Avoiding and Eliminating Financial Debt
In today’s world, it’s more crucial than ever to know how to manage your finances. Over the years, Church leaders have stressed the importance of living within your means, avoiding unnecessary debt, and repaying any incurred debt as quickly as possible in order to achieve financial stability and peace of mind. This requires disciplined spending and wise money management.
President Gordon B. Hinckley taught: “Self-reliance cannot [be obtained] when there is serious debt hanging over a household. One has neither independence nor freedom from bondage when he is obligated to others” (“Climbing Out of Debt” Ensign, July 2002).
The Importance of Staying Out of Debt
The Lord wants us to be responsible and independent (see Doctrine and Covenants 78:14). Spending less money than you make is essential to your financial security. As members of the Church, we have been advised to avoid debt, with the exception of buying a modest home, having a practical car, and paying for education or other vital needs (“Focus on Family Finances”). If you currently have debt, the best thing you can do is create a plan to pay it off as quickly as possible (see Doctrine and Covenants 104:78).
Church leaders have repeatedly encouraged us to prepare ourselves temporally. Read “Happily Living within Our Means” to learn more.
“We encourage you wherever you may live in the world to prepare for adversity by looking to the condition of your finances. We urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt.”
Use the financial calculator, “Would spending a little less and saving a little more make a difference?” to see how small changes—like spending a little less or saving a little more—can make a meaningful impact on your financial future.
Watch the video: An Unhealthy Relationship with Money
Eliminate Existing Debt
Debt can be overwhelming, but there is always hope and help available, and it is possible to become debt-free.
President Thomas S. Monson quoted President J. Reuben Clark Jr. when he said: “Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it . . . ; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you” (“Constant Truths for Changing Times,” Ensign or Liahona, May 2005).
Creating a plan to get rid of existing debt is a crucial step toward gaining financial freedom. By utilizing a debt-elimination calendar, managing your money, and budgeting well, you can efficiently reduce your debt and regain control over your finances. (See “Understanding Debt” and “Getting Out of Debt” in the Personal Finances for Self-Reliance.)
You can explore how to reduce or eliminate your debt using a debt-elimination calendar. Here is a detailed explanation of how to do this:
- In the first column on the left, write the names of the months, beginning with the upcoming month.
- At the top of the next column, write the name of the creditor you want to pay off first. This creditor may be the debt with the highest interest rate or the earliest pay-off date.
- List the monthly payment for that creditor until the loan is repaid.
- At the top of the next column, record the name of the second creditor you want to repay, and list payments due each month.
- After you have repaid the first creditor, add that monthly payment amount to your payment to the second creditor.
In the debt-elimination calendar example, the family did this by finishing making monthly payments on their credit card in June and then adding $110 to the $70 furniture payment beginning in July. This created a new monthly payment of $180, which helped pay off the next debt faster. You can follow this example and continue the process until all loans are repaid.
Consider using these financial calculators to help you see how long it will take to pay off your debt:
“If you have paid your debts and have a financial reserve, even though it be small, you and your family will feel more secure and enjoy greater peace in your hearts.”
Watch the video: From Debt to Obedience
Wise Money Management: Ways to Avoid New Debt
Managing our finances wisely is an important factor in both avoiding debt and living providently. Living providently reflects our true eternal nature: we are “to act for [ourselves] and not to be acted upon” (2 Nephi 2:26). The Lord “wants us to live providently because of who we become in the process: responsible, generous, mature, kind” (“Provident Living Prepares Us for the Future,” Ensign, Oct. 2012).
“All of us are responsible to provide for ourselves and our families in both temporal and spiritual ways. To provide providently, we must practice the principles of provident living: joyfully living within our means, being content with what we have, avoiding excessive debt, and diligently saving and preparing for rainy-day emergencies.”
Small positive changes in managing your finances can make a big difference. Here are practical strategies to help you live within your means, take control of your financial future, and avoid unnecessary debt.
Prioritize Needs over Wants
Learn to recognize the difference between a need and a want. Focus on essential expenses first, such as housing, food, and utilities. Avoid unnecessary purchases that can lead to debt accumulation.
Create and Stick to a Budget
Know where your money is going. Create a detailed monthly budget that outlines your income and expenses. Stick to your monthly budget and do not overspend. Regularly review and adjust it to ensure you are living within your means. Establish clear limits for yourself on spending and borrowing to prevent overextending yourself financially. You could also choose to share your monthly budget with someone you trust to be an accountability partner. (See “Managing Your Finances: Monthly Budgeting and a Healthy Money Mindset” for more information about how to create a monthly budget.)
Live Frugally
Embrace a frugal lifestyle by cutting down on non-essential expenses. Look for ways to save money, such as cooking at home, using public transportation, packing a lunch for work, growing a garden, using what you already have, buying used items at thrift stores, watching for sales on items you need, or even going without. (See also, E. Jeffrey Hill, “Money Matters: Living Joyfully Within Your Means,” [Brigham Young University devotional, June 9, 2015], speeches.byu.edu.)
Avoid Comparing Yourself to Others
It is easy to fall into the trap of comparing your financial situation to others. This can lead to unnecessary stress and poor financial decisions. Instead, concentrate on your personal financial goals rather than what others are doing or buying. Everyone’s financial journey is different; what works for someone else may not work for you.
Show Gratitude
Regularly remind yourself of all the blessings and belongings you have and the financial progress you have made. Gratitude can shift your focus from what you lack to what you have, reducing the urge to spend money to get more things or keep up with others.
Practice Self-Discipline
Exercise self-control in spending. Avoid impulse purchases and think carefully before making financial commitments or getting into debt for things you do not need. Even seemingly small amounts add up fast if you buy a few of these extra items every month. If there is something that you want to buy, wait a week or even a month to see if you really need or want it, or cut back on other expenses and save for a few months to be able to get it.
Develop a Healthy Money Mindset
Cultivating a healthy money mindset is crucial for long-term financial stability and avoiding debt. Start by viewing money as a tool to achieve your goals rather than an end in and of itself. This perspective helps you make more thoughtful and deliberate financial decisions.
Avoid High-Interest Debt
Stay away from credit cards and loans with high interest rates. If you must use credit, choose options with the lowest possible interest and pay off the entire balance monthly (or as quickly as possible) so you do not incur interest on the purchases. Keep in mind that interest accumulates continuously—it can add up fast if you only pay the bare minimum, and it can be hard to escape the total debt sum.
Build an Emergency Fund
If possible, set aside a portion of your income each month to build an emergency fund for unexpected expenses. Do not touch this money unless it is really needed (such as a house repair or medical bills that you did not anticipate or budget for). This can prevent the need to rely on credit cards or loans during those times.
Seek Financial Knowledge
Educate yourself about personal finance through books, videos, courses, and seminars. Understanding financial principles can help you make informed decisions and avoid debt traps. (See Personal Finances for Self-Reliance.)
Plan for the Future
Set long-term financial goals and create a plan to achieve them. This includes saving for a house, preparing for retirement, investing, and planning for significant life events. (See “Tips for Saving Money and Being Financially Prepared” for more information.)
Learn to Effectively Manage Your Finances
By applying these financial principles to your life, you can take control of your financial future and live debt-free. Remember, the journey to financial freedom is personal and unique. Focus on your path and make decisions that align with your goals and values.
Elder Robert D. Hales taught, “To pay our debts now and to avoid future debt require us to exercise faith in the Savior—not just to do better but to be better. It takes great faith to utter those simple words, ‘We can’t afford it.’ It takes faith to trust that life will be better as we sacrifice our wants in order to meet our own and others’ needs” (“A Gospel Vision of Welfare: Faith in Action,” Basic Principles of Welfare and Self-Reliance [2009], 1).
Watch the video: Managing Money Wisely
When to Seek Professional Help
If you are facing a financial issue or crisis, it can be overwhelming. But you do not have to navigate it alone. Seeking the assistance of a financial professional can provide you with the expertise and tools needed to manage your finances effectively.
Remember, there is always hope. It is never too early or too late to seek financial help. Taking this step is not a sign of failure but a proactive measure to secure your financial well-being.
For more detailed guidance on handling financial crises, check out our article on “Navigating a Financial Crisis.”
Watch more videos about managing personal finances.