A recent survey by David Michaelson and Associates for MasterCard International found that 65% of Americans have debt-related problems. In my counseling, it is not uncommon for a family earning $50,000 to have credit card debts from $10,000-$20,000. At interest rates of 20%, the burden of paying up to $4,000 per year in interest alone is overwhelming and causes tremendous strain within a marriage. For many families, it's as though a wrecking ball is poised to come crashing down causing financial ruin. The constant pressure becomes unbearable!

Webster's dictionary defines debt as an obligation to pay. These obligations normally carry an interest charge and a period of time for repayment. For purposes of this article, I would like to use two categories of debt: collateralized debt, such as home and car loans, and consumer debt such as credit cards and checking account overdraft protection.

The typical scenario in my counseling is that families have stretched themselves to the limit on their home and maybe their car as well, resulting in significant fixed costs. They often have difficulty covering their remaining bills and, as a quick fix, they turn to their credit cards, causing an upward spiral of debt. It is primarily this consumer debt that leads to financial chaos and that will be the focus of this article. In the future, we will discuss debt related to homes and automobiles.

What is the root cause of this misuse of debt? I attribute it largely to the materialistic attitude that has enveloped our society. The Catechism captures this attitude well where it states, "Our thirst for another's goods is immense, infinite, never quenched" (2536). When the human weakness of an insatiable appetite for things is combined with an easily available and seemingly endless supply of credit, an explosive situation emerges.

What should our attitude towards debt be? Our Catholic faith calls us to live a life of temperance where we moderate our desire for worldly goods. The high debt levels in our society are a contradiction of this virtue. There are several Scripture passages which refer to debt, and although it is never described as a sin, it is always described in a negative way. Here are a few of the verses:

* If you but heed the voice of the Lord, your God, and carefully observe all these commandments which I enjoin on you today, you will lend to many nations, and borrow from none (Deuteronomy 15:5-6).

* Woe to him who stores up what is not his: how long can it last! He loads himself down with debts. Shall not your creditors rise suddenly? Shall not they who make you tremble awake? You shall become their spoil! (Habakkuk 2:6-7).

* The borrower is the slave of the lender (Proverbs 22:7).

* Be not one of those who give their hand in pledge, of those who become surety for debts; for if you have not the means to pay, your bed will be taken from under you (Proverbs 22:26-27).

* The wicked man borrows and does not repay (Psalm 37:21).

These verses clearly show that God's message is to watch out and avoid debt, but how do we accomplish this in a society that is awash in it? I'd like to suggest a seven-step plan that will allow you to work out of your debt troubles. Remember, however, that it took time for the problems to reach their current magnitude and it will take time and discipline to follow through with these steps.

1. Commit to turning your finances over to God and applying His wisdom in this area, remembering He owns it all (Deut. 10:14).

2. It may sound crazy, but begin to tithe. God will be faithful as you follow His precepts and you will see order brought to what is now a chaotic situation. We have seen it happen over and over again!

3. Begin tracking your actual expenses and develop a budget. This allows you to develop a plan to payoff your existing debts.

4. Summarize all of your current debts by listing whom you owe, the amount owed, the minimum payment required, and the interest rate.

5. A payoff plan will require that you set aside money in your budget to eliminate your debts. The amount required depends on the amount owed, the interest rate, and how long your plan will take. I recommend anywhere from a one to three-year plan. If you have access to a computerized spreadsheet or money management program, calculate the required amount to pay off each consumer credit loan over a period of one to three years. Exclude your home and car loans from this step. It will look something like the table at the bottom of the page. If you need help with this, send a copy of your summary of debts with a self addressed stamped envelope and we will complete the computation and send it back to you. Please include a phone number in case we have any questions.

6. By totaling the required payments for all of your loans, you can determine how much you will need to include in your budget in the "debt payment" category. Select the pay back period that is realistic but emphasizes eliminating your debts as soon as possible. I recommend that you pay off the loans with the highest interest rates first; however, you still need to make the minimum payments required on all of your other loans.

7. Make a commitment to manage your credit cards wisely by utilizing the following steps:
  a. Use them only for budgeted items.
  b. Pay them off every month.
  c. Get rid of them (cut them up) in the first month   that you don't pay the complete balance off.

As you commit to eliminating your consumer debt, don't be surprised if there are times when you wonder how it will all come together. Don't get discouraged. As you apply God's principles to your finances, He will be faithful. Do your part well and trust in the providence of God for the remainder. 

Sample Loan Payoff Schedule

Loan amount       $10,000       $10,000       $10,000
Interest rate       7%              7%             7%
Payback period
in months           12               24              36
Monthly payment $865            $448           $309