Debt Free, By the Grace of God
(Or Proud of It?)
From Volume 6 Issue 1 of Unless the
Lord ... Magazine
Aspiring to be Debt Free
Any Christians aspire to be "debt free," and for good cause! Debt is a problem for many today. Have you ever been heavily burdened by large debts with ever-accruing interest and high monthly payments? If so, you understand something of the problem debt can become. Or perhaps you are one of many who at some point has declared bankruptcy to escape from debts that you could not repay. If you have never fallen into one of these more serious debt problems, consider yourself blessed!
Even those who appear to manage their debt very responsibly sometimes encounter trouble. In a time of unexpected job loss or medical disability, they may be unable to meet all their obligations, resulting in the loss of an auto or house.
Our laws are much more lenient towards unpaid debt that the laws of previous centuries. We have no debtors prison (like England 200 or so years ago) to which we might be confined until family or friends paid off our debts in full. Nor are we living in more ancient times when it was customary for an unpaid debt to be discharged by the selling of all the debtor’s possessions, and if still not sufficient, making the debtor and his family slaves of the creditor (or selling them as slaves to another).
The Bible encourages us to avoid borrowing money, if at all possible, and to discharge any debts we have as quickly as we can. (Prv 22:7; Prv 22:26-27; Rom 13:8) We are also warned about presuming upon the future – things could happen that endanger our ability to repay (Prv 27:1; Ja 4:13-14). And Moses told Israel that part of their blessing that would come from obeying God would be financial, such that they would lend to other nations but not themselves borrow (Deut 15:6). Though I have found no Biblical command to never borrow (see my discussion on Romans 13:8 in "On Debt and Borrowing" Volume 1 Issue 3 and also posted on our website), yet it is clearly presented as preferable to have no debts or to discharge any such obligations very promptly.
Ease of Amassing Debt
I don’t suppose it has ever been easier to incur huge amounts of debt than it is today. Credit is so widely available and with such high limits that nearly anyone can amass a debt ridiculously large for their level of income. Merchants of just a century ago were much more cautious in extending credit. Their own business success heavily depended on minimizing bad credit losses. Now the bank credit cards remove nearly all risk from the merchant, so most businesses will sell to anyone on credit through these cards. With this easy credit, a great many people get into debt problems from the many smaller purchases of credit cards, rather than just the large purchases of homes, land, and autos, or debt from business loans.
Help With Debt
There are a number of Christian teachers and organizations that focus on teaching Christians how to handle their money biblically. These organizations have helped many in dealing with serious debt problems. One significant bit of counsel that nearly all give, is to make it a goal to get out of debt and stay out.
Credit cards are often found at the root of many debt problems. We all have many perceived needs and wants. We are surrounded by advertising and store displays designed to stir up these wants, perceived needs, and lusts. Credit cards offer the ability to spend well beyond our available cash resources with delayed consequences. So it makes things more tempting and it is easy to lose track of just how much you have incurred in debt – until the truth is told by the credit card statement.
Then when the full card balance is not paid, the interest charges begin to accumulate. With continued purchases and rising interest charges, you may fall further and further behind in repayment. You may eventually come to the point where making the minimum required payment is very difficult. Beware reaching this point, as more severe consequences may be invoked by the credit card companies if you fail to make the minimum payment on time – especially if this happens repeatedly. Sometimes higher interest rates and penalties can be applied to your account and the companies may become unfriendly.
For some folks, the best advice is to stay away from credit cards altogether. If a large debt already exists with credit cards, then you may need to destroy the cards to prevent your adding any new charges, while you work to pay off what is already owed. You may also want to investigate debt consolidation loans that would wrap all your credit card debt into one loan at a lower interest rate and payments that you can reliably make each month.
Are Credit Cards Bad?
Like many things, these cards can be used for both good and ill. On the positive side, credit cards offer great convenience for purchasing in stores, by telephone, or over the Internet. Now we also have available a helpful alternative to credit cards - debit cards. For those concerned about losing control of spending through credit, debit cards offer nearly the same purchasing convenience as credit cards, but without the debt risk.
Yet there are some useful things that a credit card can do that a debit card cannot. In a crisis, when something needs to be paid for before you will have the money "in hand," the credit card allows you to buy now and pay later. You will have about a month to come up with the necessary money to cover your purchase, without any interest charges or penalties. On rare occasions you may face a serious need that you consider is well worth going into debt for a time – such as much needed medical treatment or ambulance transport, a critical auto repair, or an emergency overseas trip. A credit card can provide a means to immediately borrow what the situation requires.
Handled properly, a credit card can be very helpful in many situations. The key is to use it wisely, not purchasing more than you can fully payoff at statement time, with the rare exception of a crisis for which you would consciously choose to borrow for anyway.
A Challenging Goal
The goal of getting entirely out of debt can be very challenging. For some, the initial challenge is dealing with all the debt they have accumulated from credit cards and small loans. For others, the difficulty is with the very large purchases of modern life – things like autos and homes.
New autos cost a lot. Used autos that are reliable, meet emissions standards, and will last for a good many years without expensive repairs, also cost quite a bit. We know it would be best to save up the purchase price and avoid a loan and interest, but that is very hard for many to do. Though some live in cities with excellent public transportation, many more families depend on their autos to get to work, school, shopping, church, or anywhere else. Many families find they need separate vehicles for the husband and wife, and sometimes one or two more for older teens with work and other responsibilities. That’s a lot to save for, absent a large income.
Many of us end up in the trap of badly needing a new or additional auto before we have saved up enough. And if we wait too late to save, the available savings for a new car may all be eaten up by repair costs for the old one.
Then the really big challenge is purchasing a home. Virtually everyone buys homes by means of a mortgage – even most millionaires! How does one save up enough money to purchase a home with cash? Some people do so, but it is rare in the absence of a lot of wealth. Living in some locations makes a debt free home purchase much more difficult. A home that costs $75,000 in one location can cost $200,000 elsewhere.
So how do people own a home while being debt free? In most cases, they bought the home with a mortgage debt but then paid it off early. They may have taken a shorter term loan (resulting in huge interest savings), they may have doubled up on mortgage payments (may be a serious sacrifice), they may have refinanced at a much lower interest rate and then increased their payments, etc. All of these methods require sacrifice and time, yet result in big overall savings in interest.
I’ve heard of some cases where folks bought and sold several homes at the right times and places to benefit from rapidly rising housing costs. After making a lot of money from selling a home, they purchase or build a new home in a lower cost area and perhaps scaling down on both the size and features, to the point that their sale earnings could pay for the new home outright.
Our method of paying for our home was more unusual. It was a combination of a lot of factors: a little equity in our prior home, some retirement savings withdrawn, purchasing land in the country at a lower price, a low interest inter-family loan to help with the land purchase, constructing the home ourselves to save the labor costs, building on a cash basis over a period of nearly four years, reducing mortgage payments on our prior home through refinancing (allowing more money to build with), some special job bonuses invested entirely in the new home, and overall, the hand of God making it all work out in the end. I see it as an example of how God can do the impossible, using more means than I could imagine, including enabling someone like me to construct his own home with no prior construction, woodworking, wiring, or plumbing experience.
Success Stories & Pride
More and more Christians are reaching the goal of being debt free. Yet the percentage doing so is still very small. There are a lot of obstacles to overcome. Most of us marry and start families with few assets and modest incomes. Few of us are setup in business or are provided first homes by our parents (unlike some in prior centuries among prosperous families). A young family needs a lot of things, often a lot more than they can afford – a ripe condition for ending up in debt. In many cases there is already debt accumulated from school loans than must be repaid. A young man just starting in his work career may be more subject to losing his job when the business isn’t doing well, or starting over in a very different business as he seeks to find his way. So most start out behind the curve in financial matters and often have debt to contend with.
For those who do succeed in avoiding or eliminating all debt, there can be a degree of pride in being one of the few to have accomplished this. Among Christian home schooling circles particularly, much is made over being debt-free, and in some instances it may seem like being debt-free is a badge of superior spirituality in some way. Though being debt-free is a good thing, we should be careful not to attribute too much of this accomplishment to ourselves. Nor should we make others feel that they do not measure up because they still have debts.
Not a Level Playing Field
In working to get out of debt, we do not all start from the same place. This is NOT a level playing field. We start out our adult lives with differing advantages and handicaps. Some young men start their adult lives with skills that command high salaries, savings, a late model auto, and a wife who also brings a number of financial assets with her to their new family. Others begin with school debts, no savings or assets, and skills or training which do not pay well in this marketplace.
Nor is one’s future financial success determined purely by one’s hard work and ability. A great many other factors influence our income growth. Our company may do well or poorly, the type of business we are in may go through some bad times. We may be blessed with bosses who help us advance to better positions, or bosses who hold us back. Yet probably the greatest help to becoming debt-free is having a fairly high and dependable income. When considering the combined goals of owning your home and being entirely debt free, the ones who reach this goal are usually (there are exceptions) not those with incomes of $20,000, $40,000, or even $60,000 – at least those who reach this goal much prior to the retirement years.
Factors Outside of Our Control
Whether you become or remain debt free is partially dependent on a lot of factors outside of your complete control. Though many get deep into debt primarily due to mismanagement of their finances, this is not always so. An extended period without a job or income; large medical bills not covered by insurance, the failure of one’s business, the loss of a major lawsuit, or a great many other events can sometimes put a debt free person back deep into debt again.
Consider how you would deal with an extended period of unemployment. Though you may immediately try to drastically cut your spending, not all financial obligations can be immediately cancelled, and you may be unable to pay. You may file for unemployment payments, or seek other government assistance, yet that may not be sufficient to pay your property taxes, rent, utilities and medical bills. And sometimes, right when your income and benefits are gone, other things go wrong – like serious medical problems, major auto or appliance breakdowns, etc. Perhaps your family, friends or church will help in such a crisis - or perhaps not.
We have all heard of medical treatments for cancer or other life threatening conditions that can cost hundreds of thousands of dollars without adequate medical coverage. In rare instances there is also the challenge of huge lawsuits – legitimate or not, which may cost huge sums to defend against and much more if you lose.
Then when you own your own business, there are business risks that can quickly prove costly. A very profitable business can sometimes face a crisis that entirely reverses your fortunes and puts you deep into debt. A business owner may be faced with the need to borrow a lot of money to help the business survive a setback. Even if failure is inevitable, sometimes a substantial loan is needed just to reduce the magnitude of the business loss, so that the business can be wound down in an orderly fashion. When a business truly does fail, there are often business debts that cannot be paid by the business that the owner is legally responsible for, or feels morally responsible for repaying.
When we married, I had no debts and had some savings, but Lori had several college loans outstanding. I was able to immediately pay off one of these, but the other took us some years to cover, while I continued through college and worked part-time. Besides that, our indebtedness those first few years consisted mostly of debts owed to doctors and hospitals related to child birth (3 c-sections in 3 years and one was born premature). We had no insurance and had been required to make monthly advance payments, yet the initial c-section was unexpected, as was the pre-maturity problem – so more was owed. With the Lord’s help, I believe we did manage to barely pay off each child before the next one arrived!
Later in marriage, when I had a higher income and a decent credit record, we began to use credit cards too much. I had partly bought into the worldly wisdom of that high inflation time, that encouraged folks to borrow and spend now and pay back later with dollars that are worth less. So when we had needs or significant wants, we purchased before we had the money, with the plan to pay off the debts a little later. Well with high interest rates and unexpected financial reversals, those pay off plans did not quite work out. So we had to stop charging and work hard over the period of several years to again clear out the debt.
As we became more prosperous, we were able to purchase a van to more comfortably transport our family, and then a home of our own. We had some savings for down payments, but still required an auto loan and a 30 year mortgage on the house. The interest rates were relatively low and at least these were assets that could be resold to payoff most of the debt, if required. Nevertheless, we saw what a huge amount of money was being paid in interest over a thirty year loan period. And as with any large financial obligation like a car note or a home mortgage, there was always the risk of losing it all if my income was ever lost for long. So we prayed and looked for a way to retire all of our debts as early as we could.
As mentioned earlier, through the process of building our own home, we were able to avoid a mortgage and owned it outright from the first. However, before we finished building our home, we reached a crisis point with our automobiles. In the end, it seemed more prudent to take out 3 year auto loans for two new vehicles rather than to continue repairing the old ones. Then as soon as the house was finished, we doubled up on auto payments to retire these debts more quickly.
However, while some thousands were still owed, my job (and our income) came to an end. We continued to pay down the final loan for a while, using the money from my severance package. However, as that money began evaporating and we were moving ahead, trying to get our business off the ground, we really didn’t want to have any debt payments. In the end, we worked out a solution where we sold my fairly new "commuting" car to our 3rd son, as he was now financially able to purchase a used car for himself, and then we used this money to pay off the last of the loan on our truck (a necessary vehicle for our farm).
Certainly it was a great blessing not to have any more debt to deal with while we were struggling to succeed with a home business. Yet our "debt-free" status didn’t last for much more than a year. It certainly wasn’t that we weren’t trying to stay out of debt! We REALLY did not want to be in debt again. However, we had a serious problem. Our businesses were not producing virtually any real income. Every thing we "made" needed to be reinvested to keep the businesses going and growing.
The businesses were taking all of our available time – there was nothing to spare to use working for someone else, plus the cost to the family from such an attempt. Additionally there was a cash flow timing issue. With raising meat chickens, we had to purchase day old chicks and then feed them several thousands of dollars of feed, before we could sell them and hopefully make a profit. At first, we had the capital to do this. But when results were poorer than expected and growth was slower than planned, we soon found ourselves with several thousand dollars invested in animals and no more money left to feed them. Without feed, they would die, 100% of our investment would be lost, and our farm business would quickly come to an end with the loss of customers.
Actually, our resources were not totally spent at that point. We had some money left in an IRA from earlier years that we drew upon initially before going into debt. But then the stock market took such a dive that I was hesitant to withdraw more because of the combined investment losses and early withdrawal tax penalties. Rather than cashing in the last of this with such losses, I chose to go into debt again to keep the businesses and ourselves afloat.
Should we have done so? Perhaps it was a mistake not to go ahead and cash in the last of the IRA money before borrowing. Was there another alternative? Whether God had another way that we were unable to find, I can’t say.
Certainly I considered giving up either the farm or the magazine or both, to seek a job elsewhere with which to pay the bills. However, the answer to my prayer always seemed to be to "stay put" and to keep going with what I was doing. So I did, and we found some possessions to sell to raise a few thousand dollars, we earned a little extra money here or there, and we found ways to scale back our living expenses even further. I managed the debt as best I could, such that interest expenses were kept at a minimum. The Lord sent a few special gifts our way from others that helped a little. Nevertheless our debt continued to grow. For a good while, the total of the debt was less than the IRA balance, so at least there was a visible way out. But then the stock market failed to recover much and our debt continued to grow, exceeding our IRA balance.
So how did we rescue ourselves out of this predicament? We didn’t. God did something that we could not foresee, nor was it a way we would have chosen. When my father’s health declined and he needed to live with us, he wanted to help us as we were helping him. He saw how much his living expenses were reduced by living with us and how much of our time was being devoted to his care. Though we made it clear that nothing was required of him financially, yet he wanted to help us in such a manner, and this proved enough to stop the growth of our debt and perhaps begin a very gradual reduction. Then when he died almost a year later, my inheritance was more than sufficient to pay off all debts and return us to a debt free status. So we are again debt free!
However, we certainly have nothing to boast about. It was God who paid off our debts – we could see no way to do so ourselves by our labor in these businesses. So we have learned some humility about being debt free. We had paid off our debts and built a house without a mortgage, only to soon mount up other sizeable debts, no matter how hard we worked to do otherwise. Then we were rescued from our debt, not by anything we ourselves could do, but by God’s provision in an unexpected way.
The point of all this is, but for the grace of God, no matter how responsibly you manage your financial affairs, it is possible to end up under a heavy burden of debt. But for the grace of God, all of us could end up in such a situation. Now that in no way excuses our misuse of credit, our overspending, or poor financial management. And it is wise and prudent to generally avoid debt, to pay off debts early and to seek to eliminate all of our debts and remain debt-free. Nevertheless, we must look to God for our sufficiency, and never trust in either our riches or our own ability to earn and manage money. It is God who gives us the ability to earn money and to manage what we have. There is no room for pride on our part when we become debt free, rather the credit should go to God.V