Mortgages. Student loans. Auto loans. Loans, loans, loans! Many Americans have enough debt to where if they make the minimum payments, they could be paying off debt for 30 years or more. Some people pay off debt over a lifetime, never gaining traction until well into retirement. Is this okay? Let’s turn to the Bible for answers. Consider the following verse:
Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law. – Romans 13:8 NIV
Well there you have it! The end! Oh, but wait, some questions might be coming to your mind. For example, how quickly should Christians pay off their debt? Or more precisely, how should Christians prioritize debt reduction? Let’s explore this, shall we?
Investing in Debt Reduction
The first concept I’d like to introduce is the idea of “investing in debt reduction.” What does this mean? It’s simple. Investing is usually associated with putting money you’ve earned into a company or fund of companies that you feel will gain value over time, thus making your contribution more valuable. While this is a worthwhile pursuit, no one can know for sure if a particular fund or company will increase in value over time.
Reducing debt, however, provides you with a return on investment that is surefire. By paying off your mortgage early, you’re saving yourself all that interest you would have paid. There’s no doubt that paying off debt will give you a return on investment, and that return is called your interest rate.
The Higher Stock Market Return
Many will argue that the stock market on average provides a higher rate of return than if you were to pay off your debt. No doubt, if your mutual funds are averaging a 9% return and your mortgage interest rate is at 5%, it makes mathematical sense to invest in mutual funds rather than paying off the house. However, is that 9% return guaranteed? Of course not!
So I suppose the real question is: would you rather take a guaranteed 5% or a probable 9%? This question assesses your feelings about risk. Are you willing to take the higher risk? All of us take risk, it just depends on what level.
Balance Risk with Security
I think it is wise to counterbalance risk with security. Security, should always come first. Building a firm financial foundation should come as top priority. Anytime you’re thinking about taking a risk, think about the consequences if your plan were to fail. Could you accept and be comfortable with those consequences?
So should Christians let debt remain outstanding when they have seemingly better financial goals to accomplish? My argument is that those seemingly better financial goals aren’t always as good as they seem to be. I think Dave Ramsey had it right with his 7 Baby Steps in most situations. Eh?
So what do you think? Do you feel that it is important to attack debt as a priority? How high is debt reduction on your list of goals? Meet us in the comments!
Photo by David Berkowitz