DEBT RIDDEN OR DEBT FREE?
by Ong Eng Boon
In life we are faced with all types of crisis. On a personal level, there are exam crisis for students and for adults, unemployment and marriage crisis. Then there is mid-life crisis and when old age besets us, health issues can be a crisis.
On a global level, we were faced with the US Debt crisis and the Europe Debt crisis. I remember very well the recession back in the 80’s and thereafter the Asian financial crisis which hit us in the mid 90’s.
I remember because I had to take a pay-cut and quite a number of people were out of work because of retrenchment. I remember because at that time I drove a third hand car and there were funny sounds whenever the car moved and I had to turn up the volume of the radio louder so that the sounds would blend in with the music.
I remember that by 5 o’clock in the evening, all air-conditioners had to be switched off. During lunch time, it was lights off too. Everybody was very conscious of expenses because every cent counts.
At that time, I was working for a third tier financial institution (banks, finance companies, credit and leasing companies) and in the financial circle almost every financial institution in town are reluctant to extend loans and become very selective as to who they lend their money to. I remember asking for maximum documents from loan applicants but only gave minimum loans to qualified applicants. Even so, with maximum documents provided, there was no guarantee of a loan.
For the last few years, banks seemed to be calling you up every now and then and wanted to extend personal loans to you. It seems that you only need minimum documents but you can get maximum loans. Sometimes your personal loans are pre-approved or better still they send you a cheque in your name and what you need to so is to bank in the cheque and you have cash immediately! You could get up to five times your monthly salary and you could repay the loan over a period of between two to seven years.
If you have taken a loan from a financial institution, whether it is a car loan, housing loan or credit card balances, you go into DEBT.
WHAT IS THE NATURE OF DEBT?
Whenever a person goes into debt, he obtains money he has not earned. He is mortgaging his future time, energies and assets for the money or possessions he receives in the present, which is now.
So credit is a grant to pay later for what is received now. The financial institutions will charge you interest on the loan extended to you. Interest is the fee the creditor receives and the debtor pays for this grant. (The newspaper also reported that “customers pay between 14% and 18% per annum in interest on the amount they borrow, lower than the typical 24% interest charged for credit cards). What is the interest rate offered by banks for savings account or fixed deposit? 1.5% to 4%? So you can see that borrowing money from the bank comes with a cost and it is very clear that the interest you pay from borrowing is much higher than the interest you receive from your savings.
In today’s world, debt is no longer regarded as an earned privilege for the few but is available quite easily for all.
So borrowing has become an integral part of our life. Those of you who have taken PTPTN loan for your studies, you are in debt the minute you go to college or university. After graduating, you take out a car loan and pay instalments on a monthly basis. Some banks even have credit cards just designed for graduates.
Why are people so anxious to lend you money? Why do banks and credit companies repeatedly entice and beg us o borrow money from them, to the extent of listing 10 different ways we could use the money? Why do we receive mailings regularly telling us that $5,000 or $10,000 has already been approved for us, and better still, to use it you only need to sign and send in the attachment and the monies will be credited into your account immediately? The answer is simple. They want you to borrow because they will profit tremendously from my debt.
Why does a credit card statement highlight a minimum payment of only 5% of the amount owed? (For example, if you owe RM1,000, you need only pay RM50.) Because the creditor does not want the debt to be paid in full. If most people were to pay the full amount at the end of the due date, the lenders will go out of business. In order to stay profitably in business, they must get you to borrow in the first place, then to pay back less than what you owe over a long period of time so that the extra money you pay them in interest is enough to make their profits and keep them in business. Credit card is the number one tool for impulse buying. “Buy now, pay later” is the principle here.
WHAT DOES THE SCRIPTURE SAYS ABOUT DEBT?
Those who are in debt are warned to get out of debt as soon as possible.
Proverbs 22:7 “The rich rules over the poor, and the borrower is servant to the lender”.” You are under bondage to service your debts until it is fully settled.
The scriptures also make it clear that if we have borrowed money for whatever reasons, it is our responsibility to pay it back as soon as possible. Not paying back a debt is to join the ranks of the wicked.
Psalms 37:21 “The wicked borrows and does not repay not again: but the righteous shows mercy and gives.”
Confucius says, “You ask credit, I no give, you get mad. I give credit, you no pay, I get mad. Better you get mad.”
If you owe money to the financial institutions and you are not paying on time, they are not going to get mad, they are going to get their collection officers to see you. And if you still don’t pay, they will engage a repossessor to come and repossess the goods, using force if necessary. Eventually they will file a bankruptcy proceeding against you if you still have balances owing to the financial institutions after they auctioned off your goods.
We need to be very careful when we go into debt. Ultimately the best credit risks are people who would not borrow in the first place. The worst credit risks are those who always feel they need to borrow. Money is always not enough for them!
Personally, I would place a home mortgage in a different category from other kinds of indebtedness. So is a car hire-purchase as a car is considered a necessity now in Malaysia due to our inadequate public transportation system. But the financial problems arising most often for homeowners and car owners are caused by their attempting to buy the kind of house and car that they can’t really afford. We need to stay within our economy range. In other words we need to live within our means and not the other way round.
BASIC CAUSES OF OVER INDEBTEDNESS
a. Ignorance (not stupidity). Learn basic finances, learn about the value of money. My mother taught me from young these principles. 1) How much you earn is one thing, how much you save is another thing altogether. 2) A dollar saved is a dollar earned.
Christian finances are simple:-
1. Pay God first – This is our faith. God must have priority in our budget.
2. Pay self second – on top of your EPF contribution, save 10% if possible.
3. Pay bills third – Live upon the balance of 70%. This demands discipline.
So the biblical principals learned is this:
1. Trust God, put Him first.
2. Work for your livelihood.
3. Provide for your family. “If one does not provide for his own, and especially for those of his household, he has denied the faith, and is worse than an unbeliever.” (1 Tim. 5:8)
4. Do not be covetous. “Take heed and beware of covetousness, for one’s life does not consist in the abundance of things he possesses” (Lk.12:15).
5. Do not serve money.
6. Give generously and joyously. “For God loves a cheerful giver.” (2 Cor.9:7)
7. Help the needy.
8. At all times, avoid debts.
DANGER OF DEBTS
a. Debt is especially dangerous when our monthly payments strap us to the point that we have little freedom to respond to others who need our help.
b. Debt is especially dangerous when a possession’s resale value is less than what we owe. During the economic downturn, this is precisely what happens when our car and even our home value go down by 20% or even 30%.
CONSEQUENCES OF DEBT
a. Debt causes worry and stress. A lot of family problems are money problems.
b. Debt leads to dishonesty – “The cheque is in the mail” excuse.
c. Debt is addictive – Debt is an internal problem. It isn’t simply a matter of insufficient funds but insufficient perspective and self control. We must replace our self-indulgence with self-control.
Prov 25:28 “Whoever has no rule over his own spirit is like a city broken down, without walls”.
Without self-control on the inside, our lives are made vulnerable to an infinite variety of assaults from the outside. A lot of times, our yearning is more than our earning.
GET OUT OF DEBT
a. Start planning and stop bad habits, today. It is better to earn interest than to pay interest.
“The plans of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty” (Prov.21:5).
b. Develop a plan to get out of debt. If you have a 20 year mortgage on your house, as and when you get extra money, pay one lump sum towards it as this will diminish the principle sum borrowed.
C. Discipline accountability.
“It is required in stewards that one be found faithful.” (1 Cor.4:6)
You may have to involve your wife and children about how you are going to handle debts by reviewing your monthly spending habits. Draw up a detailed budget and stick to it.
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