Written by Farhan Khalid
Don’t worry. We’re not here to judge. Debt happens. It could have been a personal emergency, a student loan, or something young and foolish. The seriousness of debt can’t be stressed enough, though.
Prophet Muhammad ﷺ said, “The soul of the believer is held hostage by his debt in his grave until it is paid off.” (Tirmidhi)
One’s afterlife is certainly not worth sacrificing over some debt. Religion aside, consider the amount of consumer debt (which includes mortgages, car loans, and credit cards) that is bubbling up around the world. According to December 2017 data from Trading Economics, US consumers have debt totaling nearly 79% of their country’s GDP, while Brits top their American counterparts with a figure of 87%. Our friends in Canada managed to rack up 100% debt relative to their GDP. Crazy, eh?
How does one avoid becoming a statistic? The first and most important thing is niyyah. Make a sincere intention to get out and stay out of debt, and ask Allah ﷻ for His help because our success is only through Him.
If you have various sources of debt and some of it happens to be interest-bearing, prioritize based on the ones with highest interest, keeping in mind the Islamic prohibition on riba.
1. Interest Free Debt
Credit cards are often a good starting point. If you have interest-free loans from friends and family, though, don’t take them for granted. This may require an adjustment of your lifestyle until debts are paid off; perhaps less biryani and more daal – but in the end it will be worth it.
2. Track Income and Expenses
Once you’ve got debt under control or completely eliminated, think about how you can prevent debt moving forward. For starters, begin tracking your expenditures and compare them to your net income. That is, look at the amount you’re actually taking home after taxes and other fees the government may be keeping (i.e. Social Security, Medicare). You could use an old-fashioned spreadsheet to manage your money, or take advantage of services like Mint and You Need A Budget (YNAB).
3. Review and Track Progress
Budget your expenses based on your take-home pay, and do a regular review to ensure you don’t fall into a financial pit once again. By tracking your expenses, you can see where most of it is going. If you find that costs for entertainment or eating out are high, cut back for a while. If your monthly groceries are costing you more than expected, look for a cheaper store or clip coupons. Oh, and take a shopping list with you and stick to it.
4. Reduce Expenses and Seek Better Deals
See if you have any unused memberships or subscriptions you can cancel to save some money. Also consider shopping around for things like car insurance to get a lower rate. Any money saved can go straight to outstanding debts or savings. Another idea is to get a prepaid debit card and use that in lieu of a credit card. With these cards, you load up a certain amount of money on them, and then you can only spend that amount. This can help create discipline.
5. Live Simply
This should go without saying, but aim to live within your means. Sure, that shiny Mercedes is more appealing than a Toyota Corolla, but if you need a loan in order to acquire the Merc, let it go for now. Same thing with housing. Rent until you can save enough for a good down payment, then look into Islamic home financing options to avoid interest. Don’t be jealous of others with big houses or fancy cars. They could be neck deep in debt, simply putting on appearances. Less is more.
In general, make a plan for any upcoming large expenses. Set aside some money each month for this purpose. Likewise, when it comes to educational costs, look into lower-cost options like community college or distance learning, as well as scholarships. This is a tough one because college/university can be so expensive, but it is indeed possible to get through without taking out student loans. If you have to take only one class at a time, so be it.
7. Have an Emergency Fund and Purify Your Wealth
Lastly, strive to save some money each month for emergencies, and budget a little for charity. You can store savings in a separate checking account so it’s out of sight, out of mind. Or, you can stash it away in a relatively safe yet liquid investment, such as an Islamic mutual fund or a sukuk—the Islamic equivalent of a bond. This is a better option than simply saving money in the bank, as investing allows the money to be used productively and protects it against inflation—the increasing cost of living.
Getting out of debt can seem like a long, uphill battle, but take it one step at a time and you will get there. At first, it may seem overwhelming or even impossible, but tackling one problem at a time will make it manageable. You may need to tighten your belt for some time, but imagine the weight being lifted from your shoulders once you are free from the shackles of debt. Try to keep a clean slate going forward, and insha’Allah your efforts will pay off in the form of less stress over financial issues and by earning Allah’s ﷻ pleasure.
Bio: Farhan Khalid is a Chicago native with a big sweet tooth. He holds an MBA from Northern Illinois University. He has authored a few books, including Open the Door to a Wealthier Life, Bilal and the Big Bully, and A Tale of Two Cookies. Read more about Farhan on his website heyiwroteabook.com.