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Tackle Debt vs. Saving? What Do We Do?

Dear CMR,

As a young person, newly married, what is more important? Saving, or paying off debt?


Trying To Be Financially Wise

There is no doubt about it. Debt and finances are points of friction in a marriage. How we spend money as a married couple, and the debt we choose and sometimes don’t choose but have with our families, can be a great source of lost sleep and marital discord. So, with that in mind, let’s talk a little about what you can do to buck the cultural trends of debt and how to save and have peace of mind.

Saving vs. paying down debt:

This is something I hear frequently from young couples who are facing significant college or life debt. Scripture is pretty clear that debt=slavery and that when we carry debt we are indebted or slaves to the one who holds the debt over us. So, what does that really mean? It means that if you have debt, you may miss out on the blessing and benefit of service God has called you to fulfill. Even something like giving a gift to someone in need or donations to missions projects may not be possible with debt hanging over you.

When we are free from debt, we are free to be much more agile and generous with the resources God has given us, and we are called to be generous, gleeful givers! Should we seek to be out of debt and free to use our finances to benefit God’s calling and purposes? Absolutely!

So, let’s get really practical. You should also be saving!

The general guide as you create your budget is to pay down as much of your debt as possible. But here are a few really important considerations on the saving side:

1) Emergency Fund:  In your budget, you need to build at least a $1,000 emergency fund for the little things that come up. This fund will save you from putting that new tire or water heater on your credit card. Credit card interest is some of the worst debt you can have because of the high cost of credit. Now, don’t panic, but ultimately, you will want to have in a liquid (available) savings account at least 3–6 months of living expenses. But for now, let’s just get a little security in the bank in case of an emergency. Once you have those savings, you can get serious about the debt.

2) Seek to save 10%:  How much to save is similar to the tithe. For the tithe, or “firstfruits,” the biblical directive is that it comes right off the top of your budget, and the Old Testament guideline is 10%. Saving is similar and 10% is a great goal of the percentage of your budget that should go into short - (emergency fund, house purchase, car purchase) and long-term (retirement fund) savings. But debt will make it difficult, if not impossible, for many of us to save at the 10% threshold. My advice is to start saving something every month. Maybe it’s only $10 or $20 but get in the habit of putting something in your savings every month. And, if you can save “pre-tax” in a retirement account, you will find that your savings will really cost you less because you were going to pay a portion of it in taxes regardless. You will soon find, especially in accounts that are funded before you see your paycheck, that you won’t even miss it.

3) Employee Retirement Matching Funds: When you are working for a company that provides matching funds in a retirement account, I always recommend maximizing your retirement savings to gain the maximum match. It’s free money! You can research “compounding” to see why you need to do it sooner rather than later. If your company offers matching retirement funds … do it!         

4) Dealing with extra money:  So, what do you do if you come into extra money? To save or not to save, that is the question! The guide here is to examine the value of money and how you can best put it to work. If you can invest the money and make a higher rate of return on the investment than your debt is costing you, you can consider investing the money rather than paying off low-interest debt. But if your secure (not risky) investments will make less than your debt is costing you, you should pay off that debt.

Let me give you an example. Say your favorite great uncle passes away and leaves you $10,000. You have a choice to make. You can pay off $10,000 of your debt that is costing you 2%, or invest the money in a secure — not speculative — investment and make 4%. It would make sense to invest the money rather than pay off the debt on a low-interest loan. However, if your loan is costing you 5% and the most you can make on an investment or savings account is 2%, you would be wise to pay down the debt with your windfall. It is important to remember especially when money is tight that your investments should be secure and not speculative (you could lose the money). Not much is as sad as having money to pay off debt and losing it to a speculative investment rather than freeing yourself from the bondage of debt.

5) Seek help if you need it:  Look for a good financial advisor who has no agenda or stake in the process. Many churches have good debt counseling that can help you as you create a budget and plan to reduce debt and become wise stewards of the resources God has given you.

Most of all, talk and pray about money with your spouse. There is no greater way to show love and concern for one another than to talk about these important financial considerations. Do that and your marriage can survive and thrive through the most difficult of situations!