She was excited when her friend told her about the opportunity to start a ‘side-hassle’. It seemed such a sure thing! So she applied for a bank loan and invested it all in the business. That was six months ago. Today, she’s full of regrets. The business proved to be a lot more work than she had been led to believe and has picked up very slowly. Worse still, her company is going through an unexpected financial crunch and she’s not been paid for the last two months. She even ended up borrowing from a loan shark just to pay last month’s rent. And she’s terrified at the thought of what will happen if this month’s salary doesn’t come through on time!
Welcome to the realities behind ‘easy credit’!
Some people get into debt because of reasons beyond their control; a major illness or accident, or somebody died and they inherited a debt. But most people get there because they don’t know any better! The conventional wisdom today is that debt is leverage: That it’s normal to live in debt and that you will never succeed unless you borrow; whether it’s to start a business, buy shares, pay school fees or pay for some new dresses from the lady who comes round at the office.
Even though the good book doesn’t call debt a sin, it repeatedly points out the dangers of debt. Debt is enslaving. As the richest man of his time, King Solomon, wrote in the book of Proverbs, ‘The rich rule over the poor and the borrower is a servant to the lender’. Once you borrow, the lender literally ‘owns’ you! Their actions affect your mental health and how well you sleep. For example, when banks revise their interest rates upwards, you might get a note in the mail informing you about the new rate. But they certainly won’t ask what you think about it!
Debt is also expensive. Again, Solomon counsels, ‘Do not be a person who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you’. When you’re in debt, the principle of compound interest works against you and you end up paying far more for the things you buy than if you saved up and paid for them.
And as our friend found out, debt is presumptuous. It’s based on the assumption that we can control our ability to pay in the future. Solomon warned, ‘Do not boast about tomorrow for you do not know what a day may bring forth’.
Ultimately, easy access to credit can promote a culture of consumption rather than a culture of savings. It can destroy the ability to learn to live and invest within our means. Paradoxically, that’s an almost sure path not to quick wealth but to poverty!
This week, Pst Oscar continues the awesome series at Mavuno Church – The 4 Horsemen Of Financial Ruin.