How to Pay Off Debt (Psalm 37:21)—Here Are the Best Strategies!

Podcast: Play in new window | Download

Psalm 37:21 says, “The wicked borrows but does not pay back.” Do you want to know how to pay off debt? Read or listen to this chapter from Your Finances God’s Way to learn the best strategies for paying off debt.

The text in this post is from my book, Your Finances God’s Way, and there is an accompanying workbook and audiobook. I am praying God uses the book and workbook to exalt Christ and help people manage their finances well.

When couples in the church I pastor give birth to a child, I try to bring them a meal, meet the baby, see if they need anything, and pray with them. When Robert and Katy Cunningham had their fifth son, I went to see not only them and their new baby, but also their new living situation. They (seven people, including five energetic young boys) had moved into a broken-down motorhome that was sitting on the property where Robert was building their house. They went to great lengths to observe Psalm 37:21.

When I returned home, I told my wife two things. First, I shared how proud I was of Robert and Katy for their commitment to being debt-free and all the sacrifice that was involved in sticking with that conviction. Second, I said, “We don’t have very much to complain about!”

Not long ago, Robert finished the construction. They were able to move out of the motorhome and into their new house debt-free.

Maybe you have said, “People can’t buy a home with cash.” I have heard this argument many times, and Robert and Katy’s testimony (as well as many others) reveals it is not true. I have watched young and old people alike, inside and outside my church, purchase homes without mortgages. Here are three points of advice to help you do the same.

Strategies to Avoid a Mortgage

The biggest debt most people have is a mortgage. Here are three strategies to possibly avoid one!

First, Consider a Rental

Many people argue that it’s better to buy a house because if you rent, you’re throwing money away. The idea is the money would be better off put toward the cost of your house. This appears to be true until you consider how much of a mortgage payment goes toward the interest versus the principal. The money going toward the interest isn’t going toward the price of the house any more than rent goes toward the price of the house. If you want your money to go toward the price of the house, save up the money and buy your house with cash.

Second, Live Modestly

We have friends who lived in a basement until they could buy their first home with cash. Some other friends lived in a two-bedroom rental with seven children. Did these situations involve sacrifice and living modestly? Definitely. But how good do you think these people feel now as they live in their homes with no debt?

Third, Purchase a Starter Home

When I talk about buying a home with cash, it might be more accurate to say homes. Who says you need to live in your dream home in your twenties or thirties? A better approach is to purchase a smaller starter home with cash and save up for your next home. Then sell your starter home, which is hopefully worth more than when you bought it, and use that money, along with the money you’ve saved up, to purchase your next home. As your family and income grow, so does your home.

Two Pieces of Advice if You Decide to Purchase a Mortgage

If, for whatever reason, you still decide to go ahead with a mortgage, let me offer you two points of advice.

First, Understand “Qualifying”

Real estate agents and loan officers want you to sign for the most amount of money. This has left people with much larger mortgages than they can afford simply because they were told they “qualified.” They were locked into high payments that paralyzed them for decades, leaving them unable to save, be generous, or prepare for emergencies. A much wiser approach is a smaller mortgage that can be paid off faster and easier.

Second, Choose a 15-Year Versus a 30-Year Mortgage

There are many benefits to a 15-year versus a 30-year mortgage:

• lower interest rates
• less interest over the life of the loan
• quicker equity built into the property
• less likelihood of being upside down if the housing market crashes

The only downside to a 15-year mortgage is larger monthly payments, but most people would be surprised to learn they’re not that much larger. For example:

• The monthly payment on a 30-year, $300,000 mortgage with a 4 percent APR is $1,432, for a total repayment of $515,609 ($215,609 in interest).
• The monthly payment on a 15-year, $300,000 mortgage with a 4 percent APR is $2,219, for a total repayment of $399,431 (interest $99,431).

The difference is $787 per month, but the interest is more than cut in half: $99,431 versus $215,609, which saves you $116,178.

The Best Strategies for Paying Off Debt

Psalm 37:21 says, “The wicked borrows but does not pay back.” What if you are already in debt, whether from a mortgage, credit cards, school loans, automobile loans, or all the above? You need strategies that help eliminate the debt you have.

Sacrifice to Pay Off Debt

Remember, every cent counts. All the money we avoid spending puts us that much closer to being debt-free. This requires being frugal and intentional with purchases. We must often say no to things we want. The most popular and effective approaches to finances can’t prevent us from having to go without certain enjoyments. While formulas and budgeting techniques can be helpful, there’s no substitute for sacrifice.

Instead of being one strategy, think of this as the umbrella over all the strategies because each of them requires sacrifice. If we expect to eliminate debt, we must live in a way that others might consider extreme. Our society is so indulgent that if we live “normally,” we will never be debt-free.

Live Below Your Income to Pay Off Debt

The worst approach you can take with your money is spending it as though you make more than you do—living off $7,000 per month when you make $6,000. This will increase your debt month by month. The reasonable approach is spending at your income level—living off $6,000 when you make $6,000. But if you make $6,000 dollars per month, is the solution to live as though you make that amount? No. This will have you living paycheck to paycheck, spending all the money you make. You won’t increase your debt, but you also won’t eliminate any debt. The best approach is spending as though you make less than you do—living off $4,000 when you make $6,000. This will allow you to pay off almost $100,000 in four years (4 years x 12 months x $2,000 per month).

Buy Used to Pay Off Debt

As a ministry family, we’ve had lots of clothes and other items given to us. When all our bases weren’t covered, we were able to find what we needed at yard sales and thrift and consignment stores. When you need “new” stuff, you can spend a fraction of the price buying used.

Stay Home to Pay Off Debt

If you asked those who are closest to us, many people would say, “Scott and Katie never go anywhere!” Traveling is expensive. Eat, play, and laugh at home. You’ll save on gas, lodging, and put less wear and tear on your vehicles. There are three keys to success with this strategy.

First, Build Relationships

When your children feel connected to you and each other, they will be more interested in staying at home because this is where they can be with those who are closest to them.

• Limit screen time: If “family time” involves a television or computer, kids are more likely to feel closer to the electronic device than their family members.
• Look for ways to connect: Can Friday evenings become “game night” or “make your own pizza night”? We purposefully end each day in the living room with everyone relaxing, visiting, and mellowing out before evening prayer and bedtime.

Second, Avoid Conflict

It is especially important for parents to have a healthy marriage because they set the example and tone in the home. The love and peace, or contention and strife, between husband and wife trickles down to the children. Children want to be in a home filled with harmony, but they will want to move away from one filled with quarreling.

Third, Invest in Your Home

Doesn’t this conflict with our goal of saving money? Yes, but sometimes we need to spend money to save money. By staying home you’ll save money, and you’ll be more inclined to stay home if you have invested in it. Use some of the money you saved from not traveling and invest in your home to make it a place you and your family enjoy.

Four Things to Avoid to Pay Off Debt

First, Avoid Lavishness

Even when you invest in your home (or making any purchases, for that matter), you should avoid extravagance. You can be nice, tidy, spacious, comfy, and modest. When eliminating debt, settle for simplicity. If you purchase new furniture, make sure it’s because you need new furniture. Buying new furniture simply because you’re bored with your current set is a waste of money and reveals a discontent heart. We still have much of the same furniture from when we got married.

Proverbs 13:7 says, “There is one who makes himself rich, yet has nothing; and one who makes himself poor, yet has great riches.” Some people appear wealthy through their expensive homes, vehicles, and vacations, but if they’re buried in debt, they “[make themselves] rich, yet have nothing.” If their debt exceeds the value of their possessions, then they have less than nothing because they’re in the negative. Others “[make themselves] poor” through their humble living, but they have “great riches” because they have money saved and no debt.

Second, Avoid Unnecessary Expenses

As you consider your expenses, try to eliminate whatever is unnecessary, such as going to the movies and eating out. Cancel subscriptions you don’t need, such as cable television and extra phone lines. When you travel, bring food with you. Preparing meals at home saves money. While Katie and I were trying to get out of debt, if we ate out for a birthday or anniversary, we usually used a gift card. It may seem impossible to live without certain pleasures you’ve always enjoyed, but remember: The more expenses you eliminate, the faster you’ll be out of debt.

Third, Avoid “Going Big”

Holidays, birthdays, and anniversaries can really add up. Our honeymoon was free because my parents let us use their timeshare in Palm Springs. How sad that many young couples limp out of the starting gate financially. They begin their marriage with thousands of dollars of debt, not from purchasing a home or car, but from their wedding and honeymoon. Save the “dream trip” for when your debt is paid off. Make it a reward.

For birthdays for each of our children, we buy one gift, and we ask the grandparents to buy only one gift. We also celebrate the child by having dinner and a cake that Katie prepares. For Christmas, our children buy their siblings small gifts. Katie and I have mutually agreed not to spend much on each other. We try to do most of our shopping after the holidays are over when things are discounted. For example, we have a tradition of buying all the discounted candy and eggs after Easter and having our own hunt then.

A minimalist approach not only keeps expenses and expectations low, it also minimizes stress and covetousness. For some people, the joy of special occasions is overshadowed by their financial anxiety.

Throughout the year we allow our kids to be bored instead of trying to entertain them. Not only does this save money, it causes them to find things to do. We encourage them to engage in activities that foster creativity, such as music, art, reading, writing, and building. We purchase books, musical instruments, and art supplies. Because we want our kids to play outside, we also invest in bikes, skates, scooters, jump ropes, and sidewalk chalk. We haven’t introduced them to video games.

Most children have toys they don’t play with. Figure out which toys your kids like and invest in those. For us, Legos, Duplos, and K’Nex have shown to be tried-and-true. We typically avoid toys that require batteries or electricity.

Fourth, Avoid Expensive Hobbies

There’s something wrong when people are thousands of dollars in debt yet they’re spending thousands of dollars on activities, hobbies, and events that they really cannot afford. Until you are debt-free, you should try to avoid those activities that cost a lot of money.

Enjoy Cheap or Free

Have you been led to believe that you must spend money to enjoy yourself? There are many activities that are free or nearly free. Find something that you and your spouse and family love that doesn’t cost much, or better yet, is free. Here are some examples:

• Visit a museum, aquarium, or zoo—Many of these offer free admission on certain days.
• Read—By yourself, with your spouse, or to your children. Combine this with another free activity, such as taking a trip to the library or bookstore. Many of these have children’s play areas.
• Watch a movie—Didn’t I discourage this in the last chapter? Yes, when frequenting a theatre, but not when watching something much cheaper or even free. While you’re at the library getting your next book, you can also check out a DVD.
• Play games—A board game, puzzle, or deck of cards is a wonderful way to be together and pass the time.
• Attend church activities—Weekly Bible studies and home fellowships are free and have added spiritual benefits.
• Volunteer—Serve at your church, a soup kitchen, or pregnancy center. If you have children, they can be involved, which teaches them important lessons.
• Visit the farmers’ market—Take in the sights, sounds, tastes, and smells while supporting your local community. Sometimes you can find fruits and vegetables in larger quantities and for cheaper prices than at the grocery store.
• Spend time outdoors—Take a walk, jog, garden, have a picnic, hike, or go on a bike ride. If you want to do something athletic you can play basketball or join a sports team in your community.
• Create—Cook a meal, make a photo album, draw, paint, or write.
• Develop a skill—There are free tutorials online to learn new skills, such as a foreign language, knitting, photography, or a musical instrument.
• Be hospitable—Invite friends or neighbors to your home. Make it a potluck to ease the labor and financial burden for everyone.
• Be productive—Clean the house, finish a project that’s been nagging at you, plan a trip, polish your resume, or write a letter.
• Host a yard sale—Get rid of unwanted clothes, furniture, and other items while making money, decluttering, and blessing others.

Keep the End in Mind

Eliminating debt is difficult, and applying this strategy will help you apply the other strategies and give you the needed motivation to keep going. We paid off our mortgage after seven years by dreaming about what it would be like to be debt-free:

• Bills kept (primarily) limited to utilities
• Purchases made without having to worry if we had the money we needed
• More money put toward savings and giving
• No longer being slaves to a lender

We kept these blessings in mind while telling ourselves no purchase, trip, or luxury was worth trading for them. Keep reminding yourself of the joys you will experience when you are debt-free.

Continue Giving

I know this doesn’t look like a strategy to becoming debt-free, but you will see why it is in a moment. For now, consider this illustration of the temptation you’ll face. A man had two prize-winning calves that provided him with thousands of dollars. He told his wife, “Honey, this is wonderful. God has blessed us with these two calves, so I’m going to honor Him by giving Him one of them. One will belong to God, and one will belong to us. Whatever God’s calf brings in financially, we are going to give to Him. Whatever our calf brings in financially, we are going to keep for ourselves.”

The man came home one day looking sad and discouraged. His wife said, “Honey, what’s wrong?”

The man said, “I can’t believe it. God’s calf died.”

We want to let God’s calf die versus our own. As you strive to pay off your debt, money will be tight and you’ll be tempted to avoid giving to God. You must resist this temptation.

Giving and paying off debt seem mutually exclusive, as though doing one is choosing not to do the other. But they’re compatible. If you want to honor God by paying off your debt, you must also want to honor Him by continuing to give. God says, “Those who honor Me I will honor, and those who despise Me shall be lightly esteemed” (1 Samuel 2:30). We shouldn’t expect God to honor our desire to be debt-free if we stop honoring Him by no longer giving. God can help you pay off your debt better using less of your money than you can pay off your debt using all your money; therefore, continuing to give is a strategy.

Rod Rogers said, “If you want God’s help to get out of debt, you must put God first in your giving. It flies in the face of conventional wisdom, but I have seen many families give their way out of debt.”¹ I’m not promising everything is going to go perfectly if you give, but I can just about guarantee that things will go poorly if you do not give. Will God allow people to prosper financially if that is the very area in which they disobey Him? God loves us too much to let that happen. Do not expect to get ahead if you withhold what the Lord expects you to give. C.H. Spurgeon said, “Many are poor because they rob God.”²

Katie and I had some friends who wanted to become debt-free, but at first, they approached it wrongly. They said, “We stopped giving and tithing. We were going to resume giving when we were out of debt, but we kept falling further behind. It wasn’t until we gave again that we were able to pay off our debt.”

Put Extra Money Toward Debt

As you apply the above strategies to follow Psalm 37:21, you will be tempted to spend any extra money that comes your way. Decide right now that you’ll put it toward repaying your debt. When you receive your tax return, Christmas or birthday cash, inheritance money, or income earned on the side, put it toward debt repayment.

When Katie and I were trying to eliminate debt, all our extra money went toward the mortgage. Some months it was a few hundred dollars, and other months it was a few thousand. When Katie inherited $10,000 dollars, we didn’t think twice before putting it toward the mortgage. Every tax return went toward the mortgage. One year I worked part-time for a church while working full-time as an elementary schoolteacher. The entire pastor’s salary, and much of the teaching salary, went toward the mortgage.

What About When You’re Out of Debt?

When we have paid everything back (Psalm 37:21), what are we going to do with the extra money we have available? First, hopefully we will increase our giving out of thankfulness to God for helping us to become debt-free. Second, we should increase our savings (more on this next chapter). Third, we can loosen up…a little.

When we were out of debt, we made some purchases we wouldn’t have made while were still in debt, but our lifestyles didn’t change that much. We still apply many of the same principles today, such as paying with cash, discussing purchases ahead of time, being patient, doing our research, buying used, and pursuing modesty. The goal should be to remain debt-free for life, not bounce in and out of debt. Just because you are debt-free doesn’t mean you should revert to the lifestyle that made you a slave in the first place. Continue applying the principles that helped you eliminate your debt so you can remain free.

Possibly Missing Out on God’s Best

Let me leave you with this final encouragement: If you don’t have the money to make a purchase, the answer might be not yet instead of no. The door might be closed only until God enables you to come up with the money you need. He can do so by

• prompting you to improve on your ability to save
• convicting you about being more frugal • showing you things you can sell
• helping you avoid costly expenses
• giving you greater wisdom for how to handle the money you have

But if you buy something when you don’t have the money to do so, you might be missing these and other wonderful blessings God has in store for you. You don’t want to have to wonder whether God would have helped you obtain the money you needed to avoid debt. Be patient and trust Him, so you don’t end up settling for far less than His best.

Think about these two questions:

1. Is it God’s will for you to own something?
2. Is it God’s will for you to avoid debt?

If the answer to these two questions is yes, then God will enable you to buy with cash. And if it is God’s will for you to buy with cash, you can be confident He will help you to reach that goal. He will “equip you with everything good that you may do his will, working in us that which is pleasing in his sight” (Hebrews 13:21). Once your debt is paid off, you are ready to start saving. In the following chapter, we will talk about the right and wrong ways to do so.

Footnotes

1. Rod Rogers, Pastor Driven Stewardship: 10 Steps to Lead Your Church to Biblical Giving (Dallas, TX: Brown Books, 2006), 230-231.
2. Charles H. Spurgeon, The Promises of God (Wheaton, IL: Crossway, 2019), 24.