10 Simple Steps to Pay Your Debts and Become Debt Free

Our current economic crises has at its roots the massive increase in consumer (and business) debt over the past decade. And most people have now realized that in order to obtain financial security, they have to reduce or eliminate their personal debt.

Is it possible to pay off thousands of dollars of credit card debt, auto loans, and mortgages? It can't be done overnight, but it can be done. This simple program will work for almost anyone.

Americans Get Religion

U.S. consumer credit falls sharply in February
Tue Apr 7, 2009 3:33pm EDT

WASHINGTON (Reuters) - U.S. consumer borrowing fell more steeply than expected in February as credit and charge card use dropped by the most on record, a Federal Reserve report showed on Tuesday.

February's consumer credit dropped $7.48 billion, or at an annual rate of 3.5 percent, after advancing at a rate of 3.8 percent or an upwardly revised $8.14 billion the prior month, previously reported as a $1.8 billion rise.

Analysts polled by Reuters were expecting a $1 billion drop in consumer borrowing for February.

Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college educations and holidays, rose $313 million, or at a 0.2 percent rate.

However, revolving credit, made up of credit and charge cards, plunged at a 9.7 percent rate, or $7.79 billion in February, the largest dollar drop since the Fed started tracking the series in 1968.

In percentage terms, the 9.7 percent decline was the biggest since January 1978, when it dropped 15.7 percent.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)
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A Return to Traditional Values?

From the New York Times:

March 10, 2009
Extravagance Has Its Limits as Belt-Tightening Trickles Up
By SHAILA DEWAN

ATLANTA — It is a sign of the times when Sacha Taylor, a fixture on the charity circuit in this gala-happy city, digs out a 10-year-old dress to wear to a recent society party.

Or when Jennifer Riley, a corporate lawyer, starts patronizing restaurants that take coupons.

Or when Ethel Knox, the wife of a pediatrician, cleans out her home and her storage unit, gives away an old car to a needy friend and cancels the family Christmas. “I just feel so decadent with all the stuff I’ve got,” she explained.

In just the seven months since the stock market began to plummet, the recession has aimed its death ray not just at the credit market, the Dow and Detroit, but at the very ethos of conspicuous consumption. Even those with a regular income are reassessing their spending habits, perhaps for the long term. They are shopping their closets, downscaling their vacations and holding off on trading in their cars. If the race to have the latest fashions and gadgets was like an endless, ever-faster video game, then someone has pushed the reset button.

“I think this economy was a good way to cure my compulsive shopping habit,” Maxine Frankel, 59, a high school teacher from Skokie, Ill., said as she longingly stroked a diaphanous black shawl at a shop in the nearby Chicago suburb of Glenview. “It’s kind of funny, but I feel much more satisfied with the things money can’t buy, like the well-being of my family. I’m just not seeking happiness from material things anymore.”

To many, the adjustment feels less like a temporary, emergency response than a permanent recalibration, one they view in terms of ethics rather than expediency.

“It’s kind of like we all went overboard,” said Ms. Taylor, 33. “And we’re trying to get back to where we should have been.”

Not everyone thinks the new restraint will last. Ms. Riley, 37, who lives in Atlanta, said she doubted it would extend beyond the recession.

“I do think that maybe now it’s a little bit chic or something to save money, or to be pinching pennies,” she said.

Just as she stopped carpooling when gas prices went down, Ms. Riley said, she predicted that people would start buying again when the economy rebounded. “That’s just my own, maybe, cynical belief,” she said.

Still, economists point out that the Great Depression created a generation of cautious savers. The longer the downturn this time, they say, the more likely it is to change financial habits permanently.

Holly Moreno, 30, a part-time Web site manager in the Dallas suburb of Rowlett, Tex., whose husband is a business analyst, said she had been taking their 2-year-old son to indoor playgrounds at the mall and free story-times at the library instead of paying to get into the children’s museum, their favorite wintertime haunt.

“Even though we’re secure with our jobs, you’ve still got to plan for just-in-case,” Ms. Moreno said, “especially because we have a kid.”

As many economists have noted, cutting spending is the worst thing people with means can do for the economy right now. But that argument seems to have little traction, especially because even those with steady paychecks and no fear of losing their job have seen their net worth decline and their retirement savings evaporate.

“I don’t think there’s been any other period in modern history where appeals to people to spend the economy back into health have worked,” said Ethan S. Harris, a co-chief of United States economics research at Barclays Capital. “The only time I’ve ever seen where that kind of urging people to spend worked was after 9/11, and I did think at the time that there was some patriotic buying going on.”

After the attacks of Sept. 11, though, President George W. Bush urged Americans to go shopping. President Obama has taken a different tack, issuing a budget whose very title, “A New Era of Responsibility,” strives for an austere tone. On Inauguration Day, the first daughters, Sasha and Malia, dressed not in designer labels but clothing from J. Crew. On television, the insurance giant Allstate is running a sepia-toned “back to basics” advertising campaign, and in Target’s “new day” commercials, the “new pedicure” is administered by a spouse and the “new vacation glow” comes from a spray bottle.

“Though the recession was always talked about in economic terms, we felt really strongly that, in fact, it was a crisis of culture,” said Tracy Johnson, research director for the Context-Based Research Group, a market research firm in Baltimore that views the recession as a rite-of-passage that will reorder consumer priorities.

Ms. Johnson has advised clients to focus on quality rather than quantity. Malls redecorated in screaming red “sale” signs are not the way to go, she said, because “if you just give people the opportunity to buy more, you’re not matching up to where their minds are.”

Carol Morgan, who teaches law at the University of Georgia and whose husband has a private law practice, said she felt a responsibility to cut needless spending. “That is probably something that is a prudent thing to do in any event, but particularly now I see it as the right thing, as the moral thing to do,” she said, adding that she also hoped to increase her charitable giving. “Before, extravagance and opulence was the aspiration, and if we can replace that with a desire to live more simply — replace that with time with family, or time for spirituality — what a positive outcome to a very negative situation.”

Kim Gatlin, a novelist who lives in Park Cities, in the Dallas area, said some of her friends had urged their husbands not to give them jewelry over the holidays. “They were like, you know, ‘There’s nothing I’m dying for right now — let’s just wait,’ ” she said. “It makes them feel like they’re participating, although they don’t contribute to the income stream.”

Even some of the very affluent said they were reluctant to be conspicuous in their spending.

“It’s disrespectful to the people who don’t have much to flaunt your wealth,” said Monica Dioda Hagedorn, 40, a lawyer in Atlanta who is married to an heir of the Scotts Miracle-Gro fortune. “I have plenty of dresses to last me 10 years.”

Ms. Hagedorn said she did not hold herself apart from the rest of society because of her money. “Everyone’s going to pull through together, or everyone’s going to sink together,” she said.

Fear and uncertainty have paralyzed even the most insulated clients, said Jack Sawyer Jr., who manages money for some of Atlanta’s wealthiest families. “I have clients who have $20 million, young grandparents, and they’re concerned about whether they can continue to pay tuition for their grandchildren. It’s not a rational process.”

Any sharp decline in consumer spending will feed on itself, said Juliet B. Schor, an economist at Boston College and the author of “The Overspent American: Upscaling, Downshifting and the New Consumer” (Basic Books, 1998). Typically, people spend when those around them are spending, but in a downturn, the need to compete evaporates. “You can stay right where you are without falling behind,” Ms. Schor said.

Consumers’ focus may have shifted, she said, from striving to catch up to those above them to contemplating the fates of those below them.

Craig Robinson, 34, a manager at a real estate investment firm in Atlanta, agreed, saying that he was not tempted to join those who were scooping up deals at department stores. “There’s one guy to the right of me showing me this great deal he got on his tie,” he said, “and there’s four guys to the left of me who got laid off and can’t find a job.”

Karen Ann Cullotta contributed reporting from Chicago, Gretel C. Kovach from Dallas, and Rebecca Cathcart from Los Angeles.

So Is All Debt Evil?

Not necessarily. All debt carries with it a certain amount of financial risk, but no life is completely risk-free. The best guidelines on "acceptable" debt come from Elder Marvin J. Ashton in an address delivered on April 5, 1975 which was later republished in pamphlet form (One For the Money: A Guide to Family Finances) and continues to be available from the Distribution Center. Here is the gist of his counsel:

"With the exception of buying a home, paying for education, or making other vital investments, avoid debt and the resulting finance charges. Buy consumer durables and vacations with cash. Avoid installment credit, and be careful with your use of credit cards... Buy used items until you have saved sufficiently to purchase quality new items."

So these are the exceptions:
1. Buying a home;
2. Paying for an education;
3. Making other vital investments.

What are other vital investments? President N. Eldon Tanner, a former member of the First Presidency, stated that such “investment debt should be fully secured so as not to encumber a family’s security.”

Some simple questions may help us determine if it is appropriate to borrow to make a purchase (including purchases made using credit cards):

1. Will the item for which I am borrowing still be usable after I have finished making the payments?

2. Have I discussed this purchase with my spouse? Asking this question will eliminate most impulse purchases.

3. Does the purchase qualify as a “vital investment;” and could it be sold at any time to pay off the full amount of the indebtedness if our situation changes?

4. Who am I fooling? If this isn’t a house or an education then it is probably a “consumer durable” (such as a car, appliance, or furniture) and should be purchased with cash, not credit. Buy a used one or do without until you save enough to purchase a new one.

Elder Ashton adds this final thought:

"Please listen carefully to this—and if it makes some of you feel uncomfortable, it is on purpose: Latter-day Saints who ignore or avoid their creditors are entitled to feel the inner frustrations that such conduct merits, and they are not living as Latter-day Saints should! Bankruptcy should be avoided, except only under the most unique and irreversible circumstances, and then utilized only after prayerful thought and thorough legal and financial consultation."

Coming up next: how to pay off all your debts in ten easy steps. Really.

Personal Debt (Part 2)

The Prophetic Injunction
The repeated counsel of the brethren for well over a century has been to pay our debts and avoid further indebtedness.


Brigham Young said, “Pay your debts…do not run into debt any more.”

Joseph F. Smith gave this advice in 1911: "If there is anyone here who is in debt, I would advise that when he goes home, and when I go home, too, that we will begin with a determination that we will pay our debts and meet all of our obligations just as quickly as the Lord will enable us to do it."

Gordon B. Hinckley counseled, “I urge you as members of this Church to get free of debt.”

President Thomas S. Monson recently taught that debt can “crush our self-esteem, ruin relationships, and leave us in desperate circumstances.” He noted that “yesterday’s luxuries have become today’s necessities.” And then added that, like in Pharaoh’s dream, "changes occur: people become ill or incapacitated, companies fail or downsize, jobs are lost, natural disasters befall us. For many reasons, payments on large amounts of debt can no longer be made.”

The Provident Living website at www.LDS.org states, “Honor your debts. We are a people of integrity. We believe in honoring our debts and being honest in our dealings with our fellow men.”

The First Presidency in "All is Safely Gathered In": "We urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt. Pay off debt as quickly as you can, and free yourselves from bondage. Save a little money regularly to gradually build a financial reserve. 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.

In a letter to be read in sacrament meeting, issued in 2008, The First Presidency stated, "We are concerned that some Church members ignore the oft-repeated direction to ... avoid consumer debt."

The counsel of the Brethren has been simple, consistent, and in conformity with scriptural mandates. It is to pay our debts and avoid future debt.

Personal Debt

The Scriptural Injunction

I was reading the account of King Benjamin's speech the other morning, and was struck by this verse:

"And I would that ye should remember, that whosoever among you borroweth of his neighbor should return the thing that he borroweth, according as he doth agree, or else thou shalt commit sin." (Mosiah 4:28)

Several aspects of this instruction jumped out at me.

First, King Benjamin makes it clear that we should return what we borrow in accordance with the agreement we have made.

Second, to not do so is a sin.

And third, the footnote on this verse refers the reader to three topics in the Topical Guide: Borrowing, Debt, and Honesty.

We live in an era in which personal bankruptcy has lost much of its stigma. A common objective seems to be to borrow as much as possible, and when a financial reversal comes (as it invariably does), negotiate with the lender to reduce our debt in way that the lender will accept partial repayment and preserve the our credit score to enable future borrowing.

But the scriptural mandate seems clear. When we fail to pay our obligations "according as [we] doth agree," we "commit sin."

When Martin Harris and Joseph Smith were struggling to pay the debt to the printer for the printing of the Book of Mormon, the Lord gave very simple instructions:

"Pay the debt thou hast contracted with the printer. Release thyself from bondage." (D&C 19:35)

This was hard counsel - Martin had to sell a portion of his farm to pay off the debt. His wife was not happy about it; she ultimately left him. But apparently the Lord takes this business of paying back "according as he doth agree" very seriously. Note that in the revelation to Martin Harris the Lord includes the fact that Martin had "contracted" with the printer.

In the early days of the Church, it seems that the Saints had almost as many challenges meeting their debt obligations as we do today. In 1831 the Lord reminded the elders that "it is said in my laws, or forbidden, to get in debt with thine enemies." (D&C 64:27) In 1834, He again reminded the Saints, "It is my will that you shall pay all your debts." (D&C 104:78)

Faithful members of the Church, sometimes express suprise that we have worked to become debt free, yet none of these people are suprised that we don't smoke. But both commandments - "ye shall pay all your debts" and "tobacco is not for the body" - are contained in the scriptures.

The Margin of Mastery

"We are concerned that some Church members ignore the oft-repeated direction to prepare and live within a budget, avoid consumer debt, and to save against a time of need."

- From the first letter sent to the general membership of the Church from Pres. Thomas S. Monson, 27 February 2008.

This site is designed as a repository of thoughts, helps, and resources regarding personal financial management, with the goal of sharing information that will help readers obtain the sense of peace and comfort which comes from living providently.

"The Margin of Mastery" is a phrase and concept which I first heard from Wendell J. Ashton many years ago. I have spoken about it many times over many years. By way of introduction to this site, here is a brief excerpt from a talk I gave a couple of years ago.

It is unlikely that, years from now, you will remember any of the specific talks given at this stake conference, including this one. Yet most of you can remember a handful of talks that you have heard over the years that stand out in your memory. One such talk for me was address given at a conference of the East Millcreek Stake when I was a boy, by our stake president, Wendell J. Ashton.

President Ashton spoke of going to the store to purchase a new wool blanket for his bed, and discovering that the blankets came in a variety of sizes. The salesman advised him to purchase a blanket larger than the mattress, but President Ashton objected, saying in effect, “I only need a blanket large enough to cover the mattress, not drape over the sides. I only sleep on the top of the mattress, not the sides.” But the salesman explained that this “excess” blanket, wrapping around the sides and tucking under the mattress sealed in the warmth. It was, he explained, that extra margin that made the difference.

President Ashton then applied that principle, which he called the margin of mastery, to other aspects of our life. How much richer, how much warmer, how much more peaceful our lives would be if, instead of living on the edge, we always had that extra margin – the margin of mastery. In financial matters, always keeping that extra margin can make all the difference. If you can afford an Avalon, buy a Camry. If you can afford a Camry, buy a Corolla. If you can qualify for a large home with a 30-year mortgage, buy a smaller one with a 15 year mortgage. If you can afford a house payment of $2,000, get one for $1,800. President Gordon B. Hinckley said,

When I was a young man, my father counseled me to build a modest home, sufficient for the needs of my family, and make it beautiful and attractive and pleasant and secure. He counseled me to pay off the mortgage as quickly as I could so that, come what may, there would be a roof over the heads of my wife and children.

He summarized, “prudence should govern our lives.” Developing the margin of mastery in our lives allows us to become the master of our affairs. We develop control over our wants and desires, which naturally results in the reduction of debt and the building of a reserve.

A few years ago Jeff Edwards and I were backpacking in a remote area of the Grand Canyon along a route called the Beamer Trail. Calling the Beamer a trail is an extreme case of flattery. It is a vague route, much of which runs along the top of 200 foot cliffs above the Colorado River. One of the challenges of this section of the Beamer is that it is plagued with strong gusts of winds which can catch a backpack and move the hiker several feet from the trail. Needless to say, it is essential to stay away from the edge of the cliff, lest a gust of wind come and send you to the rocks and river below.

The margin of mastery means staying away from the edge. When we have that margin in our life, the winds of adversity will still come but will not be disastrous for us. President N. Eldon Tanner taught:

Those who structure their standard of living to allow a little surplus control their circumstances. Those who spend a little more than they earn are controlled by their circumstances.

Noted financial writer Andrew Tobias likes to quote Charles Dickens’ David Copperfield:

Annual income, twenty pounds; annual expenditure, nineteen pounds; result, happiness. Annual income, twenty pounds; annual expenditure, twenty-one pounds; result, misery.

Tobias adds: “That’s pretty much it. Spend less than you earn.”

There are some simple ways to begin developing the margin of mastery in our financial affairs. One is to stay out of stores. I can always find something I “need” if I walk through the store. Ditto for catalogs and eBay. Why go to the home show unless you are in the market for a new home? Why do we feed our desire for things?

Consider the cost of ownership. As the comedian Steven Wright says, “You can’t have everything – where would you put it?” Many items cost both in time and money far beyond the original purchase price. Anyone who owns a dog is familiar with this principle. Linen table cloths have to be cleaned and pressed, large lawns have to be watered, fertilized and mowed, boats have to be maintained and stored. Someone once said that a man’s happiness in inversely proportional to the number of gasoline engines he owns.

Elder Bruce Porter summed up this counsel in a recent Area Training Meeting with these three words: stop buying things.

Sometimes, in spite of all we can do, we find ourselves economically dependent on others. Family members, and sometimes the Church must come to our aid. But if we have developed the margin of mastery in our lives, we can receive temporary assistance in good conscience knowing that we have kept our needs to a minimum and have done all that we can. And that, in all likelihood, we will have the opportunity of helping others in the future. The peace which comes from developing the margin of mastery is worth far more than the worldly trinkets we might have foregone in developing this self mastery.