Monday, February 4, 2008

Is it Wrong to be in Debt?

Continuing on the subject of debt, I've heard some Christians teach that it is a sin to borrow money and go into debt. One primary verse used in the argument against debt is Prov 22:7, as we discussed in the last post: "The rich rule over the poor, and the borrower is slave to the lender."

Romans 13:8 is also frequently used to argue that Christians should not be in debt: "Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law."

Note that the preceding verse, 13:7, states "Give everyone what you owe him: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor."
Paul's focus is that we must pay what we owe, and not necessarily to stay out of debt. This emphasis on the importance of paying your debts is seen in other verses throughout the Bible:

Proverbs 22:26-27 "Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you."

Psalms 37:21 "The wicked borrow and do not repay, but the righteous give generously"

If it was a sin to borrow and become indebted, Jesus wouldn't have said,
"Do not turn away from the one who wants to borrow from you." (Matt 5:42) or "Forgive us our debts, as we also have forgiven our debtors." (Matt 6:12)

It is really easy to pick a verse here and there, and create a black and white doctrine out of it. But, we often miss the point entirely. So I would like to ask: what does Bible as a whole teach about this subject?

The moral question
The most important question is: Why are we borrowing money? Is it for materialism, for the appearance of prosperity (i.e. Mammon ), OR for basic needs, or for the purpose of growing wealth to enable others? Jesus talked profusely about the condition of the heart, which therefore must be the primary consideration in borrowing money. If we are going into debt so we can live beyond our means, this creates a moral problem. And, it will make it increasingly difficult to pay back our debts - which is unacceptable as seen in the verses above.

One man pretends to be rich, yet has nothing; another pretends to be poor, yet has great wealth" (Prov 13:7). Jesus condemns the servant who buried the talent, rather than use it to gain interest. If Jesus is so hard on people who simply bury their money, how hard would He be on people who negatively go in to debt to buy frivolous things?!?

Yet, if someone uses debt wisely, they may be able to actually create wealth and provide for their basic needs as well as for others.

For those that see debt as a black and white issue: I'd like to know what is the difference between leasing your home from a landlord or loaning money to "buy" your home from a bank? Would Jesus get caught up in this argument?

We are already indebted to God. Everything is essentially on loan to us. God is the Creator and rightfully owns everything. As He is the provider, we are all called to be His stewards or property managers of all that He has given. Our Creator's generosity benefits all of us, in the same way that the under- privileged can benefit from the ability to borrow money (i.e. start a business, invest, etc).

"Wealth and honor come from you; you are the ruler of all things. In your hands are strength and power to exalt and give strength to all." (1 Chr 29:12)

"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!" (Matt 25:21)

Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches? And if you have not been trustworthy with someone else's property, who will give you property of your own." (Luke 16:10-12).

So, I believe that debt in and of itself is not necessarily right or wrong, nor does the Bible actually forbid the borrowing of money. The Bible does clearly warn about the danger of becoming indebted, and cautions us not to borrow more than we can repay. What matters most is WHY an individual goes into debt and how they decide to USE the debt.

One final thought to consider: "Finish your outdoor work and get your fields ready; after that, build your house." Proverbs 24:27

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John Block said...

This is an excellent article and is right on. How can one argue with the truth of scripture and the logic of these comments. Great job and keep writing.

Duke said...

Peace be with the moderator as well as readers of this message.
The time has come.
I am here to bring judgment to the living and the dead.
The harvest is ripe, inform all fellow believers.

TheFaithful Witness

Anonymous said...

This is great. The thought is clear. God smiles to see this blog. Keep preaching. I am glad found it in MyBlogLog.
God bless you!

SierraSojourner said...

Thanks for the encouraging comments!

Given55 said...

Very well put. Great points. God bless

J.A. BLOCK said...

this is really well thought out. Thanks for helping all of us understand. I've been recommending your blog to a lot if people. You should business cards done just for this blog. That's what I did with mine.

Shaun Farrell said...

Hi, there. I’m one of Jeff’s buddies. He encouraged me to check this out, so here I am.

I’ve spent a great deal of time over the last 6 months considering the issue of debt as my wife and I work through a Dave Ramsey Total Money Makeover. So, with that admitted upfront, here are some thoughts.

Great Scripture choices. I agree that borrowing money is not a sin, unless you are borrowing for sinful purposes or borrowing when you know you cannot repay.

I must disagree with many of your conclusions, however, regarding wisdom of borrowing money. The idea that, “if someone uses debt wisely, they may be able to actually create wealth and provide for their basic needs as well as for others” is na├»ve at best, I think. Most everyone I know have lived their lives borrowing money. That is the American way. We have student loans because getting a degree will help us get a better job (sometimes). We have mortgages and lines of credit because it’s better to own than rent (not always). We have credit cards and car payments because we need certain things, and we’ll pay them back (sometimes we can’t, and do we really need those things?). The result is a country where 75% of the population lives paycheck to paycheck in the richest nation in the world, but often has a nice car. The result is that only about 12% of church goers tithe because they are so strapped with debt that they don’t feel like they can. The result is a national deficit of 13 billion dollars and a social insecurity system that will be upside down by 2017. Most of these stats come from Dave Ramsey, by the way. So, while debt may not be a sin, and it certainly is NOT a salvation issue, I’m disturbed by the justification that debt can build wealth and help us help others when there is almost no evidence to prove that it works.

“Our Creator's generosity benefits all of us, in the same way that the under- privileged can benefit from the ability to borrow money (i.e. start a business, invest, etc).” The underprivileged almost always become more unprivileged by the “privilege” of borrowing money. Did you know that there are more pay-day lender in the U.S. than fast food restaurants? The average person who borrows money from these places pays 742% in interest, and some end up paying well over one thousand percent. The lottery is by and large played by the poor, those who can least afford to play it, and in many states the lottery funds are used to create college scholarships for upper and middle class families. Rent-to-own establishments rip off the underprivileged every day. So the ability to borrow money when you are already financially in the dumps will generate more high-risk debt (because you are going to borrowing at high interest since you’re broke), and further decreases a peoples quality of life, truly making them slaves to their lenders. The gift of being able to borrow keeps people poor. It doesn’t help them get out of it. For more information about this, I highly recommend the documentary Maxed Out. You can find it on Netflix.

The idea of borrowing money to invest is completely insane. Let’s reverse it. If you had a $100,000 in stock, would you cash it out to pay off your house? Most people say no, because they can make more money on the interest, right? Well, if you had a paid for house, would you get a 100,000 mortgage so you can invest in the stock market? Again, most people say no. That would be crazy! Why? What’s the difference? The difference is risk and peace of mind. Besides, if you’re making 10% in the stock market, you’re really only making 4-5 percent when you adjust for inflation, taxes, and risk, so you’re losing money on a 5-6 percent interest rate on your mortgage. The idea of borrowing money to invest is, in my opinion, unwise at best.

I don’t mean to beat you up on your own blog, and I agree that borrowing money is not a sin, but I see almost no justification for doing it outside of medical emergencies (and even then there can be other options), and I see American philosophy coloring your conclusions. I will make an exception for a mortgage. But again, I’ll do it the Dave Ramsey way: 20% down, and a loan no bigger than 15 years, fixed, when the payment is no more than 25% of my take home pay. I’m currently drowning in a mortgage that was too much to handle. Why? Because I was borrowing money to build wealth and security! No thanks, I’ve had enough of that.

Last thought. “The Bible does clearly warn about the danger of becoming indebted, and cautions us not to borrow more than we can repay.” If we can repay it, why not just save up and pay cash? This has nothing to do with Scripture, I’m just making point.

If we keep doing what we’ve been doing, we’ll keep getting what we’ve been getting. More 22 year olds file bankruptcy than graduate from college in the U.S. today. Do we really want to keep going down that road? Or is it time for a change?

SierraSojourner said...

Hi Shawn,
Thanks for the comments.

When i say you can use "debt create wealth", I certainly don't believe this is "naive at best" - but a reality.

I think you are confusing 2 completely different things - BORROWING to SPEND money or BORROWING to MAKE money. You say your friends borrow and dig themselves deeper into debt...buying things: cars, a house they cant afford, etc. I agree that this is not a smart way to use debt - these are all liabilities and are often bought as a result of materialism. This is a certain way to enslave oneself.

But people (who have a wise business plan and understand how money works) can borrow money and make it grow (see Jesus discussion on the talents (literally money) - the faithful servant invested and received tenfold- the evil servant did not invest). This IS how wealth is grown and created in the world. Here are some examples:

1. Bankers. Anyone who has a savings account is actually lending money to the bankers, and they profit from this debt. You give them money and make less than 2% - they borrow the money and legally invest 90% of it and get much much higher returns. With all the excess wealth they created they then give out credit cards, etc, and make even more money off people who like to spend. The bankers have grown immense and unimaginable wealth by shrewdly using debt.

2. Here's a different example: Say you borrow $20,000 at 7% and buy a tractor because that tractor is in high demand for landscapers. If you can make 35% on your investment by renting it out, then you just created an income source out of no money at all. You went into debt to buy a cash-flowing asset, so you could create wealth. Or, you could borrow $20,000 and buy a car that quickly depreciates in value (a liability), and make payments instead of receive them.

3. Another example: Someone could start a retail shop, work hard and make it very successful and have a steady income. Since they have a successful formula, they could borrow money at a low interest rate, and open up several of these shops because they already know they can make a much higher rate of return on their money. If they stuck with just one store, they would work very hard and have an average income. But, by leveraging out (using debt) would allow them to make far more money, and not have to do the day to day operations. Instead they could focus on making good decisions for their business and others.

You say "The gift of being able to borrow keeps people poor." I believe The gift of being able to borrow keeps financially illiterate, undisciplined, and materialistic people poor. But in a free society, it allows anyone to excel if they really want to. Just look at Nobel Peace Prize winner, Mr Yunus, who set up an organization to make micro-business loans to the poorest people in the world. Over 100 million of the poorest people in 3rd world countries have had the ability to start businesses and get out of poverty and off state welfare, by successfully using debt. (These people are not buying over-sized houses and cars, but investing the borrowed money in services and businesses that they create).

One last thought: How are churches built, and pastors paid salaries, and missionaries funded? A little comes from the average tither, but almost ALL of the money comes from just a handful of financially smart people in the church. People who have leveraged their abilities and money to create an excess of wealth that they can share. They are the ones that use debt wisely.

Shaun Farrell said...

Most of your points are very conventional and agreed upon by the average person. But I'll say it again, the average person is broke, so I don't want to follow that advice any more. I want to be weird! :-)

RE the talents: I don't recall borrowing money to invest being part of the equation. The servants were given money, right?

RE borrowing money for business purposes. Again, the math seems wise, but it often fails in the real world. Example, Borders is facing potential bankruptcy and looking to sell all or part of it's business. Why? They borrowed and leveraged, and when a few parts of their business went south - Bingo, they're screwed.

So, yes, much of the math makes sense, but it fails so much of the time when real life comes into play. If you listen to the Dave Ramsey show for a week you'll hear countless examples of people who did what you are suggesting and are now paying the price, and I don't see anything in the Bible to make me think that borrowing money is a wise or Godly thing to do.

I love talking about this stuff though, so I hope you don't mind.

SierraSojourner said...

Shawn, i want to make sure you get my point. I'm not trying to use the bible (and Talents verse) to justify going into debt - please read the original blog post again and the previous post "Borrower is Slave to the Lender." The point of the Talents is to grow what we've been given. Not to squander it. Which has been my main point: Debt for spending/consuming is unwise, but the wise use of debt with good intentions to grow money can be used for good.

But of course, there is always risk involved for everyone with debt. Also, overly-greedy and uninformed investors often over-leverage with very high debt/net worth ratios, and have placed themselves in very sketchy positions. (i.e. many large banks and holders of lines of credit in the current financial credit crisis).

Concerning your statements that borrowing money "often fails in the real world:" The examples i gave in my last comment were "real world" examples of people i know.

BUT, just because the average person is broke, this doesn't mean that all debt is bad.

Its like saying that we should not eat at all - because obesity has become a major issue for "average" people in America. If they eat, they might eat too much. But this doesn't mean eating is bad. (Fortunately debt is not a necessity like eating.) But, you can choose to eat properly and be healthy - or you can eat junk food and ruin your health/life. Debt, like food consumption, can be used for good or bad. What matters is discipline, knowledge/understanding, and the reason behind it. Its a choice; food (like debt) is not evil...its neutral.

You and Dave Ramsey are correct - most people probably shouldn't go into debt - especially when the tendency is to spend money they don't have, rather than create/invest in something that grows. The average person spends their credit on consumer items and makes make poor investments as you say, BUT this does not say anything about investing or debt.....only about peoples poor decisions.

But i believe that those who are willing to take calculated risks, can create wealth with debt and try to minimize their risk by increasing their economic knowledge.

Shaun Farrell said...

Sure, people make lots of money doing this stuff all the time. I won't argue the math at all, and I'm glad your friends are doing this and haven't been hurt.

I'll try just one more time to communicate what I'm trying to say. The big thing your math doesn't account for is the cancer diagnosis. Or the spouse killed in a car accident. The job layoff. The rental that suddenly has a bad foundation. A child born with disease. And when two or more of these happen within months of each other, and they do all the time, people find themselves buried, and that good debt suddenly becomes the proverbial straw.

I'm not saying we should live in fear, and I'm not trying to be negative. In fact, I'm positive that tragedy and loss will strike most of us. It's just a matter of time. How we live financiall will greatly impact our ability to get through those times.

Back to Dave Ramsey. At age 25 he was worth 4 million dollars, living and leveraging just like you suggest. By age 29, bankrupt. Why? Did he do something wrong? Did leverage incorrectly? One thing went south, and then another, and they snowballed, and he lost everything, nearly losing his marriage in the process.

That's what I mean about the real world. Ramsey has been counceling people for 20 years since then, so I bow to his experience and wisdom.

Maybe life won't happen and you'll end up with millions. I certainly hope so. But if you give Murphy too many unlocked doors, he'll find a way to slip into the house.

By the way, Dave teaches people how to invest, too. He just doesn't borrow money to do it.

SierraSojourner said...

Absolutely, there is always risk involved in having debt...the dangers are in high debt to net-worth ratios and in having no cash flow. Dave Ramsey was highly leveraged and kept borrowing and borrowing. His real estate was worth 4 million, but he actually had no net worth. He had built a "house of cards," as he puts it. I am very glad that he is warning people against this type of "investing," which is such a huge problem in today's economy.

SierraSojourner said...

Here is a short article on the difference between credit and debt - pretty interesting:

crossn81 said...

I like your perspective and the thought you put into it. I would agree that we should avoid debt as much as possible and think very hard about the decision to become a slave to something else - it is almost impossible to not have debt (at least school debt) and I don't think Jesus would call us to not go to school because we aren't rich.

Thanks for sharing!

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John W said...

I just want to say that this is the single most important issue today. 2 weeks ago I never would of believed that but now I KNOW it is true. If you worship money you will never understand that the practice of lending money from NOTHING and collecting interest on it (our work)is turning us into slaves, but it is. It is the MAIN reason for 3rd world countries where people do not work because their god mammon is not present when they have the abundance of God all around them.

I suggest reading Money Myth Exploded and researching until you understand how upside down most peoples thinking really is.

Anonymous said...

Great post!

Anonymous said...

Good job man you can tell who know's the scriptures and who don't. I can tell, you know. Stay in the Word man. In the beginning was the Word. The was with God the Word was God. John 1.1 (you probably already knew that)

Anonymous said...

sorry kind of new to the blog that was ny first and this is my second I said man didn't realize you were a lady til after i posted

SierraSojourner said...

Chris - thanks for commenting on the blog and for your encouragement!

Anonymous said...

Er, I'm not even a Christian, but I'm pretty sure that the story about the nobleman and the servants is a parable and not about money at all.

Still - there we are.

@John W - Correct me if I've misunderstood you, but your view of 3rd world countries being poor because of the absence of God is a little nuts.

Many of those countries have a significant Christian population. The sad truth is that they were never much above subsitence level and that us in the west make it a whole lot worse by lending weak and corrupt govenments money - benefitting the few, and punishing the masses.

DaveyT said...

My first question is: Is the writer of this article in debt?

Next, there is a huge difference to leasing a house month-month and borrowing to pay back over 30 years.

You are not your own, you've been bought with a price. (1st Cor. 6:19-20) You pay ahead for a month-month lease, you are not borrowing money, you are actually lending it. Since you've been bought with a price, If God calls you to go here or go there, you can go now, when He speaks. If you have a 30 year mortgage, you sure can't do that since you've sold yourself to the bank.