Should I Follow Rules When It Comes to Borrowing Money?
There are 3 simple rules when it comes to borrowing money:
1. The economic return on the amount of money borrowed must be greater than the economic cost.
This is usually the case with a home mortgage, and sometimes with investment debt. It is not the case with credit card debt or with car debt. If you use a credit card, plan to pay it off, completely, every month.
2. If you are going to borrow money, you should have a guaranteed way to repay it.
For example, when you borrow money to buy a home, if you cannot make the payments, the bank can have your house. This repays the debt. If you borrow money on a credit card for a vacation, you do not get an asset that you can use to repay the loan.
Biblically, we are commanded not to presume on the future.
James 4:13-15 “Come now, you who say, ‘Today or tomorrow, we shall go to such and such a city, and spend a year there and engage in business to make a profit.’ You do not know what your life will be like tomorrow. You are just a vapor that appears for a little while and then vanishes away. Instead, you ought to say, ‘If the Lord wills, we shall live and also do this or that.’” (NIV)
3. Spouses must be in total agreement on any borrowing decision.
Generally, husbands and wives think differently about debt. Many times a husband has been saved from financial problems by listening to his wife’s counsel.