Background

Saturday, February 28, 2009

Borrowing from Money--for women only

Today, we're just going to get right down to the nuts and bolts about borrowing and credit:


1. We become slaves to the person or bank that we borrow from

  • Proverbs 22:7 "Just as the rich rule the poor, so the borrower is servant to the lender." The relationship changes. So whether you borrow from a bank or a finance company or your aunt & uncle or parents--your relationship with that person or company changes. Now you OWE them, and they know it. Every time you get together with family that you've borrowed from, they remember, they're watching you....they're watching you. With creditors, you legally obligate yourself to pay back the balance regardless of the terms, and you are no longer free to use that money for God's purposes.

  • This is one to memorize to help you when the temptation comes to use the credit card or take on another loan.

2. Taking out loans and buying stuff with credit cards is presuming on the future

  • We don't know what tomorrow will bring us. You see--we don't see!

  • James 4:13-17 says: "Now listen, you who say, 'Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.' Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, 'If it is the Lord's will, we will live and do this or that.' As it is, you boast and brag. All such boasting is evil. Anyone, then, who knows the good he ought to do and doesn't do it, sins."

  • Taking out a loan or using the credit card may be denying God the opportunity to provide for you in your need. His timing is perfect, and when we wait for Him, He is allowed to be our hero, our Provider. However, if we are impatient or feel we can "save" ourselves until the Lord provides, we deny Him the glory and an awesome testimony of how He came through for us.

3. Using plastic results in more spending

  • Regardless of whether we pay off the balance at the end of the month, statistics show that we spend 12-18% more when we use credit cards than with cash. When the stores offer a 10 or 15% discount, we spend 30% more because we're getting the discount. The stores are counting on you to do your part.

  • There is a psychological difference of handling cash which is tangible--when you run out you can't spend more cash. However, with the credit cards and loans, you just see numbers on a statement or in your mind and since you're borrowing already, what's the harm in borrowing a little bit more?

  • Just think of the difference in making auto purchases when we have cash rather than taking out a loan. For some of us, it seems impossible to be able to purchase a reliable car without getting a loan, so we go for whatever payments seem reasonable and get the best car for the payment. You will find, however, that what you REALLY can afford is what cash you have in your wallet or checking account.

  • You don't have to have a credit card. It's just not as necessary as the world would like us to think. Debit cards can be used in the same way as credit cards if they have the Visa or Mastercard logo on them. You can reserve a hotel room, a car, airline tickets, you name it. You also have the same liability protection as a Visa or Mastercard.

  • YOU are NOT your FICO score, Suze Orman says you are, but you are truly NOT your FICO score. You can secure a home loan without a FICO score, you can get insurance, an apartment, a job, etc. without "good credit." It may be a little trickier; you may have to find a manual underwriter for the loan you need to buy a home, but you don't have to have "good credit" to live in the United States or elsewhere. If more of us lived without it, that would become the norm--let's be revolutionaries!

4. Universal Default Clause

  • One thing you might not be aware of is what is called the Universal Default Clause that many credit card companies have in their back pockets--it's in the fine print. Let's say you default on your agreement to make your payment on time--even by one day. That credit lender has the option on raise your interest rate to 30-35% because of that one late payment. No warnings, no second chances--even if your payment record is pristine.

5. Cosigning for a loan shows a lack in judgment

  • There's a reason why the bank won't loan this person money, so they need to find someone who is less of a risk to guarantee that the loan will be paid.

  • You are legally responsible to pay back the loan if the other person flakes out on you, and statistics show that a great majority of those people WILL flake out on you, and you will be left to sell the possession and pay the balance or take over payments.

  • God gives us specific instructions on this one:

    • Prov 6:1-5 "My son, if you have put up security for your neighbor [cosigned], if you have struck hands in pledge for another, if you have been trapped by what you said, ensnared by the words of your mouth, then do this, my son, to free yourself, since you have fallen into your neighbor's hands: Go and humble yourself; press your plea with your neighbor! Allow no sleep to your eyes, no slumber to your eyelids. Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler."

    • Prov 11:15 "He who puts up security for another will surely suffer, but whoever refuses to strike hands in pledge is safe."

    • Prov 17:18 "A man lacking in judgment strikes hands in pledge and puts up security for his neighbor."

6. The Lord calls us to pay our debts

  • Read Romans 13:7-8

    "Give everyone what you owe him: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor. Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law."

Balance, just like anything else in our lives, we can swing from one end of the spectrum to another. In personal finance, you can go from uninhibited spending to penny-pinching, miserly saving. From poverty-causing generosity to lonely-wealth and riches.

When we want to lose weight, we can get so focused on buying, preparing, counting calories or points, numbers on the scale or the tags of our clothes--so focused that we lose sight of our relationship with Jesus. Neglect, too, causes us to deny or reveals our denial that we need to use ANY kind of self-control.

Getting out of debt and staying out can be just as much a balancing act. Counting every penny, getting so on fire to get rid of the debt that we have little saved to pay for those "emergencies." The other end is to keep piling on the debt, seeing no way out and giving in to building up more and more debt.

In finances, just as in other areas of our lives, we need to maintain balance.


So if we're in debt, how do we go about getting out of debt?

1) Start with $1000 for an Emergency Fund -- break the cycle of debt (don't skip this one)

  • Ways to build this quickly is to have garage sale, secure a second job, start a home-based business, sell possessions on ebay.com or craigslist.org. You can always find these things later when you have saved up cash to purchase them if they are still needed.

2) Prepare a budget

  • We talked about spending in the previous week, and homework throughout this study has been to build up to the point where we can view our current budget and soon adjust to one that will help us achieve our financial goals

  • One thing I recommend as you're paying off debt is to stop 401K or other investment contributions until you have paid off everything but the house and have 3-6 months of expenses saved for your "fully-funded" emergency fund.

3) Make a list of all your debts

  • Having it all out there in front of you on paper may be a little bit daunting, but it is also freeing to see that maybe it's not really as bad as you thought it was.

  • You can also now call the credit card companies to negotiate a lower interest rate. If you have been on time with your payments and have a good history with them, they are more likely going to work with you--especially if you suggest that you may be looking to transfer your balance to another card.

4) Put any extra money on smallest debt while making minimum on others

  • First you will need to do everything you can to get current if you are behind on payments.

  • Once you are current, you will want to pay only the minimums on all your debts except for one--the smallest balance. On that one you will put ANY extra money that you are able to pay your debt on top of the minimum payment. You will continue like this until the smallest balance is paid off.

  • It is very ineffective to spread the money to pay off debt around to several cards or loans. Focus the money on one and pay it off as quickly as you can. It is great motivation to continue when you can close that first account, and you have one less debt to worry about paying on time.

  • Once the smallest debt is paid, you transfer all that you were paying on that one to the second smallest debts minimum payment. You continue this until it is paid off and you continue rolling along and building your payments without having to actually pay more than you were at the beginning.

  • Do this for everything but the house. If you have a mortgage, it is wise to pay off the house, but it is generally not included in the debt snowball.

5) Increase Emergency Fund to 3-6 months expenses (not income)

  • The money used to pay down debt can be rolled into savings until you have it fully funded.

You can find much more detail in The Total Money Makeover which I highly recommend you read after you have read The Treasure Principle.


This week's Bible study can be found by clicking on this link: Borrowing


This week's homework is to fill out the Income & Expenses worksheet with the information gathered from the 30-Day Diary. If you have not completed the 30-Day Diary, just hold on to this one and fill it out when you are ready.

Download it here: Income & Expenses worksheet. You can also find other helpful materials on the Crown Financial Ministries website at Crown.org.

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