Five: Debt

Act Your Own Wage

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Faithful Steward Wheel

The most immediate financial problem facing Allen and Jean was pressure from their creditors. And creditors they had! They had two loans from a bank, bills from three department stores and an outstanding balance on an assortment of credit cards. And then there was the home mortgage.

The Hitchcocks’ indebtedness started soon after they had married when they applied for their first loan. Jean, who grew up in a wealthy family, said, “Our friends had new cars, and we felt deprived. We had to have a new car too.” Later, when they were transferred to Orlando, they bought a house in the suburbs, borrowing for the deposit. The debts continued to pile up. “Finally,” Jean said, “the man from the bank told us he was going to take our house and garnish [take from] Allen’s salary.”

“Most of our debts were accumulated so slowly through the years,” Allen said, “that we didn’t realise what was happening until it was too late.”

Each year millions of people find themselves in the Hitchcocks’ predicament. A credit expert says a major reason is “damage to the borrower’s ability to pay.” People take out loans on the assumption they will have a steady flow of income; then, the unexpected happens. Someone gets sick. A new baby is on the way. An employer closes shop.

Debt Increasing

Government, business and personal debt is exploding in our nation. If you converted the total debt to one-dollar bills, placed them end-to-end and pointed them out to space, they would extend more than three billion kilometres . . . beyond the sun! The economy is riding on a growing mountain of debt.

“With so much credit around you’re bound to have casualties,” Vern Countryman, a Harvard professor, explains. “It’s just like auto accidents. If you’re going to have all those cars, you’re going to have accidents.” In recent years more than one million ¬individuals filed bankruptcy—more bankruptcies than during the Great Depression. Consumers now spend approximately one out of every five dollars in take-home pay on personal debts, not including the home mortgage. More sobering is a Gallup Poll that found 56 percent of all divorces are a result of financial tension in the home. For many, the more accurate marriage vow would have been “till debt do us part.” Such financial tension exists largely because consumers believe the “gospel according to Madison Avenue,” which says, “Buy now and pay later with easy monthly payments.” We all know that nothing about those monthly payments is easy.

WHAT IS DEBT?

Lenders and advertisers use attractive definitions of debt that mask its harsh reality. The Thesaurus lists the following synonyms for debt: liable, minus, owing, in hock, up against it, encumbered, insolvent, in the hole, broke. Do you feel uncomfortable as you read this list? I have yet to see one ad that promises the good life of “buy now and pay later” balanced with these words that describe the reality of debt. Are you beginning to have the feeling that the “gospel according to Madison Avenue” might not be preaching the whole truth of the abundant life as a member of the “debt set”?

The dictionary defines debt as “money or property which one person is obligated to pay to another.” Debt includes money owed to credit card companies, bank loans, money borrowed from relatives, the home mortgage and past due medical bills. Bills that come due, such as the monthly electric bill, are not considered debt if they are paid on time.

WHAT DOES DEBT REALLY COST?

We need to understand the real cost of debt. Two common types of debt are credit-card debt and the home mortgage. 

Credit Card Debt 

Assume you have $5,560 in credit-card debt at an 18 percent interest rate. This would cost you about $1,000 in interest annually.

You can see what lenders have known for a long time—compounding interest has an incredible impact. It can work for you, or it can work against you. Assuming that the interest earned or spent has no tax consequences, if you pay a lender $1,000 each year for 40 years, he will accumulate $4,163,213 if he earns 18 percent on your payment. Is there any wonder credit-card companies are eager for you to become one of their borrowers?

Now compare the $40,000 you paid in interest during 40 years with the $486,851 you could have accumulated if you had invested $1,000 each year earning 10 percent. Clearly, debt has a much higher cost than many realise. Next time you are tempted to borrow, ask yourself if the long-term benefits of staying out of debt outweigh the short-term benefits of the purchase.

1. Amount of interest you paid:

Year 5

Year 10

Year 20

Year 30

Year 40

$5,000

$10,000

$20,000

$30,000

$40,000

2. What you would earn on the $1,000 invested at 10 percent?

Year 5

Year 10

Year 20

Year 30

Year 40

6,716

17,531

63,003

180,943

486,851

3. How much the lender earns from your payment at 18 percent:

Year 5

Year 10

Year 20

Year 30

Year 40

7,154

23,521

146,628

790,948

4,163,213

Home Mortgage

A 30-year home mortgage, at a 7 percent interest rate, will require you to pay more than twice the amount originally borrowed.

Original mortgage amount ............................................    $100,000

Monthly mortgage payment at 7 percent interest .........      $665.30

Months paid ..................................................................          x 360

Total payments .............................................................     $239,508

Debt also extracts a physical toll. It often increases stress, which contributes to mental, physical and emotional fatigue. It can stifle creativity and harm relationships. Many people raise their standard of living through debt, only to discover that the burden of debt controls their lifestyles. The bumper sticker that reads, “I owe, I owe, it’s off to work I go,” is an unfortunate reality for too many people.

What Does Scripture Say about Debt?

Scripture’s perspective on debt is clear. Read the first portion of Romans 13:8 carefully from several different Bible translations: “Owe no man any thing” (KJV). “Pay all your debts” (TLB). “Owe nothing to anyone.” “Keep out of debt and owe no man anything” (AMP).

In Proverbs 22:7 we learn why our Lord speaks so directly to the area of debt: “Just as the rich rule the poor, so the borrower is servant to the lender” (TLB). When we are in debt, we are in a position of servitude to the lender. Indeed, the deeper we are in debt, the more of a servant we become. We do not have the full freedom to decide where to spend our income because we have legally obligated ourselves to meet these debts.

In 1 Corinthians 7:23 Paul writes, “You were bought with a price; do not become slaves of men.” Our Father made the ultimate sacrifice by giving His Son, the Lord Jesus Christ, to die for us. He now wants His children free to serve Him in whatever way He chooses.

Debt Considered a Curse

In the Old Testament one of the rewards for obedience was being out of debt. “Now it shall be, if you will diligently obey the Lord your God, being careful to do all His commandments which I command you today, the Lord your God will set you high above all the nations of the earth. And all these blessings shall come upon you and overtake you, if you will obey the Lord your God . . . and you shall lend to many nations, but you shall not borrow” (Deuteronomy 28:1-2 and Deuteronomy 28:12, emphasis added).

Conversely, indebtedness was one of the curses inflicted for disobedience. “But it shall come about, if you will not obey the Lord your God, to observe to do all His commandments and His statutes with which I charge you today, that all these curses shall come upon you and overtake you. . . . The alien who is among you shall rise above you higher and higher, but you shall go down lower and lower. He shall lend to you, but you shall not lend to him; he shall be the head, and you shall be the tail” (Deuteronomy 28:15 and Deuteronomy 28:43-44, emphasis added).

Debt Presumes Upon Tomorrow

When we get into debt, we assume that we will earn enough or will have sufficient resources to pay the debt. We plan for our job to continue or our business or investments to be profitable. Scripture cautions us against presumption: “Come now, you who say, ‘Today or tomorrow, we shall go to such and such a city, and spend a year there and engage in business and make a profit.’ Yet you do not know what your life will be like tomorrow. You are just a vapour that appears for a little while and then vanishes away. Instead, you ought to say, ‘If the Lord wills, we shall live and also do this or that’” (James 4:13-15).

Debt May Deny God an Opportunity

Financial author Ron Blue tells of a young man who wanted to go to Bible College to become a missionary. The young man had no money and thought the only way he could afford Bible College was to secure a student loan. However, this would have encumbered him with thousands of dollars of debt by the time he graduated. This would have been an impossible situation. He could not pay back his loan on a missionary’s salary.

After a great deal of prayer, he decided to enrol without the help of a student loan and to trust the Lord to meet his needs. He graduated without borrowing anything and grew in his appreciation for how the sovereign, living God could creatively provide for his needs. This was the most valuable lesson learned in Bible College. It prepared him for the mission field where he repeatedly depended on the Lord to meet his needs. Borrowing may deny God an opportunity to demonstrate His reality.

When Can We Owe Money?

Scripture is silent on the subject of when we can owe money. In my opinion it is possible to owe money for a home mortgage or for your business or vocation. This “possible debt” is permissible, we believe, only if the following three criteria are met.

1. The item purchased is an asset with the potential to appreciate or to produce an income.

2. The value of the item equals or exceeds the amount owed against it.

3. The debt is not so large that repayment puts undue strain on the budget.

Let me give you an example of how a home mortgage might qualify. Historically, the home has usually (but not always as the real estate melt down demonstrated) been an appreciating asset; therefore, it meets the first criterion. Second, if you invest a reasonable deposit of a minimum of at least 20 percent, you could normally expect to sell the home for at least enough to satisfy the mortgage, and this meets the second requirement. Third, the monthly house payment should not strain your budget. As a rule of thumb, all housing expenses (including the mortgage payment, utilities, taxes, insurance, and maintenance) should not exceed 40 percent of your income.

If you meet all the criteria and assume some “possible debt,” I hope you will immediately establish the goal of eliminating even it. As we’ve seen, we don’t know if the housing market will appreciate or even maintain current values. Moreover, the loss of a job can interrupt your income. Therefore, I urge you to consider prayerfully paying off all debt.