For Those in Debt… Hope Abounds!

by Rajen Devadason

Fears are mounting that 2020 could turn into a much tougher year, economically speaking, than 2019. As both the International Monetary Fund and the World Bank have repeatedly reduced expected global GDP growth rates, it isn’t surprising that one central bank after another across our planet has cut interest rates.

As this form of monetary policy intervention results in lower interest rates, savers and retirees have suffered. Meanwhile some borrowers have benefitted.

Lower interest rates permit sensible borrowers to pay off their loans more quickly or to work at improving their cash flow position. But the naïve or unwise will borrow more.

God orders our past, present and future, He also allows us to exercise our free will. And, with free will, comes freedom to act. Subsequently we either reap the benefits or suffer the consequences of our actions.

In the context of saving and borrowing, “the rich rule over the poor, and the borrower is servant to the lender” (Proverbs 22:7).

Have you bound yourself in strong chains of economic “servitude”?

One way to assess the situation is to ask yourself how many credit cards you carry and, more importantly, for how many of those do you ‘carry’ a balance from one month to the next because you can’t afford to pay off your total owed amount before the payment due date.

There is nothing intrinsically wrong with credit cards … if they are used correctly.

What does that mean?

They are used correctly when we use them as a convenience but not as a necessity to balance a seemingly ‘unbalanceable’ budget.

When we use our credit cards correctly, we pay them off in full every month. (I know first-hand what it means to use credit cards incorrectly! You see, I got myself embroiled in embarrassing credit card debt problems not once, but twice! First in the 1980s in the UK and again in Malaysia for part of the 1990s. I am a slow learner!)

What we all need to know is that when it comes to credit cards, the high interest charged on our unpaid balances snowballs quickly. When we find ourselves on the wrong side of the compounding process, we rapidly reduce the quantum of money we will eventually be able to spend on our families.

Worse yet, what we lose through interest paid out of our pocket is gained by the banks and credit card companies that receive our interest. That transfer of wealth is easy to comprehend if we heed the wisdom in Proverbs 22:7: “The rich rule over the poor, and the borrower is servant to the lender.” (I recommend you highlight this verse in your Bible, if you have one, and memorise it.)

As mentioned, I know full well what it means to be in “servitude” to our modern-day “rulers” – the banks we toil for by the sweat of our brow and the fruit of our intellect. We exhaust ourselves and deplete tomorrow’s finite financial resources to pay for yesterday’s excesses.

Nonetheless, hope abounds.

Having experienced “servitude”, and after considerable thought and study, I have learnt how to shorten the repayment periods on a portfolio of debt. A book I wrote in the early 2000s, Liberty! From Debt-Slave to Money Master, taught those simple lessons through the lives of three fictional characters, Iskandar, Weng Yang and Shankar. Here’s an abridged excerpt from chapter 6 (Debt Destroyers) of the book.

I urge you to copy out – in your own handwriting – the following sentence; then tape it somewhere prominent enough for your subconscious to absorb it by repeated visual osmosis:

To achieve financial freedom, a single overriding principle ought to be adhered to: build up your monthly cashflow surplus and channel it to where it will do the most good.

 You can bring runaway debt under control and eventually get to the point of being 100% debt-free.

For most people, the interest they pay out as a sacrifice to their debt portfolio is based on higher rates than the interest they receive on their asset portfolio.

If someone were to merely make minimal debt repayments while channelling some funds to build up his portfolio of investment assets, he wouldn’t make much progress. In fact, he probably would lose ground each year. This situation is analogous to a not-too-bright fisherman sitting in his leaky sampan bailing water out with a teaspoon while the six-inch gash at the bottom of his boat steadily widens.

Unless our fisherman exchanges his strategy of furious – but pointless – bailing for a more sensible strategy of rapid hole repair, he will soon sleep with the fish.

Of course, not everyone is in such a sorry state. If you’re reading this and you’re heavy in assets and light on liabilities, congratulations. You don’t have much of a hole in your ‘sampan’ to contend with, and can focus on the main job of catching ‘fish’ for wealth.

But if you have a sizeable list of debts, then please channel your monthly cashflow surplus where it will do the most good.


Iskandar, Weng Yang and Shankar were helped by their friends’ useful guidance to common-sense solutions to their woes. Here are 2 powerful strategies:

STRATEGY 1—attack the smallest debt first

  1. Keep your total monthly repayments constant.
  2. First, make sure you meet all minimum payments necessary.
  3. Then channel whatever is left over of the fixed monthly allocation to attack the smallest debt.
  4. When that has been eradicated, move on to the next debt UP in order of SIZE.

STRATEGY 2—attack the debt with highest interest rate first

  1. Try your level best to swap high interest debt for no – or low – interest debt.
  2. Once you’ve done your best, keep you total monthly repayments constant.
  3. Meet ALL minimum payments expected by your creditors.
  4. Then channel what is left from the fixed monthly allocation for total debt repayment to pay off the debt attracting the highest interest rate.
  5. When that debt has been wiped out, shift your artillery to attack the next debt DOWN in order of INTEREST RATE charged.

 If you think about these two approaches, you should realise the second option of decimating highest interest debt first is more logical – mathematically speaking. And you would be right.

But people who get in debt, and then stay there, usually do so because of personal reasons seldom tied to cold logic. In other words, poverty is not the most common reason.

Instead, low self-esteem, a lack of self-discipline or an over-exuberant adherence to the philosophy espoused by Doris Day in her hit song Que Sera Sera, Whatever Will Be, Will Be ranks much higher. (Don’t get upset; I have counted myself among this number!)

That is why I favour, for most people, attacking the smallest debt first and, once that is accomplished, taking the full monthly repayment on the conquered debt and applying it to the next largest debt.

The psychological lift you get from seeing one debt after another fall like skittles before your snowballing repayments is sublime. And, in my opinion, worth the slightly more interest you end up paying because you followed strategy 1 instead of strategy 2. But, of course, that is just my opinion. You will have to make up your own mind.

If you carry either strategy to its logical conclusion, you will find yourself finishing off your car hire purchase and even mortgage many years ahead of schedule.

It doesn’t take a rocket scientist to put these strategies to work. Anyone who is able to earn an income even as times grow potentially tougher, who desires to conquer his or her debts and hopes to be debt-free can start sprinting toward a brighter future.

The key for most of us is to proactively choose to increase our active income from our job or business by working harder and smarter. If we are able to do so while keeping a lid on our expenses, then our cash flow surplus can grow.

Now imagine the surplus cash that gets channelled into more productive ends when interest payments stop. Imagine what you’ll be able to do for your family, church or community once you get your debts under control.


Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author.
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