Gather Little by Little

In my previous article on this subject, we looked at several reasons why the believer should prioritize tithing before debt reduction. Note that I am not saying that we should neglect our debts – if we promise to repay something, we must repay it. Matthew 5:33 tells us that when we make a promise, that promise should be as good as done. However, if you must choose between paying extra on a debt or giving your tithe, the tithe comes first.

Here are two more reasons why the believer’s commitment to tithing should be greater than his commitment to debt reduction:

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For our next two posts, I am going to explore the question: is debt reduction a greater financial priority than tithing? The intuitive answer from a “good money sense” point of view might be “yes”. After all, isn’t debt the worst possible financial ill on the planet? Shouldn’t we be employing every possible financial means to reduce our personal indebtedness? For many of us, ten percent of our income (the tithe) might seem like a good chunk of money that could be used for paying down our mortgage or car loan principal. Mathematically speaking, think of how quickly our debts might disappear if the tithe were applied to our credit card balance? Look at all of the things that good stewards of money practice in order to pay down debt: shop second-hand stores, reduce driving miles, down-size our homes, save energy, cook our own food, make stuff, stretch stuff, use coupons . . . is the tithe only obligatory for people who have been blessed with extra money?

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Some time ago, I received a question from a reader with a general question regarding college student loan payoffs. I recently paid off my own loan, but we are still working on Mrs. Stew’s subsidized student loan balance. Just in case you were wondering – she is worth every penny!

That said, I have a fair amount of experience in dealing with student loans. Here is the question:

I graduated May 01, 2010 and would like to know if you have any information on the best plan for paying off student loan or is their ways to get a portion of the loan forgiven.

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(not my letter)

A couple of months ago, I told you that I had received an unexpected collections letter in the mail, stating that we were 30 past due in payments on our home equity line of credit from the house we sold last summer.

If you read the post, you will realize that while I was aware that we owed this debt, I had not received any communication telling me where to send the payments.

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Last week I mentioned that I have finished paying off my college student loan debt. My next task is to figure out which debt to tackle next.

There are several different strategies to employ when deciding how to best pay down family debt. One is the Dave Ramsey “Snowball”. Dave explains the idea here. Basically, a person considers all of his particular debts, determines how much extra principle he can pay on one of those debts and then focuses all extra money on that one debt. Meanwhile, he continues to make the minimum payments on every other debt. Once the smallest remaining balance is erased, he takes whatever monthly payment he was making on that particular debt and adds it to the minimum payment that he is making on the next smallest remaining debt.

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Last month I made the final payment on my federally subsidized Stafford loan.

I graduated from college with a relatively small amount of student loan debt. Due to the fact that my parents started to make me save for college from the age of eight years old, I paid cash for my first year of enrollment at a private college. After that, I financed my own education by working during school semesters and on Thanksgiving, Christmas, Spring and summer breaks. I managed to finish my undergraduate degree with only $7,000 in student loans. I then immediately enrolled in graduate school which I financed by working as a graduate assistant. Payments on the $7,000 were deferred while I was enrolled in graduate school, but I still managed to pay off $2,000 before finishing my masters. That was the spring of 2001.

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Several years ago, our government instituted “terrorism alert” levels. The various levels roughly corresponded to various colors and were intended to indicate to summarize the immediate danger of a terrorist attack – sort of a civilian DefCon warning system. The color advisory system was limited and although intended to make things clear to everyone, it really was not useful to the average person. The color system worked better as a means of telling public servants – security, police officers, intelligence gatherers, civil authorities – to what extent they should be on alert and what assets to have at the ready. All-in-all, the color advisory system was not really a failure and not really a success either.

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Near the beginning of this month, I found a collections letter in the mail box. I opened it up to find a notice that we were 30 days overdue on a payment to a bank of which I had never heard.

I called the number provided as quickly as possible and discovered that this notice was in regards to our home equity line of credit, or second mortgage from the home that we sold last summer. You can read about some of the travails regarding our house that took 16 months to sell in these posts:

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This year, I am facing one of my biggest personal finance challenges: I need to pay back my parents loan on November 1^st, 2010. The amount owing will be $31,000. We had borrowed this money as cash down for our first house and the deal was to reimburse in full (plus interest) after 5 years. So I have only a few months before I write “the big check” and I am looking at different ways to pay off this debt.

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Since the major cut in the interest rate back in 2008, we haven’t heard much about the FED cranking up the intraday rate so far. However, with recent GDP stats (5.7% annualised rate for the last quarter), we will surely hear some whispered rumors about the prime interest rate going up.

What is the intraday interest rate?

The FED has control over the inter bank rate. This is the rate established for banks lending to each other for one day. At the end of every day, banks look at their balance sheet and borrow or lend money in order to balance their assets with their liabilities. These loans are for 24 hours since their balance sheet changes daily. This is why we have an intra day interest rate.

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