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Lesson 4, Activity 6
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Debt Notes

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Debt Notes

What debt looks like in our country:

At the time this sentence was typed, the US national debt was over 17 trillion dollars. The US National Debt Clock can give you the current national debt.

What does a trillion dollars look like? If you were alive when Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

What debt looks like for the average US household:

Average credit card debt: $15,191

Average mortgage debt: $154,365

Average student loan debt: $33,607

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, student loans, money borrowed from relatives, the home mortgage, and past-due medical bills. Bills that come due, such as the monthly phone bill, are not considered debt if they are paid on time.

The Real Cost of Debt

We need to understand the cost of debt. Debt imposes both a financial and physical cost. 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. Study the chart below.

You can see what lenders have known for a long time: the eye-popping impact of compounding interest working for them. If they earn 18 percent, they will accumulate more than $4 million on your $1,000 a year for 40 years! Is it any wonder credit card companies are eager for you to become one of their borrowers?

Now compare the $40,000 you paid in interest over 40 years with the $527,039 you would have accumulated if you had earned 10 percent on $1,000 each year. The monthly income on $527,039 earning 10 percent – without ever touching the principal – is $4,392!

Debt has a much higher cost than many realize. Stop to consider this: When you assume debt of $5,560 and pay $1,000 a year in interest versus earning a 10 percent return on that $1000, it actually costs you $527,039 over 40 years. The next time you find yourself tempted to purchase something with debt, ask yourself if the long-term benefits of staying out of debt outweigh the short-term benefits of the purchase.

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

Debt in Scripture

Scripture’s perspective on debt is clear. Carefully read the first portion of Romans 13:8 from several different Bible translations: “Owe no man anything” (KJV), “Let no debt remain outstanding” (NIV), “Pay all your debts” (LB).“Owe nothing to anyone” (NAS). “Keep out of debt and owe no man anything” (Amplified).

1. Debt is slavery. 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” (LB). When we are in debt, we are in a position of servitude to the lender. And the deeper we are in debt, the more of a servant we become. We do not have the freedom to decide where to spend our income, because our money is already legally obligated 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. And He now wants His children free to serve Him in whatever way He chooses rather than be enslaved again.

2. Debt was considered a curse. In the Old Testament, being out of debt was one of the promised rewards for obedience. “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, 12).

However, indebtedness was one of the curses inflicted for disobedience. “But it should come about, if you will not obey the Lord your God, to observe to do all His commandments and His statutes 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, 43-44).

3. Debt presumes upon tomorrow. When we get into debt, we assume that we will earn enough in the future to pay the debt. 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 vapor 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).

4. Debt may deny God an opportunity. Ron Blue, an outstanding author, 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 encumbered him with $40,000 of debt by the time he graduated, which would have been impossible to pay back on a missionary’s salary.

After a great deal of prayer, he decided to enroll 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 God could creatively provide his needs. This was the most valuable lesson learned in seminary as he prepared for life on the mission field. Borrowing may deny God an opportunity to demonstrate His reality.


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

  1. The item purchased is an asset with the potential to appreciate or produce an income.
  2. The value of the item equals or exceeds the amount owed against it.
  3. The debt is not so high 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 been an appreciating asset, so it meets the first criterion. If you invest a reasonable down payment, you could expect to sell the home for at least enough to satisfy the mortgage, and this meets the second requirement. Lastly, the monthly house payment should not strain your budget.

If you meet all the criteria and assume some “permissible debt,” I pray you will immediately establish the goal of eliminating even this debt. There is no assurance that the housing market will appreciate or even maintain current values. A loss of job can interrupt your income. Please consider paying off all debt.

Getting out of Debt

There are nine steps for getting out of debt. The steps are easy, but following them requires hard work. The goal is D-Day – Debtless Day – when you become absolutely free of debt.

1. Pray for the Lord’s help. The first and most important step is to pray. Seek the Lord’s help and guidance in your journey toward Debtless Day. A trend is emerging. As people begin to eliminate debt and to accelerate debt repayment, the Lord blesses their faithfulness. Even if you can afford only a small monthly prepayment of your debt, please do it. The Lord can multiply your efforts.

2. Establish a written spending plan. In my experience, few people in debt have been using a budget, or spending plan. They may have had one, but they have not been using it. A spending plan helps you plan ahead, analyze your spending patterns, and control the biggest budget buster of them all – impulse spending.

3. List everything you own. Evaluate your assets to determine if there is anything you do not need that might be sold to help you get out of debt more quickly.

4. List everything you owe. Many people, particularly if they owe a lot of money, do not know exactly what they owe. List your debts to determine your current financial situation. You also need to determine the interest rate your creditors are charging for each debt.

5. Establish a debt repayment schedule. Part of the “Let’s Get Practical” section this week is establishing a repayment schedule for each debt.

6. Consider earning additional income. Many students hold jobs that simply do not produce enough income to meet their needs, even if they spend wisely. If you earn additional income, decide in advance to pay off debts with the added earnings. We tend to spend more than we make, whether we earn much or little. Spending always seems to keep ahead of earning.

7. Control the use of credit cards. An avalanche of 2.5 billion solicitations a year offering credit cards is overwhelming our culture. Many of these solicitations are deceptive, promising low interest rates, which in the fine print rise to exorbitant levels within a few months. Others offer free T-shirts or such giveaways in an effort to attract our attention.

I do not believe that credit cards are inherently sinful, but they are extremely dangerous. The leading problem college counselors are asked about is the inability of students to handle credit card debt.It is estimated that people carry over 800,000,000 credit cards, and only 40 percent of them are paid in full each month. Statistics show that people spend approximately one-third more when they use credit cards rather than cash, because they feel they are not really spending money (because it’s just plastic). As one shopper said to another, “I like credit cards lots more than money because they go so much further!”

When I analyze the financial situation of someone in debt, I use a simple rule of thumb to determine whether credit cards are too dangerous for them. If they do not pay the entire balance due at the end of each month, I encourage them to perform some plastic surgery – any good scissors will do.

8. Be content with what you have. We live in a culture whose advertising industry has devised powerful, sophisticated methods of inducing consumers to buy. Frequently the message is intended to create discontentment with what we have.

A clear example is the American company that opened a new plant in Central America because the labor was plentiful and inexpensive. Everything was progressing smoothly until the villagers received their first paycheck; afterwards they did not 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 for two months until someone came up with the bright idea of sending a mail-order catalog to every villager. There has never been an employment problem since!

Note these three realities of our consumer driven society:

  1. The more television you watch, the more you spend.
  2. The more you look at magazines and internet shopping sites, the more you spend.
  3. The more you shop, the more you spend.

9. Do not give up! The last step is the most difficult one in getting out of debt. It takes hard work. You must lower your standard of living three times: (a) you must stop spending more than you are making, (b) you must pay interest on the debt, and (c) you must pay back what you have borrowed.

It is never easy to get out of debt, but the freedom is worth the struggle.

Escaping the Auto Debt Trap

Automobile loans are one of the leading causes of indebtedness. Seventy percent of all automobiles are financed. The average person keeps his car between three and four years. The average car lasts for ten years.

Here’s how to escape this trap. First, decide in advance to keep your car for at least six years. Second, pay off your automobile loan. Third, continue paying the monthly car payment, but pay it into a special savings account for yourself. Then when you are ready to replace your car, the saved cash plus the trade-in should be sufficient to buy the next car without credit. It may not be a new car, but you should be able to purchase a good, low-mileage used car, without any debt.

Debt Repayment Responsibilities

Many delay payments to use the creditor’s money as long as possible. There are seminars that actually teach people to live on the “ragged edge of being a dead beat,” but this is not biblical. “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 comeback, and tomorrow I will give it,’ when you have it with you” (Proverbs 3:27-28).

Godly people should pay their debts and bills as promptly as they can. We have a policy of trying to pay each bill the same day we receive it to demonstrate to others that knowing Jesus Christ has made us financially responsible.

Using Your Savings

It is wise not to deplete all your savings to pay off debt. Maintain a reasonable level of savings to provide for the unexpected. If you apply all your savings against debt and the unexpected does occur, you will probably be forced to incur more debt to fund the emergency.


A court can declare a person bankrupt and unable to pay their debts. Depending upon the type of bankruptcy, the court will either allow the debtor to develop a plan to repay his creditors, or the court will distribute his property among the creditors as payment for the debts.

An epidemic of bankruptcy is sweeping our country. Should a godly person declare bankruptcy? The answer is generally no. Psalm 37:21 tells us, “The wicked borrows and does not pay back, but the righteous is gracious and gives.”

In my opinion, bankruptcy is permissible under two circumstances: a creditor forces a person into bankruptcy, or a counselor believes the debtor’s emotional health is at stake because of inability to cope with the pressure of unreasonable creditors.

After a person goes through bankruptcy, he should seek counsel from an attorney to determine if it’s legal to attempt to repay the debt when he is not obligated to do so. If it is within the law, he should make every effort to repay the debt. For a large debt, this may be a long-term goal that is largely dependent upon the Lord’s supernatural provision.

Cosigning relates to debt. Anytime you cosign, you become legally responsible for the debt of another. It is just as if you went to the bank, borrowed the money and gave it to your friend or relative who is asking you to cosign.

A court can declare a person bankrupt and unable to pay their debts. Depending upon the type of bankruptcy, the court will either allow the debtor to develop a plan to repay his creditors, or the court will distribute his property among the creditors as payment for the debts.

A Federal Trade Commission study found that fifty percent of those who cosigned for bank loans ended up having to make the payment themselves. Seventy-five percent of those who cosigned for finance company loans ended up making the payments! Unfortunately, few cosigners plan for default. The casualty rate is so high because the professional lender has already determined that the loan on its own merit is a bad risk. That is why he won’t make the loan without someone who is financially responsible to guarantee its repayment.

Fortunately, Scripture speaks very clearly about cosigning. Proverbs 17:18 reads, “It is poor judgment to cosign another’s note, to become responsible for his debts” (LB). The words “poor judgment” is better translated “destitute of mind!” Please use sound judgment and never cosign a note or become surety for any debt.

Credit Reports & Scores

Your credit score (FICO score) determines whether you can get credit. And your score may be high enough to get credit but not high enough to get a decent interest rate – whether you’re looking for a mortgage, a car loan, or some other type of credit. Without good scores, your application to rent an apartment may be turned down. Your scores can affect your car insurance premiums and even getting a job.

A credit score is a number designed to help lenders and others measure your likelihood of making payments on time. The FICO score ranges from 300-850, with the average score around 680. Higher scores are better. FICO scores above 700 indicate a good credit risk, while scores below 600 indicate a poor risk.

A low score can lead to much higher interest rates. For example, if you apply for a 30-year home mortgage and your credit score is too low, you could pay as much as three percent more. On a $200,000 mortgage, that three percent difference will cost you $400 per month. Over the life of the loan it adds up to $144,000!

The primary things that will harm your credit score are late payments or non-payments of bills or debts, bankruptcy, foreclosure, repossession, bills or loans sent to collection. To improve your score, the two most important actions you can take are to pay your bills on time and reduce your total debt. Once you start doing this, your score will begin to improve in about three months. Look at the factors affecting your score.

Late or missed payments, foreclosures or repossessions remain part of your credit report for seven years. You’ll have to wait ten years for a bankruptcy to be removed, and fifteen years for a tax lien. Even though these remain on your credit report, over time they have less impact if you pay your bills on time and reduce your debt.

Everyone should get a copy of their credit report once a year. Review it to make sure there are no mistakes or that you haven’t been the victim of identity theft. You can order a free copy of your credit report once every twelve months. To order, log on to AnnualCreditReport.com.

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 $180 a month payments. $180 a month may not sound like too much, but here is the true cost of these purchases.

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 date, 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.




How to Establish Credit

Identity Theft

The most common type of identity theft is in the area of finances. Someone tries to gain financial benefits using another person’s name. This includes getting credit cards, loans, goods and services, and claiming to be someone else.

These thieves can acquire your financial in numerous ways- from digging through your trash, accessing old phones or computers and even using “contactless” card readers to steal your credit card information.

What to do:

We recommend that anyone who has been a victim of identity theft go to the Federal Trade Commission-Identity Theft Page. They have great tips on what to do immediately and how to protect yourself in the future.