Debt – Notes

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What Is Debt?

The dictionary defines debt as “money that a person is obligated to pay to another.” Debt includes bank loans, student loans, money borrowed from relatives, the home mortgage, past-due medical bills, and money owed to credit card companies. Bills that come due, such as a monthly car insurance payment, aren’t considered debt if they’re paid on time.

What the Bible Says about Debt

While Scripture doesn’t specifically call debt a sin, it strongly discourages it. Remember, God loves us and has given us these principles for our benefit. Read the first portion of Romans 13:8 from several different translations: “Owe no man anything” (KJV). “Let no debt remain outstanding” (NIV). “Pay all your debts” (TLB). “Owe nothing to anyone” (NASB). “Keep out of debt and owe no man anything” (AMPC). Any questions about God’s view of debt?

Here’s why the Lord wants you debt free.

Debt Is Considered Slavery

Proverbs 22:7 reads: “. . . the borrower is slave to the lender” (NIV). When we’re in debt, we’re in bondage to the lender. And the deeper we’re in debt, the more like slaves we become. We don’t have the freedom to decide where to spend our income, because it’s already obligated to meet our debt payments.

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

Debt Was Considered a Curse

In the Old Testament, being out of debt was one of the promised rewards for obedience.

“If you diligently obey the Lord your God, being careful to do all His commandments which I command you today, the Lord your God will put you high above all the nations of the earth. And all these blessings will come to you . . . You will lend to many nations, but you will not borrow” (Deuteronomy 28:1-2, Deuteronomy 28:12, emphasis added).

On the other hand, debt was listed among the curses for disobedience. “If you do not obey the Lord your God, to be careful to follow all His commandments and His statutes which I am commanding you today, all these curses will come upon you and overtake you . . . The stranger who is among you will rise above you higher and higher, and you will go down lower and lower. He will lend to you, but you will not lend to him; he will be the head, and you will be the tail” (Deuteronomy 28:15, Deuteronomy 28:43-44).

In God’s view, then, being in debt moves you from a head position in life to the tail end!

Debt Presumes upon Tomorrow

When we get into debt, we’re assuming that we will earn enough in the future to repay it. But can we really assume such a thing? We plan for our jobs to continue or our business to be profitable or our investments to increase in value. The Bible strongly cautions us against such presumption: “You who say, ‘Today or tomorrow, we will 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. . . . Instead, you ought to say, ‘If the Lord wills, we will live and also do this or that’” (James 4:13-15, emphasis added).

Debt May Deny God an Opportunity

Financial author Ron Blue tells of a young man who wanted to go to seminary to become a missionary. The young man had no money and thought the only way he could afford seminary was to secure a student loan. However, this would have left him with about $80,000 of debt by the time he graduated. He knew a missionary’s salary would never be able to repay that much debt.

After a great deal of prayer, he decided to enroll without the help of a loan, trusting the Lord to meet his needs. Several years later, he graduated without borrowing anything. Just as important, he had grown in his faith and in his appreciation for how God could provide his needs. This was one of the most valuable lessons learned in seminary as he prepared for life on the mission field.

How to Get Out of Debt

Pray!

In 2 Kings 4:1-7 we read about a widow threatened with losing her sons to an aggressive creditor. When she asked the prophet Elisha for help, he told her to borrow many empty jars from her neighbors. Then the Lord multiplied her only possession — a small amount of oil — until all the jars were filled to the brim. She sold the oil and paid her debts to free her children.

The same God who provided supernaturally for the widow is interested in freeing you from debt. And He is every bit as able of meeting your needs as He was the needs of that poor widow. The first step is to pray. Seek the Lord’s help and guidance in your journey toward Debtless Day. He may act immediately or slowly over time. In either case, prayer is essential.

A trend is emerging. As people begin to eliminate debt, even little by little, the Lord blesses their faithfulness. Even if you can afford only a small monthly repayment of your debt, do it. The Lord is fully able to multiply your efforts.

Spend Less by Becoming Content with What You Have

Advertisers use powerful methods to get us to buy. Frequently the message is intended to create discontentment with what we have. An example is the American company that opened a new plant in Central America because the labor was relatively inexpensive. Everything went well until the villagers received their first paycheck; afterward they didn’t return to work. Several days later, the manager went down to the village chief to determine the cause of this problem. The chief responded, “Why should we work? We already have everything we need.” The plant stood idle until someone came up with the idea of sending mail-order catalogs to every villager. There hasn’t been an employment problem since!

Note these three realities of our consumer-driven economy.

• The more television you watch or surfing the web you do, the more you spend.
• The more you look at catalogs, magazines, and social media, the more you spend.
• The more you shop, the more you spend.

There is an interesting passage in 1 Timothy 6:6: “Godliness actually is a means of great gain when accompanied by contentment.” When we are content with what we have and wait to buy until we can do it — that is great gain.

Car Debt

Seventy percent of all cars are financed, and many people never get out of car debt. It’s one of the biggest obstacles for most people. Fortunately, there’s a way to get out of car debt for good by following these three steps.

• Decide to keep your car at least three years longer than your car loan — and then pay off the loan.
• After your last payment, keep making the same payment, but pay it to yourself. Put it into an account that you will use to buy your next car.
• When you’re ready to replace your car, the cash you have saved plus your car’s trade-in value should be sufficient to buy a car without credit. It may not be a new car, but a low-mileage used car is a better value anyway.

It’s hard to overestimate the financial impact of driving debt-free cars. The average monthly new car payment is $550. If a 21-year-old drives debt-free cars and saves the $550 a month, earning an average return, he or she will accumulate about $2 million yielding almost $135,000 a year by age 65! Short-term spending sacrifices translate into enormous long-term benefits.

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Use the Auto Debt Payoff Calculator

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Student Loans

There’s a reason why lenders make it pretty easy to take out a loan. They know people want to take the next step in their lives and getting loans make college seem affordable.

Look at it this way- you take out student loans to major in something you’re excited about. After graduating, you discover you have to make monthly payments on those loans for up to 40 years. That’s a really long time!

There’s an idea in this country that if you don’t get a degree, you won’t be successful. But that is not the case. Plenty of people who never went to college have succeeded by working hard. There are lots of opportunities out there to be successful without having a college degree.

But sometimes you need a degree to go into the field you want. Just remember this- a degree is a degree no matter where it’s from—it’s possible to get a degree without loans by choosing affordable schools.

Now, if you are in the middle of a student loan crisis, we want you to know there is hope. We’ll show you how to attack your student loan debts with an accelerated pay-off plan. It may require some short term sacrifices, but it will pay off big-time in the long run!

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Use the Accelerated Debt Payoff Calculator

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Multiple Debts

If you have multiple credit cards or payments, I’d encourage you to Snowball your way out of debt. And here’s how. In addition to making the minimum payments on all your credit cards or payments, focus on paying off the smallest-balance-card first. You’ll be encouraged to see its balance go down, down, and finally disappear!

After the first credit card is paid off, apply its payment toward the next smallest one. After the second card is paid off, apply what you were paying on the first and second toward the third smallest. That’s the snowball in action!

When you’re on a roll like this, it starts getting exciting. Those “impossible” balances that have worried you and robbed you of your peace will begin diminishing before your very eyes. So . . . where do you start? Prioritize your debts, and every time you pay one of those cards off, use it as an occasion to celebrate and thank the Lord!

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Use the Snowball Debt Payoff Calculator

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Debt Repayment Responsibilities

Prompt Payment

Many people delay paying creditors until payments are past due, even when they have the money. On this practice, however, the Bible is crystal clear. In Proverbs 3:27-28 we read: “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, ‘Go, and come back, and tomorrow I will give it to you,’ when you have it with you.”

Godly people should pay their debts and bills as promptly as they can. Some try to pay each bill the same day they receive it — to demonstrate to others that knowing Jesus Christ has made them financially responsible.

What If I Don’t Have Debt?

You don’t have debt – awesome! Stay that way! But just so you understand the consequences of debt, look at the following scenario:

You have just started your first job and received a credit card with a $4500 limit at 18% interest.

With your credit card you purchased some really cool things; a new tv ($1200), a new wardrobe ($800), a new computer ($1200), and decided to reward yourself with a great vacation ($1300). You have maxed out your card and now owe $4500. You are faithful in making the minimum payments- $180 a month to start with. Here is the true cost of these purchases.

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TOTAL OUTSTANDING DEBT:           $4500

MINIMUM MONTHLY PAYMENT:     starting at $180

AVERAGE INTEREST RATE:               18%

TOTAL INTEREST PAID:                     $2573.51

HOW LONG TO PAY OFF DEBT:        10 years, 11 months

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With interest, you have ended up paying $7073.51. Not only that, it will take you almost 11 years to pay off this credit card. By the time you pay off the debt the clothes you purchased will be completely out of style, your computer will be technologically obsolete, your TV will have died a year ago, and you may or may not still have the pictures from your vacation.

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Debt Terms

APR (Annual Percentage Rate) – APR Annual Percentage Rate is used to calculate the full cost of credit on a yearly basis. The APR takes into account the amount financed, the interest charge(s), and the amounts and timing of the payments.

Available Credit – Your available credit is how much you can spend with your credit card without going over your credit limit. Available credit is equal to the credit limit minus balance and pending transactions.

Balance – Your balance is how much you owe on a credit card. The balance is the total of your transactions, fees, and interest charges minus any credits and payments.

Balance Transfer – A balance transfer may help you consolidate your debt or qualify for a lower interest rate. It works by moving a loan or credit card balance from one company to another.

Credit Bureaus – Credit bureaus are companies that create a picture of your creditworthiness in the form of a credit report and a credit score. Credit card companies report your behavior, like payment history, to credit bureaus. Experian, TransUnion, Equifax, Innovis are the four national consumer credit reporting agencies in the United States.

Credit Report – Credit reports contain your full credit history, including your employment history, addresses, credit inquiries, past and present credit cards and loans, the age of your accounts, liens, wage garnishments, and other data. Negative information like missed payments or charge-offs can stay on your report for seven years and bankruptcy information for ten years. Positive information can stay on your report for ten years.

Interest – Interest is money you pay regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. If you do not pay your credit card in full each month, interest rates will be added to your balance. If you have a credit card, we strongly encourage you to pay off the balance in full every month!

Past Due – An account is considered past due if you are late on a payment. Once you make at least the minimum payment, the account is current (no longer past due).

Secured Credit Card – a credit card that is backed by a cash deposit you make when opening the account. The deposit is usually equal to your credit limit.