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This world is backwards. Everyone loves to talk about using OPM (other people’s money) to purchase things or to gain wealth. I just don’t get it. Mathematically I understand the advantages of leveraging debt, but math cannot be used to understand every situation. As emotional creatures we were not designed to function as walking calculators making every decision based solely on the numbers.
While math plays a role in our financial lives, there are far more powerful truths, like discipline for example. The thing is that most of us know mathematically what we should do with our finances, yet because of a lack of discipline we don’t do it. So, what then needs fixing – the math or the discipline?
Another truth that really clarified to me why I needed to get out of debt is because the Bible says, “the borrower is slave to the lender.” Anyone who has been in deep debt can attest to the truth of this. Essentially, when you dig yourself in debt you give up control of your life. With each new debt you give more control to your lender and slowly become more of a slave.
You don’t have to be in debt
I always thought that debt was just a way of life. I accepted the fact that I would always have a car payment. Everyone has credit cards, so I just assumed if everyone was doing it, it was okay.
Then something changed. I decided that rather than always having a car payment, I wanted to never take out a loan on a car again. Sure, in the short term I might not be able to drive the car of my dreams, but what I found was that the little sacrifice has been and will continue to yield tremendous fruit.
Think about it – most of the companies advertising have some form of credit or financing they are offering. So, everything we hear from them is going to try to convince us that being in debt is normal, fun, and what the “cool kids are doing.”
It may be normal, but there is something so much better available to us.
Freedom
One of my greatest motivators for becoming debt-free has been the freedom. I just can not wait until I have every debt paid off and actually OWN my home. Paying bills will be so fun!
I just sit and smile when I think about the freedom of not living paycheck to paycheck. I used to live in fear knowing that if I was out of work for more than a week, I would be in big trouble financially. Personally, I don’t believe that God set us free in so many other areas, so that we could stay slaves in the area of debt.
Others are affected
As I have been on the journey to get out of debt I discovered that the reason for it is a lot larger than my freedom. While that has been a great motivator for me, I am now getting excited about the increased opportunity to give. Most everyone has experienced the joy of giving. The challenge is that we often want to give, but have all these other necessary expenses that have to be taken out first. If you are like most, it seems like there is never quite as much to give as you would like.
This is exactly why we need to get out from our debt. How can we expect to be big givers if we owe money to everyone else and don’t have anything ourselves?
Personally, I am not satisfied with how much I am currently giving. I have a feeling that I am not alone in this. I believe that a lot of the church has been limited in their ability to give because of debt. I believe that God is wanting something more from us. I believe that He is wanting us to become good stewards of our finances so that we will be able to better honor Him and others with our checkbooks.
Bob writes about getting out of debt, budgeting, making money and other personal finance topics from a Christian perspective at ChristianPersonalFinance.com.
I have mixed feelings on this, but that’s probably only because I come from a financial, investments-based background. So here are my thoughts:
1. You hit the nail on the head: discipline MUST be involved in ANY type of financial situation, even if it doesn’t involve credit and is only balancing a checking account. When I worked for a large bank WAY back in the day, my heart used to break for the people who would come in wanting overdraft charges reversed because their rent checked bounced because they’d already spent their entire paycheck at a casino! There was no self-control, no discipline, and these people were addicted to coveting! My heart hurt so bad for the bondage they were in. Self-control is a must! Even if no credit is involved, people need to learn to live within their means.
2. Because my degree is in investments I don’t see a problem with debt as long as it is managed properly. For example, when we sold our house to move to NOLA, we made more than enough money to pay off our car note. But when I looked at the figures, our car note was only at 5.25%, whereas we would be averaging 8% (historically speaking) in a diversified fund. So we chose to keep the car note and we divvied up the house money – we gave a chunk to the India ministry we participate in (which I just blogged about), we put some in our IRAs, we set up a college fund for our little one, and the rest we put away for when we leave as a down payment on our next house. Now many people would not agree with what we did, but it made sense to me. Mathematically (haha) it made more sense for us to keep our 5% note and invest as much as possible gaining more than that. Like I said, this BY NO MEANS works for everyone and if someone is staggering under the load of debt they are carrying then it obviously makes more sense to pay off and start clean. It did work for us – thankfully the only debt we have have is our almost-paid-off car note and by not paying it off, we were able to give and to put away for the future. The good news for us is if we ever do get in a pinch, we have money available for the payoff. Until that time, I’m going to make some return on that money… but that’s just the investor geek in me speaking.
I had some friends who were doing the Dave Ramsay deal to where they paid cash outright for a house. Their plan had them renting for roughly 15 years. I just didn’t see the logic in it (for them) – 15 years in a mortgage would have at least built some equity for you, instead of being thrown away to rent. Unless you are in a situation where you live somewhere for free (i.e. move back in with Mom & Dad), I don’t see how throwing money away for rent while you wait to build your nest egg is any better than paying some in interest to the bank. Then again that’s the investor/financial planner in me talking. Maybe it makes sense to others. I guess I need to read Ramsay’s book; all I know about it is what they have told me (and they love him!). Maybe then I would have a better idea of what he is suggesting.
I guess different strokes work for different folks depending on their degree of financial discipline.
Rachels last blog post..Our Indian Connection
It is hard today to live without debt. Yes, I do aggre with you while we are talking about freedom and how sculpture say, but this is modern live. Sometime I got so frustration when thinking about my debt list, but I have to wake up and face it.
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@Rachel: A lot of what Ramsey says takes into account the emotional side of people. In one sense he’s a preacher/motivational speaker, for even his debt snowball may not be the best mathematically, but does work because of the good feelings that are received when getting out of a small debt.
As for mortgages, Ramsey is not adamant on not getting a mortgage. In fact, he would say that a 15-year mortgage is acceptable. He would encourage you to go with all cash, and that’s based on the overall cost of the purchase. So, he would focus on the amount paid in interest to the bank over the note’s period as money that you were basically throwing out, plus the fact that you’d be able to use the money that others would be paying on the house to contribute to your investments over a longer period of time.
You’ll have to check out his book to see the math he uses.
If you already own a house, his priorities are much the same as yours– build an emergency fund, get out of debt, invest in retirement, invest for college, pay off the house, invest.
The biggest incentive to pay off a house, for me, would be flexibility and security. Right now if something happened to your income, you’d have to raid savings to pay a high set of debts. A person that owns their house, has an emergency fund, and has no debts has less possibility of a major disruption because of job loss.
I’d like to add, that debt presumes upon the future. And the first responder, s/he was presuming upon his future when he kept the note for the car and invested money.
We just fixed up a nice house, right before the market crashed, we expected to get a huge sum to add to the next houses’ down payment, or principal… Turns out, that house has sat on the market for a year, without ANY offers. We aren’t gonna reap a big windfall here, we MAY take a loss.
Why? Because we presumed upon the future, and we were WRONG.
Debt IS a curse, even a mortgage keeps you bound. But know what I recently discovered. Even if I own my own house, I still won’t really EVER own my own land. Property tax is gonna get me in the end.
Seems like in our (the U.S.’s) economic situation there is no true freedom, only varying degrees of it.
I don’t think that a bill is *quite* the same as a debt, but a bill which comes due regularly, which you are helpless to pay off completely, and are helpless to live without (see electricity you COULD turn it off), not so with property tax… well, seems alot like the bondage of debt.
(And that is one reason why I agree with the poster about not renting… see that bill comes due over and over and over, and is in my opinion, *almost* as bad as debt. Therefore I think a mortgage which you are paying off and can eventually end is probably better.)
Just my big fat quarter (inflation you know)
Mrs.Meg Logan
Your last point is very true, and I think we all should strive for that. I know one day down the road we’ll probably be getting another mortgage (and believe me, it’s driving me NUTS that we have to pay rent now!!!).
We talked to our friends about the mortgage situation right after we purchased our house back in 2004. They chastised us for jumping in to a mortgage so quickly (and I of course rallied over the wasting of so much money for rent). The thing was our house was not large, we got an excellent deal on it, and when I worked out the figures of interest to the bank versus spending rent money and trying to save, we would have spent more on rent before we could have actually had enough to pay cash outright. Plus not long after we moved in I quit my job at the investment firm to go work part-time for our church, so that was a drastic income change for us. I hope when the time comes for us to buy a house again interest rates will be back to the lows they were at in 2004 (wishful thinking) so we could have more to put to principle.
Unfortunately, the investor in me says to put money in savings instead of paying off a low-rate mortgage because the return is so much greater, especially if you are looking at long term savings like IRAs. As much as I loved what I did, I sometimes wonder how that mentality matches up with biblical standards. Obviously this isn’t a subject that is going to make or break salvation (my uncle would call it “disputable matters” a la Romans 14). At the time I quit I was beginning to study for my CFP – part of me wishes I had finished it and then had a good Bible-based instruction on finances to see how they match up.
Coming from a theological standpoint, what is your opinion on it as far as retirement savings, assets vs. liabilities, etc.? Our accounts are with a Christian financial planning firm and their mission statement is full of verses from Proverbs about preparing for your family. I’ve never studied it biblically; I’ve only gotten the academic and professional side. I’d be interested to hear your thoughts.
Rachels last blog post..Reason #1,457,396 Why God Is Awesome
Hubby and I approach debt and finances so differently. Rachel, I think he’s more like you where he’ll look at the interest rates, the time until something’s paid off, etc., and go with whatever would earn or save us the most money. Numbers give me a headache very quickly and I’m very easily stressed when it comes to finances, so I like the most low-maintenance and straightforward budget I can get.
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Hi Meg,
I’m sorry to hear about your (potential) loss on the house. I can’t imagine how frustrating that is.
I won’t presume to know anything about real estate investment. My (limited) expertise is in the market side of it – stocks, bonds, funds, portfolios, etc. I don’t deal with nor know much about uber-risky stuff like hedge trading and day trading. My primary responsibility at my old job was individual financial analysis. I would gather and analyze financial info about clients, see where they were spending and saving the most, and make recommendations to how to 1) get them the most return on their money (it was a secular firm obviously) and 2) get them out of any high-interest or revolving debt. Of course I couldn’t formally recommend to the client their options; that had to be done by a professional CFP. So I did all the work and he drew the big paycheck – though I can say what I learned from him was worthwhile. 🙂
The thing is, you are taking a risk with ANY investment you do. As for our particular situation with the car, we have the money set up to where if the market tanks tomorrow we’d still have enough to pay off our car loan. Even if we’d paid it off and invested the leftover money, if the market tanked tomorrow we’d lose most of that anyway. It’s a risk that is taken regardless of when or how much you invest. I’m sure one could make a case that investing (even if the person has no debt) is sinful because it could be a form of gambling.
I don’t want to confuse anyone to think I am pro-debt or anything like that. I don’t believe in revolving credit card debt or financing something just because you need it “right then.” I think that goes back to MIn’s original point, that people try too hard to live on other people’s money. I merely questioned the logic of renting versus mortgage. Obviously if you can live somewhere for free and save every dime to pay cash for a house, that would be great. But what percentage of the population can actually do that? My folks wouldn’t be too thrilled if we moved back in with them rent-free just so we could save all our money to pay cash for a house (and obviously from MIn’s comment earlier, this isn’t Ramsay’s credo – it was just presented to me in that way).
Anyway, where our car is concerned, we did not do this to try and make a quick windfall on the money (I don’t believe in taking large amounts of risk for short-term investments). We saw an opportunity to make a little more putting it all in versus paying off the car so that’s what we did. Worst case scenario, there’s enough there to pay off our car debt (especially since we have to rent right now) and if we don’t make anything on the leftover, well, it’s not like we’re really losing anything either. And again, I would never recommend this to someone who has trouble with financial discipline. The thing I’ve found working with and coaching people with their money is it is a case by case basis – there is no blanket recommendation because everyone has different levels of financial self-control.
Two cents are worth a quarter now? That’s pretty funny! Thanks for sharing your opinions.
Rachels last blog post..Reason #1,457,396 Why God Is Awesome
I suppose in my childhood, it was less acceptable to be in debt and my sister and I were encouraged to save for the things we wanted. Consequently, I’ve always used credit to serve me. I’ve taken out loans for building projects or the purchase of large items like a car. But I’ve always been scrupulous in paying the required monthly amount, determined to pay as little interest as possible. Nowadays, it seems to me, that people have become uncaring about their level of debt. Certainly here, in the UK, it’s perfectly possible to write off quite large amounts. Mel Menzies
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MIn, you are definitely not along about wanting to give more to church. I know we should be giving more.
I’ll tell you one thing, I am so done with credit cards! I have been asked at my bank if I am interested in getting everytime I deposit my Avon payments! Arghh…NOOO! I don’t want a friggin…credit card!
If I cannot afford to pay something up front, then I really don’t need it.
We learned the hard way about credit card debt and we are finally seeing the end of our struggle.
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OK, I can’t resist this one. Number one, come check my blog for a little bit on Confiscation Through Inflation. Number two, since I’m not the best writer, GOOGLE it. You need to understand that all this debt-based-economy is actually due to Fiat Currency which means the lack of a gold standard.
Let’s use our first example of the financial planner. Take a car note and invest in a fund. OK, 10000 for the car at 5.25% and 10000 in the fund at 8.00%. I’m assuming both interest rates are annual.
Let’s just look at one year: Your car cost you $525 to finance and your fund returned $800. However, in the mean time inflation is estimated at over 12% year to date, so lets assume it stays at just 12% for the year. 10800 – 12% = 9514 … so that’s the value of your investment once you consider inflation.
So what happens to your car? 10525 – 12% = 9262. So your real debt has decreased. However, you are still in debt which means whoever holds that note has you in an obligatory labor position. You work for him.
See how inflation encourages debt? In fact the whole Federal Reserve system was designed to perpetuate debt. Check your history on this one because it’s the single most important thing politically for the American people today. One cannot have political freedom unless one has private property rights.
Arthur Eisss last blog post..Confiscation Through Inflation
@Leticia: It’s amazing the freedom that comes from a life without debt. It’s so intoxicating that it makes me want to get out of my mortgage, even though I don’t believe it’s currently the wisest thing to do!
@Authur Eiss: You make a really good case when you figure in inflation. That’s part of what under-girds the whole idea of a house increasing in value.
However, I think the stronger argument was the one made earlier– that being in debt is taking a gamble on the future. If you’re in debt without an emergency fund and something happens, you’re more likely to go deeper into debt– at just the time you need debt the least.
If you’re looking to have financial peace, then you’d want to be out of as much debt as possible.
@Rachel
“Coming from a theological standpoint, what is your opinion on it as far as retirement savings, assets vs. liabilities, etc.? ”
I have touched on this a bit on my blog, but basically I think it is a matter of the heart. Proverbs mentions the wisdom in saving and preparing for the future as well as Joseph saving for 7 years to prepare for the 7 years of famine. So, I think there is some good biblical support of saving for retirement, but it has to be within balance. I found myself trying to insulate myself from having to trust God by building a large enough retirement portfolio. Looking back on it, I wasn’t much different than the builders of the tower of babel. So, to answer your question I don’t think it is something that needs to be prayed about and decided on prayerfully. Saving is good, but putting your trust in anything but God is going to get us in trouble…
Well I am young and I try not to have any debt. I think this is a good strategy