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avoid-debtAlthough I wrote a little about debt yesterday, i thought that i would share a more fact based post about the state of our debt as a nation and although this is not a spiritual post, all things are spiritual to God.

 

 

Statistics

The average adult is in debt to the amount of –  £29,379.00 which 112.2% of average earnings.

The average household is in debt to the amount of – £54,952.00 (including mortgage)

The average adult consumer credit lending – £3, 683.00

Credit card – £2, 413,00  

This means at the average credit card interest rate it would take 25 years and 6 months to repay if you made the minimum repayments each month. (June 2016, UK)

(https://www.bankruptcyadvice-online.co.uk/debt-statistics.shtml

18-months ago, i lost my house to the bank when i was unable to meet the payments each months. It did not happen overnight, but had taken about 4-years to get to this point. I am now facing  bankruptcy, which at the moment will cost me £620.00 to proceed.

Why did this happen?

I lost my job. I am single parent and i was the only source of income and when i became ill and then suffered a major fall, which resulted in an autoimmune condition to spiral out of control in my body, i was unable to return to my nursing career as i had planned. Until this point, my debt had been manageable. When the bank takes possession of your home, not only is it awful, they can then leave you with yet more debt. Although when they sold my house it paid of some of the debt of the mortgage, in the end they left me with approximately £14,000 worth of debt i have no way of paying. I now live on statutory benefits and disability payments, which are sufficient for my personal needs, but leave little or nothing to pay back any outstanding debt.

We do not know what is around the bend in the path in front of us, the Lord counsels us to be wise and being wise, means, using all of our experiences and knowledge to do what we can to prevent debt from accruing in the first place.

The Church as set out a plan on how to become debt free. The Church calls it the ‘Snow Ball Plan,’

A Simple, Effective Method

Although there are many approaches to debt elimination, my own experience with teaching has shown that the debt-snowball method, which arranges debts from lowest to highest balance rather than highest to lowest interest rate, can be an extremely motivating way to confront and eliminate debt. This method is simple. Arrange your debts from smallest to largest. Make the minimum payment on all debts each month except for the smallest one: on that one, pay as much as you can. Once it is paid off, roll the regular payment you had been paying on that debt to the next-largest debt until it is paid off. Continue the process until the payment “snowball” has grown so large it quickly knocks out debts that stand in its way.

July 2011

Arranged from smallest to largest balance.

Debt

Balance

Payment

Rate

Family Loan

$150

$50.00

0

Credit Card 1

$323

$8.00

17.9

Credit Card 2

$356

$8.00

24.9

Credit Card 3

$402

$12.00

19.9

Credit Card 4

$435

$13.00

18.9

Credit Card 5

$629

$17.00

14.9

Credit Card 6

$1,350

$30.00

13.9

Student Loans

$2,360

$58.00

4.7

Auto

$18,670

$450.00

7.5

Totals

$24,675

$646

April 2014 (33 months later)

Debt

Balance

Payment

Rate

Family Loan

$0

$0

0

Credit Card 1

$0

$0

0

Credit Card 2

$0

$0

0

Credit Card 3

$0

$0

0

Credit Card 4

$0

$0

0

Credit Card 5

$0

$0

0

Credit Card 6

$0

$0

0

Student Loans

$620.34

$196

4.7

Auto

$6,496.26

$450.00

7.5

Totals

$7,116.60

$646

Using the numbers in this example, the snowball method could save someone $1,173 and reduce the time it took to pay the debts by almost seven years.

No matter what approach we take to debt reduction, an attitude change and firm commitment to reject debt is the most valuable action we can make. It’s about overcoming the accepted cultural norm of attaching debt to everything we buy. Words of our prophets that are decades old are now being verified by the opinions of countless personal finance experts who agree that only three types of debt are wise or economically justifiable:

  • A mortgage on an affordable house.

  • Loans for college degrees or training that are accompanied by higher expected earning increases.

  • Loans for certain well-thought-out business plans.

(By Luke V. Erickson. Personal and Family Finance Educator)

(https://www.lds.org/ensign/2011/07/getting-out-of-debt-for-good?lang=eng)

The best plan to get out of debt, is not to get into debt in the first place. The Church lists only three reasons why we should get into debt. The Lord’s way is to –

  • not to get into unnecessary debt
  • if you are already in debt, then speak to an debt advisory service, to clear the debt as quickly as possible
  • live within your means
  • create a safe-guard between you and the world by accruing Savings in the Lord’s way
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