By Michael Veenstra
Debt is a huge part of North American culture. 50% of Canadians say they worry about their finances (2013 CICA Financial Priorities Survey).
The average consumer debt load in Canada is over $27,000 (2013, TransUnion). We are obsessed with having a good credit score, with upward mobility, with climbing the ladder to ‘success’ – often using debt and credit as a rung on which to climb higher, trying to stay level with the Joneses.
It does not have to be this way. Matthew 6 has plenty to say about how we should conduct ourselves, and what we should and shouldn’t worry about.
Debt brings with it stress and frustration. 27% of Canadians say financial stress has left a negative impact on their relationship (Feb 2013, Ipsos Reid).
Dealing with debt pro-actively and intentionally is a great decision on all fronts. It will benefit you financially, it will benefit your marriage, it will give you peace of mind, and the ability to be more generous. It will be difficult, but it will be worth it. Here are some steps you can take to address your debt situation:
- Build a Budget that includes debt repayments (and stick to it!).
If you need help building a budget, consider taking a budgeting workshop such as the CAP Money Course (www.capmoney.org) . This will make building and sticking to a budget much easier. Try using cash as much as possible and stop using credit (a.k.a – increasing your debt) while you’re trying to pay it off.
- Determine whether debts are Priority or Non-Priority.
A Priority debt is something like a mortgage, utilities, a car loan, or secured bank loan. These things have serious consequences if they are not paid – you could lose your home, have your utilities cut off, or have your car re-possessed. Making sure that any arrears – owed payments from previous months – are payed off in a timely manner is very important, along with maintaining your contractual monthly payments.A Non-Priority debt is something like a credit card, unsecured loan, payday loan, old cell phone account, or other unsecured debt. The consequence for non-payment in these cases is usually minimal – your credit rating may be affected or you may receive telephone calls demanding payment. If you have enough disposal income you should keep up with your contractual payments, so be sure to include those in your budget. If you don’t have enough for housing and groceries alongside your debt repayments, you should consider getting help from a professional organization like Christians Against Poverty. www.capcanada.org/gethelp
- Choose a debt repayment strategy.
There are two popular options in most scenarios: Clear the smallest debt first or clear the most expensive debt first. Clearing the smallest debt doesn’t make the most financial sense, but can offer a sense of accomplishment that is needed to keep sticking to the plan in the early stages. Clearing the most expensive debt – the debt that costs the most in interest and fees each month – makes more financial sense. High-interest, short-term loans (often called Payday Loans) can spiral out of control if not dealt with quickly. In some cases, a loan with a low interest rate will have the interest front-loaded, so that paying it off quicker than your contractual repayments demand is of no financial benefit. Look at each of your debts and determine how expensive they are each month.
- Seek additional assistance.
If your monthly contractual repayments to your debts are more than you can afford, seek help from a professional – a debt counsellor, independent financial planner, or an Insolvency Trustee. Debt Counselling programs (such as Christians Against Poverty’s Debt Centres) can put you on a debt management plan tailored to your needs. A financial planner can recommend options for dealing with debt if you have assets that can be re-financed and can explore debt consolidation if that is suitable for you.An Insolvency Trustee can help you explore insolvency options, including bankruptcy. Bankruptcy is a legal process by which you are discharged from your debt obligations and can be the fresh start needed to relieve the financial pressure you are under. There are many misconceptions about bankruptcy, including that it is un-Biblical. However, the Israelite nation had its own system for cancelling debts that functioned in a very similar way to modern bankruptcy, and while you may consider it preferable to repay your creditors, this may not be viable for you. It’s also a great parallel to the forgiveness God provides to us for our mistakes.
There are many other questions that come up when Christians are dealing with debt. What about tithing? What does generosity look like when you’re struggling with debt? Where is the line between prudent financial planning and storing up treasures?
All of these questions are complex, multi-faceted issues. Every option should be prayerfully considered, and you should speak to a pastor or other spiritual mentor to get their perspective. If you need additional assistance look at what reputable options are available in your area for budgeting courses, financial planning, and debt management.
Michael Veenstra is a Client Services Caseworker with Christians Against Poverty Canada, a charity that exists to equip the local church to meet the needs of the poor and marginalized in their communities. They currently serve the Greater Toronto Area and its surrounding communities. To inquire about how your church can get involved, visit www.capcanada.org/partner.
Read the Mar/Apr Faith Today for a compelling look at Christians and money, and a summary of household debt.