How Should Christians View Debt?
Debt continues to become more and more prevalent in our culture while it’s being increasingly normalized.
Debt is one of the largest reasons why many individuals fail to achieve any true and lasting financial freedom.
It’s this bondage that ensnares so many, including Christians. It’s ramifications span across many areas including: financial, relational, emotional , and spiritual.
This begs the question, “How should we as Christians view debt?”
For this article “debt” will represent any obligation that has a balance that remains unpaid from month to month.
Debt Isn’t Sinful
First let me say that debt isn’t sinful. I want to be very clear on that. However, planning to borrow and NOT repay your debt is deception and is sinful.
The reality is that most of us will be in debt at some point in our life.
At its best, debt is a tool that allows us to pull forward, or expedite, larger purchase decisions (i.e. home, education, etc.) so that we may capitalize on the present and use time to our advantage.
At its worst, debt fuels uncontrolled spending, lifestyles (i.e. travel, luxury vehicles, designer clothing, etc.), and more.
When it comes down to it, we need to ask ourselves “Why is this debt necessary in the first place?”
Debt has a way of complicating our lives to an extent that affects our relationships, faith, and ability to steward our finances well.
The Borrower is Servant to the Lender
"The rich rules over the poor, and the borrower is the servant to the lender."
When most people recall a piece of scripture that references debt, it’s typically this one and for good reason. The language is powerful and resounding. King Solomon obviously wrote this from the standpoint of power and control.
The rich tend to possess most of the power, and there’s typically a high correlation between those that have power and those that have money. There's also usually a correlation between those that borrow and those that are financially poor*.
The language is very clear and concise. The borrower is a servant to the lender. When you borrow, you give way to potentially becoming a servant to your lender. Now a lot has changed between now and the time this scripture was written.
Today you’d be more of a financial servant rather than working directly for your lender doing physical work. To be a financial servant means that you’ve surrendered your rights and are under the thumb of your lender (i.e. bank, credit card company, family member/friend, etc.).
It also means that a portion of your income and/or assets may always be payable to your lender, even ahead of your own necessities or goals.
Jesus died so that we may experience true freedom and abundant life BUT many of us find ourselves willingly reentering bondage in a financial form.
*This isn’t to discount the fact that systemic issues exist that perpetuate poverty and generational poverty.
Borrowing Affects Our Future
“Come now, you who say, ‘Today or tomorrow we will go into such and such a town and spend a year there and trade and make a profit’— yet you do not know what tomorrow will bring. What is your life? For you are a mist that appears for a little time and then vanishes. Instead you ought to say, ‘If the Lord wills, we will live and do this or that.’”
This is the point that most people are oblivious to when it comes to borrowing.
Borrowing Presumes the Future
When we borrow money, it’s under the assumption that we’ll have the income, resources, assets, or time to repay the debt in the future. We believe that our current circumstances will either improve or at least stay the same for the duration of the length that is needed to repay a debt.
For example, a 30-year home mortgage is taken out with the assumption that you will be able to earn enough income over the next 30 years to pay off the mortgage.
Although you likely understand this, do you fully understand the confidence and hope you’re placing in the future?
Most of us think we’ll wake up and live another perfectly normal day. We’re pretty optimistic about that when we lay our head down the night before. But what if it doesn’t turn out that way?
“Do not boast about tomorrow, for you do not know what a day may bring.”
Here’s the reality, many have suffered catastrophic losses because they borrowed too much while presuming that they could repay their debt in the future. For example, many small business owners & entrepreneurs had businesses that failed during the COVID pandemic because the business did not generate enough revenue to offset expenses, including debt obligations.
Borrowing Mortgages the Future
Not only does borrowing presume the future, but it also mortgages the future. What’s meant by this?
A mortgage is a loan tied to a specific piece of property. The lender will always own a portion of that property until the mortgage is fully repaid. So when I say borrowing “mortgages your future” it means that you don’t fully own all of your future income, the lender will rightfully own a portion.
This is important to understand because your cash flow is one of the most powerful wealth building tools that you have.
Borrowing can also mortgage your future by limiting your future opportunities. For example, you may not be able to choose a job that you want but rather a job that will fulfill your obligations.
Count the Cost Before Borrowing
"For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?"
As previously stated, there’s a high likelihood that you’ll need to borrow money at some point in your life. However, the goal should always be to minimize debt and the use of it.
But if you do need to borrow money, then you should be diligently counting the cost.
The Financial Cost of Borrowing
Financial costs are the most tangible costs of borrowing because they result in an actual dollar amount for the ability to borrow that money. This would include any interest, fees, and impact on your current and future cash flow. Assessing these costs will help determine the long-term impact of debt on your financial plan.
By lowering your borrowing costs, you’re able to pay off your debt more quickly.
The Cost of Defaulting
You should count the cost of what would happen if you aren’t able to repay your debt. Very few people take on debt thinking that one day they won’t be able to repay it, yet it happens more than we’d like to think.
Here’s how defaulting on different types of loans can affect you:
If you default, fail to make on time payments, on your debt then you risk losing what you own should you be unable to repay your debts. Thankfully, there’s state and federal legislation that can protect some of your financial assets such as IRAs, 401(k)s, and other ERISA eligible retirement plans. However, that legislation may not fully protect everything you have, so do not fully rely on it.
The Cost of Forgone Opportunities
Forgone opportunities are perhaps the most unnoticed borrowing costs. According to Wikipedia, “Opportunity cost is the loss of the benefit that could have been enjoyed if the best alternative choice was chosen instead.”
Normally, this cost is evaluated with money, or resources, that we already have. For example, I have $1,000 that I want to use to buy a newer phone. At this moment, my best alternative may be to invest my $1,000 for 35 years earning 7%. If I buy the phone then it has cost me the opportunity of the next best alternative, investing the funds long-term.
But how does this apply to borrowing since we don’t actually have the money?
Well, we can simply look at the projected cumulative financial costs of borrowing (mentioned above) and assess our own opportunity costs.
For example, you might borrow $25,000 for a new car and pay $4,000 in interest over the next 6 years. Is it worth it? What could you have done with that $4,000, or a portion of it, if you chose a different alternative?
Conclusion
I want to reiterate that debt is not sinful. However, it can be dangerous and unwise at times. It’s frequently warned against because of the vulnerable position it can put us in.
Like any other part of your finances, you need to have a plan if you’re willing to incorporate debt into your personal finances. And if you’re trying to shake off the debt in your life, then you need to have a detailed plan as well.
One thing is clear: the only way to true financial freedom is through pursuing and living a debt-free life.
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