Now that we know how God views debt, let’s zoom in on specific debts: national debt, credit card debt, and automobile debt have many negative consequences. Let’s look at each of them.
NOTE: see this post for a discussion of mortgages.
Table of Contents
We can get an elevated view of debt by considering the situation in our country. Then we can zoom in and look at the situation in households.
Our National Debt
Michael Farris is a lawyer and the founder of the Home School Legal Defense Association (HSLDA) and Patrick Henry College. In 2001 he wrote:
We should demand that our government respect the economic freedom of our children and grandchildren by eliminating the national debt. In the fall of 1992, the national debt was $4 trillion. That is $16,000 for every man, woman, and child in America. A $4 trillion stack of $1000 bills would be 245 miles high.Michael Farris, The Homeschooling Father (Nashville, TN: B & H Publishing Group, 2002), 110.
The national debt was $4 trillion in 1992, $6 trillion in 2001, $15 trillion in 2011, and it is expected to reach $30 trillion in 2021. Why do we have a debt ceiling if we keep raising it? If the purpose is to prevent debt from exceeding a certain level but we raise the ceiling when it’s reached, haven’t we defeated the purpose? We should get rid of the pretenses that have no real significance and be honest about our actions: We take on debt recklessly.
Biting the Bullet to Pay Off Our National Debt
The way our nation is accruing debt is unsustainable, and ultimately, there are only three possible ways to change the course we’re on. The first possibility is to raise taxes. The second possibility is to spend less. But most economists believe either strategy compromises the economy. Lowering taxes stimulates growth and spending, but also increases the debt. As the government spends money or engages in “quantitative easing,” also known as stimulus spending (injecting large amounts of money into the economy), the economy grows, but so does the debt. It should also be noted that some economists believe when the government stops stimulus spending, the economy returns to where it would have been without it, but with one exception: an increased national debt.
The third solution is, to put it bluntly, bite the bullet. Suffer through difficult years, including economic slowdowns, and lower the quality of living until the debt is in check. But could a political candidate win if he talked about making these kinds of sacrifices? I doubt it. People want a candidate who promises prosperity versus poverty. Also, as the percentage of our nation receiving entitlements grows, so too will the number of voters who want candidates promising more rather than less spending. Sadly, I hope this famous quote doesn’t define our nation:
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.The earliest known attribution of this quote was October 20, 1948, in what appears to be an op-ed piece in The Daily Oklahoman under the byline Elmer T. Peterson: “This is the Hard Core of Freedom,” The Daily Oklahoman, 19. The quote has not been found in Tytler’s work. It has also been attributed to Alexis de Tocqueville.
If I can paraphrase: A democracy only lasts until the people learn they can vote themselves the greatest amount of immediate prosperity. At that point, the nation will be crushed under the weight of the people’s selfishness.
Sacrificing Our Children’s Future for Our Present
We have an amazing capacity to sacrifice the future for the present, but what’s surprising is we will even sacrifice our children’s future for the present. The preamble to the US Constitution states the purpose of it is to secure the blessings of liberty to us and to our posterity (children), something we are not doing. One of our founding fathers, Thomas Jefferson, said:
The question whether one generation has the right to bind another by the deficit it imposes is a question of such consequence as to place it among the fundamental principles of government. We should consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves.Jay H. Brown, Truth in Government: Restoring Pride and Prosperity in America (San Antonio, TX; Freedom Publishing Company, 1996), 32.
Again, if I can paraphrase: Our generation should not be able to hurt the next generation by “kicking the can down the road” and giving them the consequences of our actions. Although the debt negatively affects us, our children will suffer the most.
The Bible’s Condemnation of Our National Debt
Proverbs 13:22 says, “A good man leaves an inheritance to his children’s children.” I don’t know if there’s a better verse describing the opposite of what our nation is doing. It would be one thing if we were only failing to leave our children an inheritance, but our sin goes beyond that because we’re robbing them of their futures. They will be burdened with the problems that are being creating today.
Psalm 37:21 says, “The wicked borrows but does not pay back” (ESV). We currently borrow forty cents of every dollar. You could argue that our nation has never defaulted on its debt, but we were within days of doing so in 2011. We lost our triple-A bond rating with Standard & Poor’s and received a negative outlook for the future, indicating risk of a further downgrade if the government’s fiscal discipline weakened or the economy deteriorated further. China’s official Xinhua news agency said, “The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.”
You might be saying, “I’m not in government. I didn’t make these decisions. What do our nation’s debt and spending problems have to do with me?” The answer is our nation is people: you and me. We are part of the problem. Most Americans don’t spend or view debt any differently than the government.
How Much Debt Do We Individually Have?
Let me share some numbers with you. As of 2020, on average, people have the following debts:
- Credit card debt is $6,500
- Automobile debt is $18,500
- Student loan debt is $39,000
- Household debt is $145,000
- Mortgage debt is $210,000
Let’s look at a few of these categories of debt so we can manage our finances God’s way.
Credit Card Debt
A Bankrate survey found 30 percent of Americans have more credit card debt than they have saved up for emergencies. If people have $6,500 in credit card debt, are charged the average APR of 19 percent, and pay the minimum each month (3 percent, which is roughly $190), they would stay in debt for more than 17 years, put more than $5,800 toward interest, and pay back more than $12,300. Pay back $12,300 to borrow $6,500? Why would we think this is anything other than foolish?
Embracing credit card debt is one of the worst financial mistakes we make. Ted Rossman, industry analyst at CreditCards.com, explains how detrimental it can be:
Credit card rates are at record highs 17.73 percent, and that’s for people with good credit. Many people with lesser credit are paying 20 to 25 percent on their cards. Paying these kinds of rates for any length of time is really going to hold you back financially. Credit card rates are three to five times what we typically see on mortgages, auto loans, and student loans.
The problem with credit cards is they seem like free money—you can buy something today and pay for it later. Because the bill doesn’t arrive for weeks, you feel as though you didn’t spend a cent. Even when the bills arrive, the purchase still doesn’t seem painful because the payments are only smaller installments of the entire cost.
We must keep in mind that, in the end, we pay back more than twice the initial purchase. For example, a $10,000 purchase at 20 percent interest, paid off over 8 years, requires monthly payments of only $210, but the total paid back is $20,115. That means $10,115 in interest! Would you still make that $10,000 purchase if it were $20,000 instead? Hopefully not.
While I would highly discourage credit cards, if you are going to use them, be sure to pay off the balance each month. Wise people never pay the exorbitant interest tacked on to their credit card purchases. They pay off the balance each month, thereby using the card without it using them.
A close second behind the damage of credit card debt is automobile debt. You have probably heard that new vehicles are terrible purchases because they lose value when driven off the lot. Let me reinforce that point by giving you some numbers. Fifteen percent is the average value lost, which means if you purchase a vehicle for $30,000, you lose $4,500 within minutes. Let that sink in. A casino is probably the only other place you can lose that much money that quickly. Sixty percent of the value of a vehicle is lost within the first five years. New vehicles are one of the worst investments people make, yet plenty of people still purchase them.
The average car payment is $545 per month. This doesn’t include the extra money for auto insurance, which is more expensive on a new car. The average new car loan is 68 months, which means the average car costs more than $37,000 when paid off completely. If you invested the same amount of money with a 12 percent rate of return, you would earn more than:
Even if we use a smaller car payment of $415 per month and a more conservative interest rate, we are still out the following amounts:
- $390,000 in 30 years with a 6 percent APR
- $570,000 in 30 years with an 8 percent APR
- $820,000 in 30 years with a 10 percent APR
Wouldn’t you want to avoid throwing away this much money by purchasing your vehicles with cash? By doing that, you can wisely use the extra money in other ways, such as paying off your mortgage. Let’s take a look at mortgage debt next.