Credit is an easy way to buy what you want now. Used wisely, credit can be an effective tool; but without restraint, it can make you a slave to the lender.
The importance and usefulness of credit in our modern life is evident. The value of a good credit rating is emphasized by the prevalence of credit reporting and credit protection products and companies. A poor credit rating can be a rude awakening for someone trying to buy a house—or even applying for a job!
A culture of credit
For the average family, a major purchase such as a new automobile or a home would not be possible without the ability to borrow money on credit and pay it back over time. Many businesses must also occasionally borrow money to upgrade facilities or purchase equipment. Without sufficient capital on hand, credit becomes an important means to keeping a business growing and profitable.
These are important uses of credit in our society today. And used wisely, it allows a family or a company to take advantage of opportunities that would otherwise be lost. Gains in business and equity for a family are all positive outcomes of credit used wisely.
Not all credit is created equal
There are also other forms of credit that often do not result in such a positive outcome for families. Revolving credit accounts such as gas or store cards or general credit cards like MasterCard or Visa, make up a great deal of the credit available to the average consumer today. Used wisely, this type of credit can also be beneficial, but it can also encumber a family in a credit trap. The Bible warns, “The borrower is slave to the lender” (Proverbs 22:7, New International Version).
Most people don’t like to talk about credit card debt, but recent statistics reveal that approximately 80 percent of the U.S. consumer market owes credit card debt—the average amount of debt being a staggering $15,799. And with an average APR interest rate of 12.35 percent (as of early 2013) this becomes a terrible financial hole for most families to climb out of!
Part of the problem is that credit has been so easy to acquire. College or even high school students who don’t yet have a stable income can often obtain a credit card with a lower credit limit. The card gives one a feeling of power and the illusion of prosperity. With the power of plastic in hand, he or she can purchase many things right now, rather than waiting and saving up to have the cash on hand. The minimum monthly payment is so small that surely it won’t be a problem to pay, it seems.
And so yet another family falls victim to the credit trap—becoming a slave to the lender!
Financial wisdom from the Scriptures
Believe it or not, the Bible really does have quite a bit to say about managing personal finances. Let’s consider just a few of the principles that we can apply to our own lives to help us avoid being a slave to the lender.
1. Put physical things in a proper perspective. Luxuries and all the latest gadgets, gizmos and fashions may be nice, but they aren’t a requirement for life.
The apostle Paul wrote, “And having food and clothing, with these we shall be content” (1 Timothy 6:8). When we have the basics needed for life, like food, clothing and shelter, we can then evaluate everything else on the basis of need and our ability to purchase. King Solomon noted there are aspects of life that are better than great physical wealth or many possessions (Proverbs 15:16-17).
2. Don’t confuse “wants” with “needs.” In the process of evaluating what we need, it is important not to allow emotions to control the process. We must evaluate what is clearly a need, as opposed to things we really want. We may have fallen in love with something, but life will go on if we wait and purchase it later after having saved up for it.
Solomon saw the wisdom in discerning between wants and genuine needs when he wrote, “He who loves pleasure will be a poor man; he who loves wine and oil will not be rich” (Proverbs 21:17). While there is nothing wrong with desiring or even having the good things in life, we must be careful to pursue only those good things we can afford! Taking a mature and honest look at purchases can ease the burden of existing debt or help us avoid it all together.
3. Manage your resources wisely. No matter how much we earn, our income must be managed wisely. It is amazing how quickly money can run through our fingers if we don’t carefully keep track of it.
A sound and solid budget should be a “must have” for every family. Unless you are one of those individuals with a photographic memory, your budget should be one that is written down and kept. As one college professor once said, “With mental notes, the ink fades very fast!” For more information on budgeting, see our related article in this section, “Christian Budgeting.”
Solomon also wrote, “Be diligent to know the state of your flocks, and attend to your herds” (Proverbs 27:23). Creating and sticking to a budget takes effort. Working with that budget to reduce or eliminate the crushing weight of consumer debt is likewise not an easy task. It does require diligent effort.
The New Century Version of the Bible says: “A lazy person will end up poor, but a hard worker will become rich” (Proverbs 10:4). Hard work and self-discipline can help us properly manage the family resources.
4. Learn from your mistakes. Everyone will make mistakes. Don’t beat yourself up too badly for misjudgments with your finances. The important thing is that we learn from those mistakes so as to not repeat them!
There are many things in life that seem to often end up costing more than anticipated. Even with a sound budget, we can occasionally take on obligations that turn out to be less than wise financially. We may succumb to an impulse purchase or place a “want” in the “need” category, jumping into debt for it. If this happens, don’t be too proud to admit your mistakes. Rationally take note of what went wrong, and then strive to avoid the same mistakes in the future.
Using credit wisely and carefully can help a family provide the things that are needed—and even some of the wants of life. But used unwisely, credit can become a trap that is deep and powerful. In some cases, it will take a family years to work its way back out of debt. But the rewards for doing so are worth it. As Solomon said, “The rich rules over the poor, and the borrower is servant [or slave] to the lender” (Proverbs 22:7, emphasis added).
We hope you are able to escape the credit trap!
For more information, see “Dealing With Debt.”