The High Cost of Debt 2005
The High Cost of Debt
Is it ever right to borrow?
Intro:
The silence of an enjoyable evening is broken a ringing phone. You dread getting out of your chair to answer it. The caller on the other end gets right to the point. “We haven’t received a payment from you in two months. If you don’t send a check within two weeks, we will call the loan and repossess your car.” You promise to pay the car loan, but you face a mountain of debt. So you rob Peter to pay Paul. The scenario goes on week after week, and month after month. The mountain of debt has caused you deep stress and brought a strain on your marriage. This scenario is repeated in household after household in America today.
I. The Nightmare of Debt
Polonius wouldn’t have gotten very far in America today. He's the Shakespeare character in “Hamlet” who warned, “neither a borrower, nor a lender be.” Modern society, as we know all too well, is overrun with both borrowers and lenders.
About 43% of American families spend more than they earn each year.
Average households carry some $8,000 in credit card debt.
Personal bankruptcies have doubled in the past decade.
Consumers owe nearly $2 trillion
American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. That’s about $18,654 per household, a figure that doesn’t include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.
Americans carry more than $700 billion in revolving debt like bank credit cards and retail cards.
·The average cardholder has 2.7 bank credit cards, 3.8 retail credit cards, and 1.1 debit cards. That’s 7.6 cards per cardholder.
·The average household has more than $8,000 in credit card debt, up from about $3,000 in 1990. An $8,000 debt at a rate of 18% interest will take more than 25 years to repay and cost more than $24,000.
·The average interest rate charged by credit cards is 14.71%.
·The total unused credit lines for bank credit cards was about $6,185 per person as of mid-year 2002.
·About 40% of active accounts are paid off monthly. About 3% of credit card accounts are past due by 30 days or more each month.
·The most recent Federal Reserve study showed that 43% of U.S. families spent more than they earned. On average, Americans spend $1.22 for each dollar they earn.
(MSN Money, http://moneycentral.msn.com/content/SavingandDebt/P70581.asp?special=0401debt)
There is a great deal of confusion in our day concerning what the Bible teaches about borrowing. Some Christian authors, pastors and teachers dogmatically teach that it is a sin to borrow anything. At the other end of the pendulum, there are leaders of Christian ministries and pastors who have gotten their ministries and churches deeply into debt. It is not uncommon in our day to hear of churches and ministries filing Chapter 11 bankruptcy so that they can have court protection from creditors while they are reorganizing. Some have even filed for Chapter 7 bankruptcy where the church has been dissolved and the assets sold to satisfy the creditors.
The Bankruptcy Act of 1978 made sweeping changes in the personal bankruptcy laws. In 1978, there were about 50,000 personal bankruptcies in the United States. By 1988, there were 500,000 personal bankruptcies. Larry Burkett in his book Victory Over Debt predicts that by the end of this decade there will be between three and five million personal bankruptcies a year (p. 169).
By 2001 there were more people filing for bankruptcy that graduated from college. Now there are 32 million Americans at risk for bankruptcy (June 1, Bureau of Labor Statistics’ Consumer Expenditure Survey).
The boomers and the busters have grown up in a debt society. At age, 65 only 2% of Americans are financially independent. 80% of all Americans have more debt than assets. Financial Christian counselor, Ron Blue, in his book The Debt Squeeze says: “Personal debt is rising as a percentage of disposable income. The payment of installment debt in 1950 represented 10 percent of the average family’s disposable income. In the 1980’s, that figure has increased to 25 percent. When that much of a couple’s income is pre-committed to loan repayment, saving for the future becomes almost impossible. Tithing -- or any giving -- may become the lowest-priority use of money.” (p. 5). Pastors and lay counselors are overburdened with counseling people who are deeply in debt. If the United States hasn’t been able to balance its budget, how can a family or church? If the personal debt of Christians is too high it affects their giving. When a church is growing and needs to expand its facilities should it borrow to reach more people with the gospel? If it doesn’t borrow will it loose an opportunity to reach the lost?
“Credit-card issuers can more than make up for bad debts with earnings from double-digit interest rates charged to those who make monthly payments on their outstanding debt. They’re willing to take the charge-offs because of the huge profits associated with the credit-card business.”
Larry Burkett tells of a psychologist he counseled who had 151 credit cards on which he owed over $250,000.
What does the Bible say about debt?
II. Basic Biblical Principles for Borrowing
A. Borrowing is not a sin.
The Bible never condemns borrowing. Borrowing is legitimate for the following reasons:
1. Jesus commanded believers to be liberal in lending. In the context of going the extra mile, Jesus said: “Do not turn away from the one who wants to borrow from you.” (Matt 5:42).
2. The New Testament is very clear that it is legitimate to get interest on savings and pay interest for loans. In the parable of the talents (Matt 25:14-30) and the parable of the minas/pounds (Luke 19:11-27), Jesus commends the wise servants for investing their master’s money and condemns the wicked servants for not putting their master’s money on deposit where it could collect interest. If debt were a sin Jesus would never have condoned it.
3. Jesus admonished creditors to be lenient on debtors (Matt 18:33). If debt were a sin, Jesus would have condemned debt completely rather than admonishing mercy.
4. Paul taught in Romans 13:8 that no debt should be outstanding, except the debt of love. If debt were a sin, then he would have condemned even getting into debt.
5. The Israelites were commanded to loan freely to the poor (Deut 15:8) and to give limited (seven years) loans to fellow Israelites and extended loans to foreigners (Deut 15:1-3). If debt were a sin, no Israelite would have been allowed to make a loan to anyone.
6. The Old Testament writers never condemned those who had fallen into debt. In II Kings 4:1-7, Elisha doesn’t condemn the creditor (even though the statute of limitations had expired) for wanting his money or the widow for going into debt. He resolved the problem by performing a miracle. In Nehemiah chapter 5, Nehemiah does not condemn the poor for going into debt, but he does condemn the rich for their usury.
7. The Bible uses the concept of debt as a spiritual illustration. If it were a sin to incur debt, the Bible would never use it to teach spiritual lessons.
B. Take heed to the Biblical warnings about debt -- Prov 6:1-5; 11:15; 20:16; 22:7 Jer 15:10; Matt 18:21-35; Luke 7:41-47; 16:1-13.
1. Debt may require quick settlement of accounts -- Prov 6:1-5.
(Prov 6:1-5 NIV) My son, if you have put up security for your neighbor, if you have struck hands in pledge for another, {2} if you have been trapped by what you said, ensnared by the words of your mouth, {3} then do this, my son, to free yourself, since you have fallen into your neighbor's hands: Go and humble yourself; press your plea with your neighbor! {4} Allow no sleep to your eyes, no slumber to your eyelids. {5} Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler.
2. Debt often causes suffering -- Prov 11:15; 20:16; I Tim 5:8; Mt 18:21-35; Lk 7:41-47; 16:1-13.
(Prov 11:15 NIV) He who puts up security for another will surely suffer, but whoever refuses to strike hands in pledge is safe.
(Prov 20:16 NIV) Take the garment of one who puts up security for a stranger; hold it in pledge if he does it for a wayward woman.
(1 Tim 5:8 NIV) If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever.
The unmerciful servant -- Matt 18:21-35.
(Mat 18:24 NIV) As he began the settlement, a man who owed him ten thousand talents was brought to him.
The parable of the moneylender -- Luke 7:41-47. The greater the debt the greater the burden to repay. Therefore, one who has been forgiven a greater debt loves more than one who has been forgiven a small debt.
(Luke 7:41 NIV) "Two men owed money to a certain moneylender. One owed him five hundred denarii, and the other fifty.
The parable of the shrewd manager -- Luke 16:1-13. The shrewd manager forced his master’s debtors to pay their debts immediately, even though he reduced the debt, no doubt cheating his master. Even though the manager was dishonest (7:8), he was shrewd enough to use the means at his disposal to plan for his future well-being. The stewardship point is that the world is shrewd in collecting debts. Beware of the danger of debt.
3. Debt makes the borrower a servant to the lender -- Prov 22:7.
(Prov 22:7 NIV) The rich rule over the poor, and the borrower is servant to the lender.
4. Debt may bring attacks from others -- Jer 15:10.
(Jer 15:10 NIV) Alas, my mother, that you gave me birth, a man with whom the whole land strives and contends! I have neither lent nor borrowed, yet everyone curses me.
5. Debt often hinders giving -- Ps 37:21.
(Psa 37:21 NIV) The wicked borrow and do not repay, but the righteous give generously;
According to the Research Institute of America, the average American family pays one-fourth of their spendable income on debt (Using Your Money Wisely, p. 109).
6. Debt is often a symptom of greed or covetousness -- Luke 12:15.
(Luke 12:15 NIV) Then he said to them, "Watch out! Be on your guard against all kinds of greed; a man's life does not consist in the abundance of his possessions."
7. Debt will often change a relationship -- Rom 13:8.
(Rom 13:8 NIV) Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.
8. Debt may deny God an opportunity to work -- Isa 55:8; James 4:12-17.
(Isa 55:8 NIV) "For my thoughts are not your thoughts, neither are your ways my ways," declares the LORD.
(James 4:12-17 NIV) There is only one Lawgiver and Judge, the one who is able to save and destroy. But you--who are you to judge your neighbor? {13} Now listen, you who say, "Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money." {14} Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. {15} Instead, you ought to say, "If it is the Lord's will, we will live and do this or that." {16} As it is, you boast and brag. All such boasting is evil. {17} Anyone, then, who knows the good he ought to do and doesn't do it, sins.
There is what Mary Hunt calls in her book, Debt-Proof Living, “intelligent borrowing and stupid debt.” She then gives five criteria for distinguishing between intelligent borrowing and stupid debt illustrated from a home mortgage and credit card debt:
1. The borrower has a safety net – a legally and morally sound alternative to get out of the obligation (A house you can sell and pay off the loan).
2. The debt is secured with sufficient collateral (The real estate is collateral).
3. The loan is for something that has a reasonable life expectancy (A home is a long-term investment and the land is permanent).
4. The loan is for something that will increase in value (Real estate generally increases in value).
5. The interest rate is reasonable (Mortgage rates are much lower than consumer loans).
One percent difference in the interest rate (6% verses 7%) on a fifteen year, $ five million loan is $494,742.
C. All debt must be repaid -- Ps 37:21; Prov 3:27-28; 22:7; 27:23; Rom 13:8; Phile 1:18-19.
(Psa 37:21 NIV) The wicked borrow and do not repay, but the righteous give generously;
(Prov 3:27-28 NIV) Do not withhold good from those who deserve it, when it is in your power to act. {28} Do not say to your neighbor, "Come back later; I'll give it tomorrow"-- when you now have it with you.
(Prov 22:7 NIV) The rich rule over the poor, and the borrower is servant to the lender.
(Prov 27:23 NIV) Be sure you know the condition of your flocks, give careful attention to your herds;
(Rom 13:8 NIV) Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.
(Phile 1:18-19 NIV) If he has done you any wrong or owes you anything, charge it to me. {19} I, Paul, am writing this with my own hand. I will pay it back--not to mention that you owe me your very self.
Since all debt must be repaid, you have to have a guaranteed way of repaying the debt. The best guarantee is collateral equal or greater than the debt. A good job is not necessarily a guaranteed way of repayment. Job security is almost a thing of the past today. The cost of benefits has forced many American companies to downsize. Simply because you have an education doesn’t mean you are going to get the job you want or think you deserve. You may have to downsize you lifestyle to match the job God gives you.
Although property is one of the best means of collateral, it is not always an absolute guarantee. The property may be worth a certain amount, but is there a market to sell the property in order to pay off the debt?
D. You are responsible for anything you borrow -- Ex 22:13-15.
(Exo 22:14-15 NIV) "If a man borrows an animal from his neighbor and it is injured or dies while the owner is not present, he must make restitution. {15} But if the owner is with the animal, the borrower will not have to pay. If the animal was hired, the money paid for the hire covers the loss.
If something goes wrong with an item you borrow, it is your obligation to repair it or replace it. If you hire the item and something goes wrong, it is the owner’s responsibility.
E. Avoid the use of debt.
1. Develop sales resistance.
2. Be content. Adopt a non-consumptive lifestyle -- Luke 3:14; Phil 4:11; I Tim 6:6-10; Heb 13:5.
(Luke 3:14 NIV) Then some soldiers asked him, "And what should we do?" He replied, "Don't extort money and don't accuse people falsely--be content with your pay."
(Phil 4:11 NIV) I am not saying this because I am in need, for I have learned to be content whatever the circumstances.
(1 Tim 6:6-10 NIV) But godliness with contentment is great gain. {7} For we brought nothing into the world, and we can take nothing out of it. {8} But if we have food and clothing, we will be content with that. {9} People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. {10} For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.
(Heb 13:5 NIV) Keep your lives free from the love of money and be content with what you have, because God has said, "Never will I leave you; never will I forsake you."
3. Live on a budget.
4. Reduce existing debt by selling assets. Follow a spending plan.
F. Save for purchases rather than borrow -- Prov 13:11.
(Prov 13:11 NIV) Dishonest money dwindles away, but he who gathers money little by little makes it grow.
G. Borrow only when you meet the following criteria:
There is a great divergence of opinion among born again believers concerning if, when, and how to borrow. Some nationally known seminar teachers say it is never right to borrow. That position cannot be supported scripturally.
Others say it OK to borrow for anything and without any conditions.
Some add to the confusion by inconsistent statements. For example one author states: “There is not a verse directing God’s people not to borrow money (not even Romans 13:8). However, no Scripture encourages borrowing either. Borrowing is always discussed in the Bible as a negative rather than a positive principle. It would seem to be a consequence of disobeying God’s statutes or rules of economics.” (Using Your Money Wisely, p. 107).
However, if that were the case then there would be Biblical prohibitions against borrowing. This same author goes on to say: “It is important to remember that credit is not the problem; it’s the misuse of credit. . . Borrowing is not a sin, but dependence on credit is an indication that a Christian has not yielded all rights to God.” (Using Your Money Wisely, p. 109).
1. You fully understand the implications of debt.
a. When you borrow compounding works against you.
Nearly 75% of Americans who use credit cards make only the minimum payment each month.
If you charge $250 a month and make only minimum payments, you will owe $2,870 by the end of the year. Even if you never use the card again after that first year, at the minimum rate, it will take 30 years to retire the debt -- and you will have paid more than $8,000 in interest on initial $3,000 loan.
On the other hand if you put $25 per week in savings at 5% in only 6.5 years you would have $10,000.
Ill. the rule of 72.
b. Getting into debt is a lot easier than getting out.
c. Heavy debt mortgages the future. Heavy borrowing sentences you to a lower standard of living in the future.
d. Debt takes away some of your freedom. The debt is always the first priority.
e. You have no choice but to repay the debt. I have known Christians, churches, or Christian organizations that have been involved in heavy borrowing and then filed bankruptcy or pressured their creditors to accept a settlement without any interest or pay only 50 cents on the dollar toward the principle and then praise God because He has gotten them out of debt. They are not out of debt. That is contrary to the Bible and is wrong. They still owe the unpaid principle and/or interest. Debt must be repaid in full with interest.
2. Your return on the debt must be greater than the cost. i.e. buying a home, which is an appreciating item. A car does not appreciate. It is wiser to save and pay cash on a car. A car may be a good purchase but it is not a good investment.
3. You have a “guaranteed” way of repaying (guaranteed income, collateral).
The problem is that the Bible teaches that there is nothing in this life that is guaranteed, except the promises of God. Therefore, there is in reality no absolute guaranteed way of repayment. Larry Burkett in his book, Using Your Money Wisely (Chicago, Moody Press, 1990) states: “But scriptural borrowing would be limited to contracts where the means to pay is certain. That means that the lender agrees to accept pledged collateral in total payment of the outstanding debt at any time.” He goes on to state: “Would it be ethical to give the collateral in lieu of payment? Certainly, if that’s what your agreement stated.” (p. 105).
But the Christian is obligated to pay back all debt, even if the collateral was not sufficient to repay the loan. Larry Burkett even gives an illustration of this very point. He tells of three Christian business men who’s business went bad and two filed for bankruptcy while the third would not. He made arrangements with the bank to repay the entire debt. He sold a couple pieces of property at a loss. Yet he was determined to pay back every cent. God honored his commitment and in a couple of years the third piece of property sold at a great profit. The bank paid off the entire note and decided to give him the profit after their interest was paid.
4. You have a conviction that this is the will of God.
5. You have complete peace of mind.
6. Your spouse is in perfect agreement on this loan. Men have a greater tolerance for long-term debt than women do.
Conclusion: God uses money as a test for devotion to Him.
1. Where your treasure is your heart is. -- Matt 6:19-21.
(Mat 6:19-21 NIV) "Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. {20} But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal. {21} For where your treasure is, there your heart will be also.
2. Heaven is not for sale -- Eph 2:8-9; Titus 3:5-6.
(Eph 2:8-9 NIV) For it is by grace you have been saved, through faith--and this not from yourselves, it is the gift of God-- {9} not by works, so that no one can boast.
(Titus 3:5-6 NIV) he saved us, not because of righteous things we had done, but because of his mercy. He saved us through the washing of rebirth and renewal by the Holy Spirit, {6} whom he poured out on us generously through Jesus Christ our Savior,