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Debt Myth #4: “Good Debt”

Via Flickr, by user Will Folsom. Used under Creative Commons License.

Some of the greatest expenses that we ever encounter in life are also some of life’s most worthy causes. So is it okay to borrow money for a really, really good reason?

A lot of well educated folks understand the pitfalls of “consumer debt,” and advise friends and family to avoid using credit cards to finance a lifestyle that they can’t afford. Many of these same people, though, promote the use of borrowing and credit for good causes, especially expensive causes. Things like going to college or adopting a child can cost tens of thousands of dollars. and it can seem like a good idea to borrow money to accomplish these very worthwhile goals. People call it “good debt,” and say that it’s okay to borrow for these reasons.

So, is there really such a thing as good debt?

No. Certainly,  education and adoption are among life’s most noble causes. But the best of intentions can’t turn a bad financial strategy into a good one.

Let’s step back and look at the bigger picture here, and try to remove some of the emotional factors that weigh so heavily in these cases. Debt is not part of God’s plan for your life. Debt puts us into financial slavery. Remember what Proverbs 22:7 says:

The rich rule over the poor,
and the borrower is slave to the lender.

God didn’t put an escape clause into this passage; He didn’t say “unless the borrower has a really good reason.” The principle here is inviolate. Whenever we borrow money, we are volunteering for bondage. And bondage is the opposite of what God wants to see in our lives. “It is for freedom that Christ has set us free” (Gal. 5:1).

Education, adoption and other worthy causes are excellent things. God wants to bless us with many of those things. And our God is a God who gives good gifts to His children. So why would God give us a gift that requires us to go into financial bondage? Debt can quickly turn the biggest blessing into a curse.

From a practical side, student and adoption loans are always unsecured debt — you have put up no collateral against these things. If you get in a financial pinch, you can’t sell your college degree or return your child to where you got her. The debt sticks around until you pay it all. Many of these loans have low interest rates, and “affordable” monthly payments, but are structured to last for 20 years or more. If you borrow tens of thousands of dollars to adopt a baby, you may not be done paying for him before he becomes an adult and leaves the house.

Many people will object that there’s simply no way to do these things without borrowing money, but it’s just not true. Plenty of people have found ways to pay for education without debt; start sniffing around adoption communities, and you’ll find testimony after testimony of couples who adopted children without borrowing money.

So if you feel God leading you to pursue higher education, adoption or some other wonderful goal, here’s a gut check for your faith: Do you trust God to provide? God says that he will take care of your needs — do you have the faith to believe it?

I hope you will. Because our God is a God who gives us good gifts. And He always pays for what He orders.

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Comments

  1. Brian,
    Do you know of any testimonies of someone with an average income who buys a house without going into debt with a bank? It seems to me that a mortgage is debt just like any other. I’m all for considering a cash purchase of a home, but this seems to me to be pushing mythological in the common mindset of how to get things done financially.

    • People have done it before, although most Christian finance teachers separate home mortgage from other kinds of debt. We’ll talk about that more in a future article, but some of the basic reasons are:

      A) Home mortgages are secured by the value of the house.
      B) The house should be worth more than the mortgage, so you can always sell the house and walk away if you need to.
      C) The appreciation of homes prices (in a normal market) makes it hard to save money fast enough to pay cash for a home.
      D) You’re going to pay a similar amount every month to rent a place, so a mortgage payment doesn’t restrict you financially the way other debt does.

      Still, I would encourage anyone who is able to buy a house debt-free. If I had that kind of cash (from an inheritance or other windfall), it would be my first move.

Trackbacks

  1. […] power; debt is a safety net; everyone has a little bit of debt. They’ll say that some debt is good debt, or that carrying debt is okay, as long as you can make the payments. But once you debunk all the […]

  2. […] our culture tells us that you can’t go to a party without drinking, it also tells us that you can’t go to college without borrowing money. The truth is, you can — but it’s not nearly as much fun. So instead of busting your […]

  3. […] most fundamental fact about personal finance: All debt is slavery, no matter who sells it to you. There’s no such thing as good debt. And it’s almost always better to save and pay cash for something than to borrow money to […]

  4. […] Sometimes people borrow money to do very noble things — such as pay for education or adoption — that they couldn’t afford to do otherwise. This phenomenon has given rise to the myth of “Good Debt,” as if noble intentions make the borrowing okay. But the truth is that this is a silly idea: No matter how good your intentions are, borrowing money is still dangerous and costly. Many people who take on loans to go to school or adopt a child end up struggling for years or decades to pay the loans back, costing them thousands of dollars in interest and severely limiting their financial freedom. In the end, no debt is good debt. Learn more here. […]

  5. […] attractive at first, debt always pulls us down in the long run. And as we’ve said before, noble aspirations don’t turn a bad financial strategy into a good one. You may think that borrowing money will […]

  6. […] We encounter this kind of thinking a lot among people that want to borrow money to pay for things like education or adoption. Sometimes people go so far as to refer to this as “good debt.” But good debt is a myth. […]

  7. […] for society or the Kingdom of God, it’s never a good idea. There’s no such thing as good debt, and borrowing money can be a crushing mistake for a […]

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