a deep spiritual cost to Church members.

Then there is the nebulous nature of credit card debt, Brother Peterson said. Fixed payments define a traditional house mortgage or car loan. But credit cards are fluid. Users often pay only the monthly minimum payment, card usage continues and the debt grows and grows.

It's at this point where desperate card holders often seek out a credit counselor such as Brother Peterson. With an office in Utah, it's no surprise that many of his clients are observant members eager for relief. He first counsels them to continue to enjoy the blessings and peace offered to full tithe-payers.

"You've got to pay your tithing — you can't afford not pay your tithing," Brother Peterson emphasized.

He then teaches his clients three steps that, when followed closely, can offer hope to many who are heavy in debt.

1. Learn how to free some income.

Brother Peterson and his fellow counselors ask people to track their spending for a week. No payment or purchase is too small. If you give your child a quarter to buy a gum ball at the grocery store, record it in a spending log. Clients are often shocked to see the amount of cash being wasted on disposable items. Brother Peterson spoke of one client who spends much of his time on the road making sales visits. The man would typically buy a soda and candy bar every time he stopped to buy gas. He was shocked to find such throw-away purchases at the gas pump added up to about $100 month.

Brother Peterson then reviews the spending logs with his clients — helping them sort out wants from needs. Essentials such as prescription refills are, off course, identified as needs. Costly cell phone activity and, perhaps, high-end cable TV packages — along with those daily snacks or lunch dates with co-workers (read, wants) — are modified or eliminated. Instantly, a measure of income has been freed.

  1. Build an emergency fund.

Using newly freed income to help pay off credit card debt seems prudent. But first, set that money aside for an emergency fund, counsels Brother Peterson. Many people with rising credit card debt are not swiping their plastic simply to buy luxuries. Instead, they are using their cards to pay for necessary car or home repair because there is no cash reserved to cover such expenses.

Brother Peterson suggests setting aside enough money to cover three to six months of living expenses. It's a savings plan that requires discipline and time. But be patient. The path to financial freedom is also walked "line upon line, precept upon precept," he said.

3. Decide how to handle your debt.

The key to eliminating credit card debt is paying beyond the interest kept at bay via the minimum monthly payment. Once an emergency fund has been established, families can begin using their freed income toward the principal of their credit card balance. Again, discipline is essential, Brother Peterson said. As debtors begin paying beyond the interest, their minimum monthly payment will likely drop. Resist the temptation to adjust your payment accordingly. And, of course, don't increase the debt with additional credit card usage.

Be income creative, Brother Peterson suggested. Increase your family's monthly wages by, say, taking an early morning paper route. Contact credit card companies and inquire about lowering their interest rates. "They will usually negotiate, if you've been a good customer."

With financial increase comes a spiritual increase. "Debt is bondage. Debt is slavery," Brother Peterson said.

The good news? By enlisting time-tested principles of discipline, patience and frugality, most can eventually enjoy the freedom of debt-free living.

Note: In the coming months, the Church News will publish additional articles on family finances and direction on overcoming debt.

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