Consumer Debt – how we annihilate it (Part 2)

I am in a conversation with three different math wizards right now trying to “put it in a bottle” or to codify “the algorithm” so we have a nice tight sound bite when explaining our methods. We want to offer practical solutions to the slavery of consumer debt by building community trust, sharing, and providing capital to eliminate consumer debt in our community. The Debt Annihilation Team fosters a process of recovery from shame, bondage, and debt to freedom, simplicity, and community through generosity, hospitality, and trust. I admit it sounds lovely and is tremendously difficult, especially for people who are jammed up and/or dysfunctional financially. It is not a quick fix, although quicker than most people we’ve talked to who don’t have a strategy to get out.

With Galatians 6:1-5 as our backdrop, the Debt Annihilation Team (DAT) uses three components: team leaders & administrators, coaches, and DAT Groups. We form Debt Annihilation Groups out of applicants for a projected period of time when they will use seed money and an agreed upon strategy to pay off one another’s debt.

We have given covenant members of Circle of Hope preference in forming our groups because our commitment to one another flourishes in accountable discipleship environments. I’ve talked to over a dozen other faith communities over the years who love the idea but haven’t tried it yet. If you’re not able to be part of us or don’t want to be, I encourage you to use as much of this stuff that’s useful and form your own group locally. We’ll share all of our info and ideas with you.

We begin with an intake process with full disclosure – one online then a follow-up face-to-face with other potential participants where we make clear the theory and basics of the group covenant. Those who wish to proceed meet with a Personal Finance Coach before entering the group, putting together a basic budget. You might be surprised how many people want to get out of credit card debt and don’t follow basics of money management. 

Our group members agree to by DAT Group Covenant which will indicate the people in the group, the length of time, the order of annihilation, and how much money will be contributed. The length of time will include replenishing the seed money.

We use seed money – in the past given by Circle of Hope,  to jump-start a snowball effect where everyone gets their consumer debt paid off. Here’s the gist of how it works:

We discern the order of “annihilation.” If all credit lines are the same, the high interest rate needs to go first, as this strategy mostly benefits everyone because we save money and time by knocking out interest.

 

Example of “the other brand” aka people fending for themselves

For instance, let’s say five people each have $5,000 of credit card debt (and different interest rates%). If they paid their minimum payment of $50 plus $100 every month, on their own it would take…

“Laura” (29%) 69 months, paying her $5k debt plus $5,287.45 in interest.

“Starbuck” (25%) 58 months, paying her $5k debt plus $3,625.37 in interest.

“Saul” (20%) 50 months, paying his $5k debt plus $2,359.18 in interest.

“Caprica” (15%) 44 months, paying her $5k debt plus $1,508.52 in interest.

and “Adama” (7%) 38 months, paying his $5k debt plus $576 in interest.

They would pay $13,536.52 paid in interest, over three-six years. Of course most people pay bits “when they can” and try to at least pay their minimum. If a lump sum of cash comes in like a big income tax return, more goes to the card. If they continue using their card(s) it’s usually longer.

 

Using the same simplified examples…

Here’s how we do it. We use the seed money, then when the first person is paid off, all baseline funds (including those of person who is paid off) go towards the next person. The process repeats until everyone is paid off and the seed fund is replenished for a future group.

Imagine the same scenario, but this time we use the $10k seed money to knock out Laura Roslin and Starbuck’s debts. Now they each have $150 that they use to pay directly to Saul Tigh’s lender. Saul pays his own minimum ($50) plus $100 to his lender. Caprica 6 & Commander Adama pay just their own minimum ($50) and use their $100 to pay directly to Saul’s lender.

It takes 9 months to pay off Saul’s debt, paying $396.45 of interest. Then Saul joins Laura & Starbuck (debt free) with his now $150 that all go directly to Caprica’s lender. She now adds her $100 to her minimum payment ($50) while Adama maintains his minimum ($50) to his own, and his $100 to Caprica’s.

It takes 8 months to pay off Caprica’s debt, paying $271.21 of interest. She joins the others debt free, and now everyone uses their $150 to pay off Adama’s lender.

It takes 7 months to pay off Adama’s debt, paying $114.99 of interest. Then the group replenishes the seed money at the same rate, taking 13.33 mo, at 0% interest. The debt was paid off in 23mo. In 36mo they annihilated all consumer debt and replenished the seed fund for another group to start.

When they formed a group, they only paid $782.65 of interest over 36 months, compared to over $13k over 69.

Next post will be about how to get involved in the 3rd group we are about to start. We are looking for people to train as personal finance coaches as well as potential group members.

Can’t get enough? Here are a few posts about the teams.

Shalom! journal for the practice of Reconciliation here

The Christian Century, by Jesse James DeConto (p10) here

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