Easy credit, desire for instant gratification and unceasing pressure to spend and keep spending lead far too many into situations that can devastate their finances. What are these financial black holes, and how can we avoid them?

You've probably heard the humorous definition of a boat. It's a hole in the water into which one pours money.

Of course, boats can be enjoyable, and we could cite many other pertinent examples to describe drains on our financial resources. The prophet Haggai described such drains as putting one's money in a bag with holes in it (Haggai 1:6). Similarly, astronomers speak of "black holes" in outer space that suck up matter, and even light, from nearby areas of the universe.

In this chapter we identify financial black holes that can undermine your financial planning and help you consider ways to avoid them.

Credit cards

Credit cards are a wonderful convenience. Besides eliminating the need to carry cash, they make it possible to buy goods and services from distant locations over the phone and Internet.

If one pays off all his credit card charges each month, he incurs no additional cost. The charge for the service comes from fees assessed to merchants who accept the card in lieu of cash or a bank check. When a cardholder does not completely pay off his balance each month, however, these cards quickly turn from practical conveniences into financial black holes.

Improper use of credit cards costs many people dearly. Since 2000 the average American consumer credit card debt has skyrocketed. While there are fluctuations in the amounts, at times the average U.S. household credit card debt has been reported as approaching $9,000. This type of debt is sometimes referred to as "revolving credit" because consumers typically pay only the interest and a bare-minimum amount of principal each month. This practice ensures that it will take a long time to fully pay off the amount charged. Depending on the interest rate, if only a 2 percent minimum payment is made each month, it could take 20 or more years to repay a typical purchase made with a credit card.

The implications behind such debt are sobering. High rates of interest—up to 25 percent—voraciously consume incomes. Those with such debt flirt with financial disaster and often find their financial goals stymied or seriously delayed. Many consumers find themselves saddled with so much debt that they cannot borrow a penny more. When this happens they may be forced to pass up lifelong dreams, as well as once-in-a-lifetime opportunities, just to make the minimum monthly payments on credit card balances.

In the United States, during the early 21st century, credit card debt was the fastest-growing portion of consumer debt. It is no coincidence that bankruptcy filings also increased alongside consumer debt. To round out the significance of credit card debt, consider the picture for many American families: According to one report, some 40 percent of American families now spend more than they earn, and a typical American family pays about $1,200 annually in credit card interest.

The spending trap

For many young people, running up debt begins innocently enough. Entering college, many high school graduates find they must finance their education through student loans. Colleges and universities, operating as businesses, help new students apply for and receive educational loans with favorable terms.

Not to be left behind, credit card companies pay colleges and universities significant fees to allow them to offer students their services. These companies have learned that young people feel great loyalty to their first credit card, so it's simply good business to be the first to issue one to a young person.

Young adults, of course, are not the only ones caught in such circumstances. Adults in their 30s and older have likewise given in to the allure of easy credit.

Advertisers tell us we "deserve" their new and improved products, and most of us willingly believe them. The desire to enjoy life to the fullest with the latest entertainment, clothes and gadgets can be irresistible. Taken too far, our desire for the biggest and best can lead us to break God's commandment against coveting (Exodus 20:17; Deuteronomy 5:21)—placing an object of desire in a more important role than God Himself.

Unemployment can also suck people into the vortex of credit card debt. If one has no savings, adding debt to one's credit cards is often the quickest way to cover basic living expenses. But then, when they do secure a new job, many find their credit cards have reached the maximum limit, and repayment schedules become a severe burden.

Although most of us don't like to consider such negative possibilities, we cannot avoid financial disasters by ignoring reality. As we've seen, the Bible advises that we look ahead to possible dangers and prepare for them (Proverbs 22:3; Proverbs 27:12).

The Bible's guidelines on debt

Since God created us, He understands how we think. God reveals in His Word a simple but profound truth about debt, as also noted earlier: "The rich rules over the poor, and the borrower is servant to the lender" (Proverbs 22:7). When we fall into debt, we serve those to whom we owe money. In the case of our credit card masters, we serve them well. After all, what investor wouldn't like to receive an almost 19 percent  return—the average credit card interest rate—on his investment?

The way to financial freedom is through repaying debt, then avoiding indebtedness whenever possible. Though it may make sense to finance essential items of long-term value such as a home and one's education, credit card debt is something most people can fairly easily avoid.

How to pay off credit card debt

If you find yourself making interest payments every month on your credit cards and want to eliminate this type of debt, your first step should be to assess your income and expenses. Total your monthly expenses and subtract them from your income. This is your disposable income after expenses, the amount you have to spend or save.

The next step is to stop charging items on your credit cards. Pay cash for goods and services since studies indicate that people spend more when they use a credit card than when they use cash.

Next, analyze your credit card debt. Determine which cards charge you the highest rate of interest. If you carry a balance and have credit cards with high interest rates, you are wise to look for a card with a lower rate and transfer your balances. Some cards will give extremely low rates for up to six months to attract new customers. You may wish to transfer your balances several times until you have your balance paid off. Be careful, though, because many balance transfer offers come with a sizable fee.

If you are struggling to pay off credit card debt, consider selling items you no longer need or replacing expensive luxury items (such as a pricey vehicle) with a less costly one. Many consumers find they can eliminate luxuries such as costly cell phone plans, multiple phone lines (and optional calling features), cable or satellite television, multiple vehicles and seldom-used sports equipment, such as boats, all-terrain vehicles and snowmobiles.

Use the cash raised or saved to pay off credit card balances. When your finances improve and you have money in the bank, you can then add back certain luxury items if you so choose.

After obtaining as favorable an interest rate as possible and eliminating costly luxuries, rank your credit cards in order of their interest rates, and use your disposable income to completely pay off the card with the highest rate—while continuing to make the minimum payment on the others. Then focus your attention on the next card, and continue doing the same until you have paid off all your credit cards.

A variation of this approach is to pay off the card with the smallest balance first, followed by the one with the next-smallest balance, and so on until all are paid off. Dave Ramsey points out that this method lets people see cards being paid off more quickly, creating a psychological momentum that encourages people to keep going. Knocking out these small balances can quickly eliminate several monthly bills. Of course, if a card with a larger balance has an unreasonably high interest rate, it should take precedence to keep the balance from increasing too rapidly.

Another way to pay off credit card debt faster is to make half of the monthly payment every 14 days (timing it around your statement cycle to avoid paying late fees). Making half of the monthly payment every 14 days rather than a full payment once per month equals one extra month's payment by the end of a year.

Regardless of the method you choose, once your credit card debt is gone you may be much better off with no credit cards or only a few—not the dozen or more carried by so many people.

The best use of a credit card

After you've paid off all your credit cards, it's time to consider how such cards can be properly used, if you're going to have them. After all, they can be extremely convenient tools. How do financially savvy consumers manage their cards?

The most important step in responsible credit card use is to pay off the balance every month—something only 40 percent of American users do. When people make only the minimum payment (often 2 percent of the balance), the cost of each item charged to a card almost doubles by the time the debt is paid off. Think of the card as using cash that is reserved each month for the items charged. This way no interest accrues, and the cards become legitimate and helpful financial tools. They become our servants rather than the other way around.

In the long run we are much better off waiting until we have saved up the purchase price of an item before buying it, instead of financing it with a credit card. For those who need to borrow money, other options (such as mortgages, home-equity loans and car loans) are often available with lower interest rates than those usually offered through credit cards.

It should also be mentioned that many of the benefits that come with using credit cards are available with debit or check cards, which are backed by credit card companies but linked to your checking account. With these, however, you must have the funds in your account in order to make purchases. (Most rewards checking accounts, which pay high interest to account holders, require a certain number of debit card purchases per month.)

Finally, if you choose to use credit cards, select cards that charge no annual fee and ones that pay you a cash rebate (sometimes up to 2 percent or more) of your annual purchases.

The improper use of credit cards is one of the most common financial black holes. However, we must not overlook other decisions and expenses that can contribute to a slide into financial ruin.

Late fees

Some creditors impose late fees for bills that are not paid on time. In the case of utilities (including electricity, gas and water), reconnection fees can be charged if services are shut off due to bills not being paid. These kinds of fees can be avoided simply by making sure bills are paid when they're due.

Eating out

Instead of preparing and eating meals at home, many people eat out in restaurants regularly. Growing numbers of eating establishments are taking advantage of this trend. Even grocery stores recognize and respond to the public's desire for convenience foods that require little preparation.

Although such convenience is attractive, especially when a husband and wife both work outside the home, this practice almost always adds consid-erable expense to the food budget. Sometimes eating out is justified as a helpful change of pace or for other good reasons, but we should take care
to minimize the practice.

The most economical way to make one's food budget stretch the farthest is to buy food in bulk and prepare it at home. This principle also applies when we take lunches to work instead of purchasing them in company cafeterias or restaurants. Eating out is enjoyable and may be a good decision for special occasions, but we definitely pay a price for this pleasure.

And when you do eat out, you may wish to pay for your meal with cash instead of a credit card. According to Dave Ramsey, who advises people to not use credit cards at all: "When you pay cash, you can 'feel' the money leaving you. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. A study of credit card use at McDonald's found that people spent 47% more when using credit instead of cash. This is money you could have saved!" (www.daveramsey.com).

Entertainment

Doing things that are fun is an important part of life. Every budget should include some funds for this purpose. Unchecked or unwise spending in this area, however, can quickly devastate even the most carefully prepared budget.

Recognize that entertainment is temporary. Once it's gone it's gone, and you may have little or nothing to show for it. Before you invest your hard-earned money in tickets to a concert or play—or in cable or satellite television, the latest music CD or a movie on DVD—ask yourself whether this is the best use of your money. What lasting value will you derive from spending your money this way?

Keep in mind, too, that entertainment does not have to be expensive. With careful planning you can incorporate activities like visiting parks, hiking and attending free concerts into an entertainment budget. Public libraries are a great source of entertainment that is both free and educational. In addition to vast numbers of books, many libraries offer music CDs, audiobooks and numerous informative and educational videos.

Impulse buying

Another common problem is impulse buying, which is simply uncontrolled spending. When people spend impulsively, they are tempted to conclude that budgeting doesn't work for them or that a budget ruins their fun. Budgets, however, are simply plans for spending our money. When following a budget, we alone still choose how we will spend it.

Impulse buying is the reason for many sales. Advertisers understand that the desire for instant gratification is a powerful pull, so they often urge us to buy their products so we will feel good about ourselves. As already mentioned, we may even be told that we "deserve" to have their products.

Instead of making snap decisions, we're wise to set spending limits we will not exceed unless we first think about the decision overnight. Some even recommend waiting at least 30 days before purchasing an expensive item. In waiting, one hasn't decided not to buy; he has just decided to further evaluate the potential purchase. Many find that after a few days, their interest has waned and they eventually decide to not purchase the item.

Furthermore, we should not indulge in shopping as entertainment. Wise consumers often check off a short list of questions before making a purchase.

Identifying financial black holes

One of the easiest ways to identify areas that drain our financial resources is to analyze the things we buy. By keeping records of our expenditures for one or more months and totaling them by category (housing, food, clothing, entertainment, etc.), we can see which areas consume the most money. These are the areas we can then examine for ways to economize and manage our spending.

Since runaway credit card debt is something that calls for immediate and decisive action, what do we do when we suddenly realize our budget is full of black holes?

In case of emergency

As pointed out earlier, everyone occasionally incurs unexpected expenses. Cars and appliances break down and we must repair or replace them. Expensive medical emergencies can strike without warning. Although our savings can cover temporary situations, habitual excessive spending requires special attention.

What can we do when we find ourselves in a prolonged financial crisis? Here are steps that can help resolve some long-term difficulties.

The first step for someone who wants to structure his life according to God's instruction is to ask Him for wisdom in setting financial priorities and for the self-discipline that one will need to carry out a sensible plan of recovery. James 1:5 advises reliance on our Creator: "If any of you lacks wisdom, let him ask of God, who gives to all liberally and without reproach, and it will be given to him."

When our spending exceeds our income, common sense tells us of only two solutions to the problem. We must either increase our income or decrease our spending. As one financial maxim notes, "If your outgo exceeds your income, your upkeep will be your downfall."

In some cases we might be able to increase our income by taking a temporary second job or starting a part-time business. These solutions will require a lot of time and effort, but we may have little choice.

If we cannot increase our income, the alternative is to cut our expenses. We can do this by controlling the typical financial black holes we previously identified in this chapter and by carefully analyzing each expense as it comes along. It's possible to reduce the cost of food, clothing and housing. Luxuries are natural candidates for drastic reduction or elimination.

Ideally, when facing a cash-flow crunch, we should do our best to increase income and decrease expenses. Striving to incorporate both of these principles yields the fastest results.

Avoiding bankruptcy

Some people who face financial difficulty assume bankruptcy is the simple solution to their problem. Generally speaking, however, one should declare bankruptcy only as a last resort.

Many times alternatives to filing bankruptcy are viable solutions to financial problems. Timely communication with creditors can result in temporarily lowered interest rates and payments.

Sometimes creditors will accept settlement plans in which they receive a percentage of the balance due (usually after the account is past due) as payment in full. In such cases a creditor may decide that partial payment is better than no payment.

In addition to studying personal money management, one can often find nonprofit organizations such as the Consumer Credit Counseling Service —(800) 251-2227 in the United States—with free or low-priced services to help find alternatives to bankruptcy and work out financial recovery plans. Be careful in your selection, as not all counseling services are equally helpful or affordable.

When bankruptcy is the only option

Sometimes people fall so far into debt that they have no choice but to file for bankruptcy. Consumers should consider this solution only after exhausting all other methods for resolving financial problems—because the Bible instructs us to pay our debts, and bankruptcy has a negative effect on one's ability to obtain future credit. Because laws vary from country to country, appropriate legal advice should be sought if one chooses this course of action.

Although bankruptcy can be an embarrassing course of action, we should understand that God recognized there would be times when people made mistakes or encountered circumstances that brought them to financial ruin. We can learn lessons and rectify mistakes through all of life's experiences.

In compassion, God revealed to the nation of ancient Israel important principles designed to help those in financial crisis. These included not looking disparagingly on the poor (Leviticus 25:35) or charging them interest (Exodus 22:25). Portions of fields and vineyards were to be left for them to glean (Leviticus 19:10; Leviticus 23:22). Israel was to take care of its poor (Leviticus 25:35).

Moses explained financial principles this way: "If there is among you a poor man of your brethren, within any of the gates in your land which the Lord your God is giving you, you shall not harden your heart nor shut your hand from your poor brother, but you shall open your hand wide to him and willingly lend him sufficient for his need, whatever he needs.

"Beware lest there be a wicked thought in your heart, saying, 'The seventh year, the year of release [when God mandated that debts be cancelled], is at hand,' and your eye be evil against your poor brother and you give him nothing, and he cry out to the Lord against you, and it become sin among you.

"You shall surely give to him, and your heart should not be grieved when you give to him, because for this thing the Lord your God will bless you in all your works and in all to which you put your hand. For the poor will never cease from the land; therefore I command you, saying, 'You shall open your hand wide to your brother, to your poor and your needy, in your land'" (Deuteronomy 15:7-11).

Note that, as stated in Deuteronomy 15:1-4 of the same chapter, creditors in ancient Israel were to cancel the debts of debtors every seven years (Deuteronomy 15:1-4), giving each resident of the land an opportunity to be free of the burden of perpetual indebtedness. God knows that unforeseen problems, poor financial decision-making and poverty are perpetual problems, and He made provision for people to start afresh. Likewise, bankruptcy may be the only option one has to start over.

Although times have changed since God inspired Moses to give these instructions, the principle of treating the needy with dignity and respect remains.