The Bible on Debt

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

Recently I had the chance to speak at my church on How to Get Out of Debt. Before I got to the specific steps, I talked about some points the Bible makes about debt. Here are highlights of the four points I focused on:

• The Bible does not prohibit debt. However, every time that debt is mentioned, it is discussed in a negative light and discouraged.

Proverbs 22:7 says: “The rich rule over the poor, and the borrower is servant to the lender.”

When you borrow, you become a servant to a bank, a business, a family member, a friend – whoever you borrowed from. When you borrowed, they put conditions on the loan – what you can do and what you can’t do.

And this is why the Bible counsels us to avoid debt – because it shackles us – and the more debt we have, the more we’re in financial bondage. And the more we’re servants to someone other than God.

Even the secular world knows this is true. An old German proverb says, “He who borrows sells his freedom.”

• The Bible instructs that if you do borrow, you must pay back all of the debt.

Psalm 37:21 says: “The wicked borrow and do not repay, but the righteous give generously.”

Ecclesiastes 5:5 says: “It is better not to vow than to make a vow and not fulfill it.”

This is why you have to be very, very careful before you take on any debt – because you must pay it back, no matter the situation.

• The Bible warns us to not take on the debt of others.

Do not co-sign a loan for another person. If you do, the debt will be yours as much as it is theirs. It’s that simple.

Proverbs 17:18 says: “A man lacking in judgment strikes hands in pledge and puts up security for his neighbor.”

If you want to help someone out financially, give them some money, not a signature or a loan.

• The Bible encourages us to not accumulate long-term debt.

Deuteronomy 15:1-2 says: “At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite.”

I don’t think this seven-year rule is a command, but I do believe it’s a good guideline to use as the maximum length of time you’d borrow from anyone – especially in light of the Bible’s warnings about debt.

So even if you have to take a 15-year loan, for instance on a home, have a plan to pay it off in 7 years or less.

Comments

[BenWL]

I totally agree with above statement. Very true.

I always remind myself not to borrow money from others and even if I do remember to pay back on time.

[Holly]

"Deuteronomy 15:1-2 says: “At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite.”

I don’t think this seven-year rule is a command, but I do believe it’s a good guideline to use as the maximum length of time you’d borrow from anyone – especially in light of the Bible’s warnings about debt.

So even if you have to take a 15-year loan, for instance on a home, have a plan to pay it off in 7 years or less." . . . .

Wow -- Funny how I read the last one about canceling debts... I thought that it meant that the creditor is supposed to cancel the debt after seven years; in other words, after seven years, the creditor should 'wipe the slate clean' and forgive any outstanding balanced owed to him.

[BillV]

Holly,
the creditor cancels the debt, that's how I read it too. but I'm no Bible student. FMF, can you shed any light on this?

[Traciatim]

I wonder if the 7 year remark in the bible quoted above had any influence on how credit beaurau data is removed after 7 years of inactivity? Also, I read it like the others, that if you lend to people and they haven't paid it back in 7 years you should just forgive them of their debt. I'll be sure to bring that up to my mortgage company in year 7 :)

[FMF]

All --

My understanding is that Israelites would indeed cancel the debts of other Israelites every seven years. And, yes, this was the creditors cancelling the debts.

These days it's unlikely that your debtors will cancel your debts every seven years, but you can put this practice to work yourself by simply refusing to borrow for more than seven years.

[MasterPo]

How much *really* is the borrower a servent to the lender?

If you borrow from Tony Sopranno, maybe. ;-)

But from a bank, the terms are pretty clearly spelled out in the loan contract. You don't like the terms? Walk.

If by "servent" it's meant the repayment, well DUH!. But all other things being equal the bank doesn't make you do (or not do) things with the property you bought with the loan.

[BD]

I'm not sure if the 'pay off all debts in 7 years or less' is a realistic goal. God has not blessed everyone equally. Some folks might be able to afford a house on a 15-year loan, but NEVER on a 7-year loan, simply because God has not blessed them with that sort of money. Should they never own a house, despite easily affording a 15-year loan, even if they would benefit in various ways from owning? That just doesn't seem right to me, and seems rather legalistic, as well as deriving a financial rule from a Bible verse that meant something completely different.

"Pay off house loans in 7 years or less" is a good rule of thumb for those who are blessed with plentiful money, but for those with less, I'm not sure it's even a good suggestion (it just makes puts a lot of strain and worry on those with less, and could cause discontent, which is a sin too).

[Joel]

Absolutely true.

Joel

[Squirrelers]

Very wise words in this article. Thanks for posting.

I view it as prudent to value time-honored approaches to handling certain things. The idea that debt makes you "shackled" and a "servant" to the lender is true - in the modern context of course.

Live free - try not to carry debts. This approach will open you up to being more able to live the life you want to live, and to allow you the opportunity to focus on happiness and giving, rather than working your whole life for financial freedom.

Now, for many of us, there must be some modifications. For example, most must have SOME type of mortgage to buy a home, and paying it off within 7 years might not be in the cards. That said, I agree with the spirit of the article - try to limit your debt, and get it paid off as soon as possible.

[Apex]

A few things worth noting about the 7 year cancellation of debt (Deuteronomy 15:1-11)

#1. It only applied when money was loaned from Israelite to Israelite. There was not cancellation of debt to foreigners. So it wasn't a general rule about debt but only about debt between fellow Israelites. (2. Every creditor shall cancel the loan he has made to his fellow Israelite. 3. You may require payment from a foreigner, but you must cancel any debt your brother owes you)

#2. When borrowing from Israelite to Israelite, not only did they have to cancel the debt but they were prevented from charging any interest on the loan for the entire time the money was borrowed. Again they could charge a foreigner interest, but not a fellow countryman. (Deuteronomy 23:19-20 Do not charge your brother interest, whether on money or food or anything else that may earn interest. You may charge a foreigner interest, but not a brother Israelite, so that the Lord your God may bless you.)

#3. This was specifically designed to relieve the burden on the poor. These laws were set down as a way of preventing the exploitation of the poor who were often in situations where they lacked money and would borrow from fellow Israelites. (Deuteronomy 15:4,7-9 4. However, there should be no poor among you, for in the land the Lord your God is giving you to possess as your inheritance, he will richly bless you. 7-11. If there is a poor man among your brothers in any of the towns of the loan that the Lord your God is giving you, do not be hardhearted or tightfisted toward your poor brother. Rather be openhanded and freely lend him whatever he needs. Be careful not to harbor this wicked thought: "The seventh year, the year for canceling debts, is near," so that your do not show ill will toward your needy brother and give him nothing. He may appeal to the Loard against you, and you will be guilty of sin. Give generously to him and do so with out a grudging heart; then because of this the Lord your God will bless you in all your work and in everythying you put your hand to. There will always be poor people in the land. Therefore I command you to be openhanded toward your brothers and toward the poor and needy in your land.)

More time is spent in this passage talking about the poor than about loans. The main concept is providing for the poor and not shackling them with undue burdons.

There are other passages about letting the land lie idle every seventh year, no planting or harvesting. Whatever the land produced was for everyone to live off of.

These were a means of keeping the poor from becoming excessively poor and oppressed. It was done on an honor system and a giving system but it was expected that those with means would help out those without and if the people they helped could not pay them back, it would be forgiven and they knew that.

One other thing about modern times that makes this a bit difficult to compare to is there were no credit cards, there was no buying a cot with nothing down zero interest for 12 months, there was no taking out a loan for a vacation and pledging your future income. This kind of immediate gratification consumer debt is a very recent phenomenom and didn't even exist then. That kind of borrowing which doesn't have the need that the poor have and doesn't have the purpose that the business loan has I would argue is the worst of both worlds. No need, no purpose, just selfish gratification of the fleshly desires. I don't think it would be hard to argue the Bible is against that in every aspect of its nature.

So while the Bible's admonisions against debt are clear and the 7 year cancellation of debt rule is very real, the context in which it is given seems to have a greater purpose and that is to prevent the oppression of the poor. In some sense you could argue its like an ancient version of bankruptcy. If people of meager means who needed money to support their family, were unable to get out of that debt it would eventually need to be cancelled.

As far as business loans, I am no expert in ancient credit markets. It's quite possible credit was not easily available for business or was given on very short term basis when given. However if longer term business loans were given, I am not sure this 7 year rule would be something that would be expected of the shepard who had taken out a loan to double the size of his flocks and just wanted to be forgiven his debts on the 7th year and keep his sheep.

I can't say that these laws didn't also apply to business loans, but it's hard to see a very vibrant credit market in light of such a system and as we are seeing in the current recession, a frozen credit market doesn't help the economy grow.

[FMF]

MasterPo --

Tell the millions who had their homes foreclosed during the recent downturn that they aren't under control of the lenders. I'm sure most of them will differ with your opinion.

[Charissa]

BD - It doesn't matter how much you make. If you save up a downpayment and purchase a house within your means, you can easily pay off a house in 7 years. Within your means isn't going for the house with the maximum monthly payment you can afford, but rather opting for a loan that you can repay in 7 years or even 15. You can still limit your debt and pay any debt off as soon as possible.

[KNSFINANCIAL]

For anyone who has been forced to make a decision based on their debt is indeed a slave! Many couples are forced to seek two incomes - not because they wife loves working - so that they can service or repay their debt. Many people can't make certain purchases (or even go to school) without the assistance and approval of a lender.

To me the largest enslavement is usually seen in giving. Many people give less than they desire in their heart, because much of their income goes to repaying debt.

A homeowner is not able to pick up and move if they have a mortgage. They have to first buy back their freedom permanently (usually by selling the home) or temporarily (by finding someone to pay rent). If you are not able to act without getting permission from (or considering) your debt, then you are a slave!

[Mark B.]

"Deuteronomy 15:1-2 says: “At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite.”

I don’t think this seven-year rule is a command......"

This statement highlights my struggles as a Christian. Why is this verse not a command, but the "give one-tenth" is a command? I could go on and on, but you get the point, so many times my pastor will say "the bible commands.....X", yet rationalizes away a different verse.

[FMF]

Mark B. --

It's complicated. See this:

http://en.wikipedia.org/wiki/Biblical_hermeneutics

[jim]

I don't think 7 years is practical for many (if not most) situations. For that to work you have to have a high enough income level and a cheap enough housing market. It makes home buying impractical for many. e.g. To pay off a $200k house in 7 years you'd have to put around $40,000 a year into the mortgage which isn't close to realistic for most families.

[Mark B.]

FMF --

Thanks for the link. Complicated indeed.

[Bobbert]

"Why is this verse not a command, but the "give one-tenth" is a command? I could go on and on, but you get the point, so many times my pastor will say "the bible commands.....X", yet rationalizes away a different verse. "

What this shows is the importance of modern day revelation and a God who will answer your prayers. If you believe that your church has a prophet that speaks with God, your prophet can ask God what the church is supposed to do. If you believe that you can receive answers from God, you can pray and ask if any given commandment applies to you.

I think it is obvious to most people that not all commandments apply in all situations; after all,there aren't many people performing ritual sacrifices these days.

The difficulty of sorting out what applies where is part of what has led to such a quantity of religions on the earth today. Figuring out who knows and who is guessing is the heavy responsibility each of us has in choosing a religion to follow.

[MasterPo]

FMF - You may not see this reply but it's necessary.

And the reply is: Well, DUH!!!!!!

If you don't repay the loan of course the lender is going to foreclose on the property! What did you *think* would happen?! Be it a house or car or boat etc.

But foreclosing on the property attached to a delinquint debt is a faaaaaaaaaar cry from having the bank tell you you must repaint the house, or put on a new roof, or sweep the leaves, or let the banker's brother-in-law stay in the extra room for a couple of months...

[FMF]

MasterPo --

The point is -- you're not in control of your own destiny when you borrow. Someone else (usually a company that puts profit over compassion) is.