Some Christian financial experts and writers have spent a great deal of time trying to convince their peers and others that the Bible teaches that credit is wrong. I’ve heard the subject debated ad nauseam, but the matter is volatile in some circles.
You absolutely should not have any debt according to the Scriptures. Why? The financial advisers to Christians say the reason lies in the word “usurious.” You are biblically prohibited to pay interest on money you borrow. So borrowing is wrong? Yes, if you pay interest. Is earning interest wrong?
The problem lies in the definition of “usury.” No doubt the Bible condemns the practice of usury. What is it? It is the unfair extraction of interest charged on loans. We get our laws against usurious practices from the Bible, but the Bible does not teach that earning or paying interest is wrong.
Interest on money is simply the cost of doing business. A dentist from Tennessee called me recently and said, “I’ve read all the books on debt-free living, and I’m convinced the economy is headed for collapse, and no one can stop it.”
“Well,” I said, trying to find out why he had called, “how’s your practice doing?”
“To tell the truth, I’m losing patients and don’t know what to do,” he stated in a worried tone.
“Would you mind if I ask you some questions?”
“Shoot,” he replied.
“Do you tithe?”
“Well, when I get completely out of debt, then I’m going to start tithing.”
His answer didn’t surprise me. A lot of debt-free living people think that way. Because they believe debt is sin, they figure it’s better to stop sinning before they start tithing.
“Do you need new equipment in order to upgrade your practice?”
“Yes,” he answered, sighing heavily.
“Do the dentists you compete with have this equipment?”
“Yes.” I could sense the discouragement in his voice.
“Have you lost customers because your equipment is outdated?”
“Yes, they’re all going to the new guy across town.”
“Do you want my advice?” I asked.
“Of course, that’s why I called you.”
“First of all, start tithing and quit worrying about getting or staying out of debt,” I told him bluntly.
“Second, borrow more money and buy the equipment you need, advertise that you have it, and get your customers back.”
“Third, make your borrowing short term only. As your cash flow increases, paying back the loan should be no problem. That’s the proper use of debt.”
“What about the interest I’ll have to pay?” he quizzed.
“If inflation is 6 to 7 percent, then the cost of making those same purchases 10 years from now is going to be the same, or more than the interest you would save by not financing the project now and doing it later. So you will lose what you would have gained by not paying interest on the money during that time.”
Those principles apply to any business. In fact, you wouldn’t have a job to go to tomorrow if your corporation or place of business didn’t use debt as leverage. Your company leverages through sales of stocks, bonds, debentures, and creative bank financing. That’s how they finance their business, so they can employ people like you to work for them. Leverage is essential in a free-market economy.
Walt Disney knew how to use debt to his advantage. One afternoon Roy Disney—Walt’s brother—was very discouraged after poring over the financial records of the Disney Companies.
Walt walked in and noticed the rather depressed look on Roy’s face. “What’s wrong?” Walt asked.
We are $4.5 million in debt with absolutely no way to pay it off at this time,” Roy replied. “We have 1,500 people on the payroll, which is getting harder to make each pay day. It looks like we’ve had it.”
Walt started laughing.
“What’s so funny?” Roy asked.
“I can remember when we couldn’t borrow a thousand dollars,” Walt replied.
What’s the difference between leverage and financing with debt? Leverage is debt used only for a short amount of time and only for the reason of the cost of doing business.
Leverage is right, but financing with debt is wrong.