Proverbs 22:7 The rich rules over the poor, And the borrower {becomes} the lender’s slave.
I have know personally the “cost” of debt, when it was not just dollars and sense, but peace and security. In my list of ten financial principles that will last you a lifetime(from week 3), one of them states that “Debt makes you a servant of the lender…leaving less for giving to Lord’s work”. The real problem with debt is that the compounding principle works against you rather than for you. Debt effectively mortgages the future. Furthermore, as Christians, we have an obligation to repay a debt that we incur by choice(more on this later).
Psalm 37:21, “..The wicked borrows and does not repay, but the righteous shows mercy and gives”
The paradigm that most of us live with is that debt is essential to life. It is, in fact, the lifeblood of many commercial enterprises. But, I’d like tonight to take aim at the “cost” of debt in our lives and find a way to help us all become debt free. No investment is as secure as a repaid debt.
Last week’s homework was to answer the question…how much did you spend on interest in your household last year? What could you have done with that money? How much more could you have given? Saved? Enjoyed with family? Vacation? Being debt free is a worthy goal! We all want to learn to be wise in how we build our lives.
Proverbs 24:3-4, “By wisdom a house is built, and through understanding it is established; through knowledge its rooms are filled with rare, and beautiful treasures”.
Debt is a product.
There are various kinds, but they all make money for the lender, not the borrower! Ron Blue identifies five different kinds of debt: 1) Credit Card Debt, 2) Consumer Debt, 3) Mortgage Debt, 4) Investment Debt, 5) Business Debt. I would add Medical & Legal Debt as a 6th category.
Credit card companies spend a combined $567 billion in advertising, 1.1 billion pieces of mail. Now, we are moving to “affinity cards”. College campus can make $50,000 to $100,000 to allow the Card Company to operate on campus. We have Star Trek cards, Michael Jordan card’s, Mick Jagger card’s.
Consumer Reports says typical household debt totals more than $38,000. Typical cardholder carries seven cards. Average per card balance has now doubled to $1642 per card. In 1995, Sears made more money on credit cards than they did on sale of merchandise. 70% of cardholders carry a balance with an average percentage rate of 18.1 percent. This year, Americans will put 10 billion dollars of groceries on credit cards…that’s like prime rib financed for 10 years.
Debt warning signs:
-You are unable to pay each month’s bills on time
-You pay the minimum amounts required on your credit card bills
-You’ve reached your credit limits on your credit cards
-You have used a cash advance from one credit card to make a payment on others
-You regularly take cash advances on your credit cards to pay routine living expenses such as food, rent, or utilities
-You postdate checks and cover them on payday or with new borrowings
-You have no savings at all
Luke 12:15, “Take heed and beware of covetousness, for one’s life does not consist in the abundance of the things he possesses”
Auto loans…my bias here. Keep short term(3 years or less) if need to borrow at all. Put substantial amount down so that loan balance is substantially less than value….think liquidity!
Home loans: think affordability. What if?(lost job, pregnancy, etc, recesssion). Less time, more payments, etc.
In terms of “leverage”, one factor is often overlooked: RISK. How much risk do you have when you put $100,000 down on a $200,000 house? ($100,000). How much risk do you have when you put $100,000 in a federally insured deposit institution?(theoretically, 0)
Getting out of debt:
- Stop borrowing money!
- Decide that you will get even and then get mad!
- Use the debt snowball (put smallest to largest, disregarding rates, etc). Pay off in order
- Apply extra monies to debt reduction and to emergency savings
- Put “saved” money into savings for large purchases or investments
Ron Blue’s Questions regarding debt:
- Does it make economic sense?
- Do my spouse and I have unity about taking on this debt?
- Do I have the spiritual peace of mind or freedom to enter into this debt?
- What personal goals and values am I meeting with this debt that can be met in no other way?
Ron Blue also makes these following points:
Debt is not a sin! The Bible discourages the use of debt, but does not prohibit it
Debt is never the real problem. The other issues (greed, self indulgence, fear, poor self image, etc.)
Debt is basically “money owed to anyone for anything”.
