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GodGPS

Debt In The Christian Stewardship Principles

What is it that the two servants in the parable of the talents knew that the third did not? They knew that we can all make our money grow. Even the “so called wicked master” knew that and reprimanded the last servant by sending him out to the fields for not investing wisely. The third servant was fearful and had a lack of education or, at the very least his lack of putting that education and knowledge to good use was the outcome of his lack of productivity.

Debt is something credit card companies love only if balances remain unpaid.

Those most successful at investing money through honest means know that we are to only go into debt for something that will increase in value once you have purchased it. This truth is the very key to all investments. This simple statement also narrows down the items for which we should be incurring any debt.

Not all debt is bad. Banks and lending institutions are responsible to their shareholders and shareholders want to make money. Today, with the advent of credit cards, lenders no longer look to those who can pay off their credit card debt but to those on whom they will be able to earn interest income at a rate of 18 to 29 per cent on purchases left unpaid each month. Credit card companies do not want you to pay off your balance each month. By paying off your cards, banks and credit card institutions do not make any money. That is bad for shareholders.

It’s time to put money back in your own pocket, make it grow and share it with the people who really need it.

Let’s be smart about debt and learn the difference between when to go into debt and when to avoid it.

Good debt produces cash flow, can be written off for tax purposes and the asset will increase in value over time. The most common example of this is the purchase of a house.

Bad debt is incurred when you purchase a disposable item or a durable good and use high interest rate credit cards or lines of credit to pay for it and do not pay the balance off the card the first month after the purchase. Examples are food, clothing and cars.

Credit cards are not cash and do not have the same psychological effect on us when we make a purchase using them. The impact of having to pay for an item is deferred so we don’t feel bad until the statement comes in the mail a few weeks later. This is what I call the Scarlet O’Hara syndrome – I’ll think about it tomorrow.

Paying cash forces us to think about how much is left in the cookie jar for the rest of the month until our next pay period. It is also visual. Cash doesn’t make you pay interest on an item after its value has gone down.

Stores love to get you to sign up for their cards and promise you immediate savings that day of anywhere between 10 to 20 percent on all purchases made that day. That’s great for that day but if you don’t pay that balance off, the interest rates they charge usually go up to as high as 29 per cent a few months after they give you the card. This can kill your credit rating and adversely affect the interest rates you qualify for when looking to purchase your new home and mortgage.

The example I’ll use is a new leather coat. As soon as you walk out of the store, that coat is worth approximately 50% of the value you paid for it. Would you be willing to pay more for it by giving credit card companies an extra 20% per year to wear that coat? The coat costs $100. Are you willing to pay upwards of $120 for it when its value is now $50?

The Credit Council suggests your debt-to-income ratio should be 20% or less. If you make $10,000, your debt balance should be no higher than $2,000. Even if you are making monthly payments and your ratio is higher, your credit score will be lowered due to the percentage above 20%.

What we are looking for in wealth generation is not purchasing items that loose their value once we own them. We strongly recommend avoiding this strategy. For these durable and disposable items, if we don’t have the cash to purchase them and we are struggling to meet all our other needs, we should leave them with the vendor.

So where does a vehicle come into play in the purchasing plan? Automobiles are required by most of us today in our work. Larger urban centers have great transit systems which many people tend not to use. Many justify time and convenience as one reason for driving to work instead of using public transit. You’ve heard the reasoning – so I can spend more time with my family. Individually I encourage you to examine your justifications for doing certain activities in our life. Our honesty to ourselves can be a very painful but eye opening experience. I would venture to say spending more quality time with the family is not happening due to the choice in our mode of transportation. Statistics show there are more broken homes, more children in gang activity, more abuse, etc. Improving the quality of family life seems to be an even bigger challenge given that most people do not use public transit.

So then why do we drive what we can’t afford? The character traits are known as pride and ego. What we can afford doesn’t match the extension of who we see ourselves as so we buy the higher priced car that is going to go down in value and cost us more than the sticker price.

When your eulogy comes up, what do you want them to say? Jim was a great guy because he drove a Lexus, or Jim was a great guy because he was a straight shooter, knew his resources and shared them with others no matter who they were. You always knew the true Jim. Humbling isn’t it but it is your choice.