Christian Financial Advice and Biblical Stewardship
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Break Free from Debt

  • Whitney Hopler Live It Editor
  • 2006 4 Sep
Break Free from Debt

Buying what you want now and paying for it later can seem like an empowering decision, but it leads to debt that imprisons you. If you’re among the nearly half of Americans who spend more than you earn, the stress of debt threatens not just your finances, but your health and relationships as well.

God doesn’t intend for you to live enslaved to debt. With His help, you can break free. Here’s how:

Take an honest look at your financial situation. Get to know the true extent of your debt problem. Create a financial statement, on which you list all your assets (what you own) and liabilities (what you owe). Then calculate your net worth by subtracting your liabilities from your assets. Also write down a thorough list of your debts, mentioning each creditor, the debt amount, the monthly payment, the interest rate, and the number of months the debt is currently past due. Then you can see all the facts in front of you. Rather than letting guilt overwhelm you, decide to learn from your experience by finding a solution.

Embrace God’s perspective on money. Remember that God owns everything, so all your money and possessions ultimately belong to Him. Instead of asking, "Lord, what do You want me to do with my money?" ask "Lord, what do You want me to do with your money?" Understand that God calls you to be as faithful as you can when you manage your money, so every spending decision is also a spiritual decision. Recognize that debt is a curse, and freedom from debt is a blessing. Realize that incurring debt means you’re presuming upon the future, but only God knows what will happen tomorrow and whether or not you’ll truly be able to repay your debts, plus interest. Ask God to forgive you for your past financial mistakes, and help you move forward with wisdom.

Use money as a tool to fulfill your life’s purpose. Think about what matters most to you and what you’d like to accomplish during your lifetime. Pray for God to reveal His purpose for your life. If you’re married, ask God to let you and your spouse clearly see His purpose for your marriage as well. Once you’ve identified your purpose, set both short-term and long-term goals to accomplish it. Realize that money is simply a tool that can help you reach your purpose. Keep your goals in mind as you plan your finances.

Focus on the destinations on the way to financial freedom. First, begin using a spending plan and save $1,000. Second, pay off your credit cards and increase your savings to one month of living expenses. Third, pay off all your consumer debt (car payments, student loans, etc.) and increase your savings to three months of living expenses. Fourth, begin saving for major purchases (like a home or a car), begin saving for retirement, your children’s education, and, if you want to start your own business, begin saving capital for that. Fifth, buy an affordable home, begin prepaying your mortgage, and begin investing wisely. Sixth, pay off your home mortgage, completely fund your children’s education, and confirm that your estate plan is in order. Seventh, fully fund your retirement and celebrate the fact that you are now free to volunteer your time working for the Lord, however He leads you.

Create a monthly spending plan. Use a budget to stay focused on your goals and control impulse spending. List your total monthly income (if your income isn’t consistent, divide the annual average by 12) and subtract taxes and your regular giving amount to see how much income you have to spend each month. Then list your living expenses, such as housing, food, transportation, insurance, debts, entertainment and recreation, clothing, savings, medical, school tuition and child care, investments, and miscellaneous. Be sure to account for spending that varies each month by averaging the annual cost and dividing by 12. When you deduct your living expenses from your spendable income, you’ll see the amount of your monthly deficit or surplus and can begin to figure out how to change your spending habits. Before buying spending money, ask yourself: "Can I do this less expensively?" and "Do I really need this?"

Place mind over money. Understand that much of the battle to become debt-free takes place in your mind, so you need to constantly remind yourself of the goal to achieve financial freedom. Memorize some key Bible verses that address debt (such as Romans 13:8 and Proverbs 22:7) and meditate on them for strength to resist temptation. Pray for God to give you the insight, discipline, and persistence you’ll need to pay off your debts. Remember that nothing you can buy will make you feel as good as being debt-free. Limit your exposure to advertising, and don’t go into stores unless you truly need to buy something. Ask God to cultivate contentment in your heart, and to show you that true riches are found in your relationship with Him. Rather than charging an item or service when you need it but can’t afford it, wait and pray for God to provide what you need, trusting that He will be faithful and creative in answering your prayers.

Understand your credit report and score. Know that the information on your credit report, and the credit score you’re assigned, powerfully affects your financial future and the interest rates you pay. Once a year, order a free copy of your credit report by visiting or calling toll-free (877) 322-8228. Study it for errors, and report any errors you discover. You can find out what credit score the three national consumer reporting companies (TransUnion, Equifax, and Experian) have assigned you by buying the information from them, or by purchasing all three scores from Understand that the most important actions you can take to improve your credit scores are to pay your bills on time and reduce your total debt.

Snowball your debt payments. Realize that the more you pay off your debts, the more momentum you gain, just like a snowball picking up speed as it rolls down a hill. Since you pay interest only on the unpaid principal balance of each loan, the faster you pay down your principal balance, the less you’ll have to pay in interest each month. Pay off your smallest high-interest debt first, then, after it’s paid, apply the money you would have used for its payment toward the next smallest debt, and so on until you eventually pay off all your debts. Accelerate your payments in other ways, too, such as selling items you no longer need and applying the proceeds to your debts, and using any additional income you receive (such as bonuses and tax refunds) to pay your debts down.

Deal wisely with your creditors. Don’t try to avoid your creditors, no matter how embarrassed or anxious you might be about your financial situation. Know that your creditors are far more likely to negotiate with you if you keep them informed regularly. Check in with them often and be completely honest about your finances. Offer them a written request that includes a copy of your budget, a list of your debts, and your proposed repayment plan indicating how much you are able to pay each month. Make every effort to do what’s right – paying your creditors back in full.

Use credit cards wisely. Limit yourself to no more than one or two credit cards, and make sure they offer you the best deal in terms of interest rate, annual fees, and incentives. Close extra accounts and destroy the cards as soon as you’ve paid off your debts. Refuse to carry over new balances on your credit cards; charge only as much as you’re sure you can pay off in full at the end of each month. Carefully review your monthly statements to check for errors and to see if your interest rate has been raised (which can happen without notice).

Get out of the car debt trap. Keep your car at least three years longer than your car loan. Pay off your car loan as quickly as you can, and after you make your last payment on the loan, pay the same amount to yourself by putting the money in an account to save for your next car. Buy your next car with cash, and consider a low-mileage used car rather than a new one that will quickly depreciate. Avoid auto leasing. If you must obtain a car loan, don’t automatically go with the dealer’s financing, but check with your bank for a comparative offer. Do all you can to avoid having your car repossessed; try to sell it for at least the loan payoff amount to avoid damage to your credit score.

Limit college debt. Help your children graduate from college with as little debt as possible, so they’ll be free to follow God’s direction for their careers and lives in general. Start as soon as you can to consistently save for their education, remembering that even small amounts will grow over the years through the power of compounding interest. Consider state-sponsored 529 plans, state-sponsored prepaid tuition plans, Coverdell educational savings accounts, or Roth individual retirement accounts for this purpose. Encourage your children to work at least part-time during summers and school breaks to help pay for their college costs. Ask your children to help you explore available grants and scholarships. Consider having your children attend a state school rather than a private one, or attending a community college close to home for the first two years, then transferring to a university. Also consider the educational benefits of military service. If you have more than one school loan, consider consolidating it to lower your interest rate and monthly payment.

Pay off your mortgage. Realize that, despite tax breaks for mortgage interest, you’ll save much more money if you pay off your mortgage as soon as possible. Choose a shorter mortgage (such as a 15-year loan) over a longer mortgage (like a 30-year loan) if you can afford the higher monthly payments, because it will save you a huge amount of interest in the long run. Whenever you pay your monthly mortgage bill, send in an extra amount toward principal. Know that consistently prepaying your mortgage, even in small amounts, will add up to significant savings. Consider refinancing if you can pay for the refinancing costs within two to three years with the money you save each month from the lower interest rate. Try to put down at least 20 percent before taking on a mortgage, so you can avoid expensive mortgage insurance.

Don’t put your family at risk to start a business. When raising capital to start your own business, limit your potential loss to the cash you invest and the asset itself. Never jeopardize your personal assets as collateral to start a business. Then pay your loan off as quickly as possible to stabilize your business.

Beware of home equity loan scams. Know that scams abound in the home equity loan business. Only consider a home equity loan if you truly need one, and then avoid companies who advertise through spam e-mails and TV infomercials. Always check out a lender with the Better Business Bureau. Get personal recommendations from people you know and trust.

Never cosign a loan for someone else. Understand that cosigning a loan legally obligates you to pay back the full amount of the loan yourself if the person you cosigned for does not. If a friend or family member needs help to buy something, consider giving some money toward the goal, but never cosign a loan.

Avoid high-interest rate loans. Stay away from loans through finance companies, payday loans, pawnshop loans, auto title loans, and tax-refund loans.

Deal fairly with the Internal Revenue Service. Be sure to file your tax return on time – even if you can’t afford to pay the taxes right away – to avoid costly IRS penalties and interest. Work with IRS agents to come up with a realistic tax payment plan.

Don’t borrow from your retirement plan. Leave the money in your 401(k), 403(b) or other retirement plan to grow and provide for your future needs rather than borrowing against it and incurring significant fees.

Avoid bankruptcy if at all possible. Make every effort to avoid bankruptcy, which will hinder your ability to obtain credit (and push up your interest rates when you do) for a full 10 years. Remember that bankruptcy isn’t fair to your creditors; it defrauds them. If you do have to file for bankruptcy, hire the best attorney you can find. After bankruptcy, even though you’re no longer legally obligated to pay your creditors back, try to do so eventually anyway to be spiritually responsible.

Teach your children to avoid debt. Model the kind of lifestyle you want your kids to choose when they’re grown. Teach them financial principles from the Bible, and give them practical opportunities to apply those principles as they manage their own money.

Don’t give up! Whenever the road to financial freedom becomes bumpy, persevere and pray for God’s help. Know that, eventually, you can achieve your goal of a debt-free life.

Adapted from Free and Clear: God’s Road Map to Debt-Free Living, copyright 2006 by Howard Dayton. Published by Moody Publishers, Chicago, Ill.,

Howard Dayton is CEO of Crown Financial Ministries ( and host of the nationally syndicated radio program Money Matters. He, along with Larry Burkett (1939-2003), combined ministries in the year 2000 to form Crown Financial Ministries. Howard’s books and small-group financial studies have been used by thousands of churches and individuals. He is a former businessman and real estate developer. Howard and his wife, Bev, have been married for more than 30 years. They reside in Gainesville, Ga., and have two married children.