Years ago I was a business student at Laurier. I sat in my finance classes hoping to learn as much as I could, all with hopes of going out into the real world and using those tools. You could read between the lines and safely presume that I hoped I could find some easy way to make lots of money. I remember the day that our prof started talking about the stock market and buying “on margin”. There it was. Borrow money from someone else in order to buy stocks. When the market went up, you sell, pay off the loan, and the profit is yours. You were set as long as the market gave a higher return than the rate on the loan. But there was the trick. You could never guarantee that. As anyone who had retirement savings in the stock market through 2007-2009 knows, the market doesn’t always go up. Sometimes it goes down and goes down hard.
But there was my lesson. Debt had power. I learned this lesson with buying a home as well. Most people that I know don’t have hundreds of thousands of dollars just sitting around so they can buy a home. They, like me, had to walk into a bank and make arrangements for a mortgage. In other words, debt. Buying a home is no simple matter and when housing prices for the most part are well over $300,000 it takes time to save.
So debt is a powerful tool. It enables us to leverage and buy stock to magnify the profits, and it allows us to get into a home when the prices seem out of reach. The problem is that most people don’t know when to use debt, and once determined, they also don’t know how much debt is enough or too much. In other words, there is a terrible downside to the power of debt.
A recent article in the Financial Post took a look at some statistics released by Equifax, which shows us that personal debt per consumer not related to mortgages was in excess of $20,000. That is a lot of money.
When I moved out on my own, I discovered that life was expensive. That while I had a job, furnishing an apartment and keeping a car on the road was not cheap. As a young man I also had the bad habit of spending on lots of silly things. What I learned, though, was that debt was costly and not just the interest you had to pay. There is an emotional stress and burden that comes with having debt. I have met people over the years who have experienced a great deal of anxiety, worrying about how they are going to pay off their debts. Not only does anxiety run high, but tensions between married couples grow when debt builds up. Questions have to be answered, like what debt do you pay first, or where did the debt come from in the first place. These questions can lead to significant conflict in the family home.
The Bible has a lot to say about debt. A look in the Old Testament will reveal that the Israelites had laws about debt. One that I like is in reference to the year of Jubilee, a time when people would be set free, debts would be forgiven and particular attention was drawn to the mercies of God. But there is also lots of caution about debt in the Bible. One caution was concerning usury – loans at unfair and extremely high interest rates. I particularly find myself drawn to Proverbs chapter 22 verse 7 where we read “The rich rules over the poor, And the borrower becomes the lender’s slave”(Proverbs 22:7).
There is so much wisdom in that statement. Having been a borrower most of my life, I know the feeling of being “indebted” to people. Sadly some who lend out often lord their position over the borrower. You will hear some people remind their friends “don’t forget… you owe me”. To hear those words is to live under the rule of another.
I think what concerns me most about debt is that it represents an underlying problem of greed. Think about it. Debt is all about having now because we can’t seem to find the patience to save for it and buy it later. Think also about the things that we borrow for: luxury vehicles, travel vacations, updates on our home, etc. These aren’t really necessary things. But desire steps in, and we gamble on the future so we can indulge today.
So with all of this to think about, let me encourage you to take some time to consider the power of debt before you use your line of credit for that large purchase or charge that purchase on a Visa. Being free of debt is the better way to enjoy life.