Given the state of the economy over the past few years, many, many people have debts they can no longer pay. One of the ways those debts are settled is through negotiations that end with the debtor satisfying the debt by paying less than the full amount owed. Though this has become a fairly common practice, it can be gut-wrenching for a Christian. We are required by our faith to pay our obligations, and settling a debt for less than the amount owed can seem un-Christ-like.
Bankruptcy and foreclosure may not elicit the same level of concern. Though they too can be seen as unholy based on biblical interpretation, they at least have the blessing of the civil authorities and are legally binding on all parties.
Settling a debt for less than the amount owed, however, is an informal arrangement between you and one or more creditors. Perhaps since it isn’t ruled on by a judge, it’s viewed as a greater sin. But is it?
What does the Bible say about repaying debt?
The Bible is quite clear when it comes to paying our debts; consider the following verses:
Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law. — Romans 13:8 NIV
It is better not to make a vow than to make one and not fulfill it. — Ecclesiastes 5:5 NIV
The wicked borrow and do not repay, but the righteous give generously; — Psalm 37:21 NIV
There doesn’t seem to be any wiggle room here, does there? In addition to paying our debts in full being “the right thing to do,” it’s also a very good Christian opportunity to witness. It says we honor our obligations and work to live in peace with the world around us.
If you’re in a situation right now of needing to settle one or more debts for less than the full amount owed, let this experience be a reminder that we should never take borrowing lightly. The better course is to avoid it as much as you can so that you aren’t put in positions such as this where you have to make tough choices.
If the choice is between survival and paying a debt . . .
Sometimes you’re between the preverbal “rock and a hard place” — debt has a way of making that happen (which is why it’s to be avoided). You may be forced to choose between honoring a debt and supporting your family, but if that’s the case, the Bible also tells us this:
”Anyone who does not provide for their relatives, and especially for their own household, he has denied the faith and is worse than an unbeliever” – 1 Timothy 5:8 NIV
That verse isn’t specifically about obligation hierarchies, but it does gives us unmistakable direction as to where our priorities should be. And this is especially true if you have responsibility for dependent children or elderly or disabled adults; they cannot take care of themselves and it falls on you to do it for them. Debt settlement becomes a consideration when your obligation to the people in your care is at stake.
Before you attempt a debt settlement, first consider the alternatives.
Keeping the above in mind, what should you do if you are in a situation where debt settlement needs to be considered?
Pray for guidance.
You’ve incurred a debt that Scripture requires you to repay, but you also have family survival issues and the Bible is clear on that as well. Is there a “biblical” way out? Pray about it; pray long and hard. Consult with other believers. You never know what God will open your eyes to or make available to you. You’re in a difficult situation—trust Him for direction.
Retirement accounts or other investments.
Do you have retirement accounts or some stock that you could liquidate, or partially liquidate, in order to pay your debt? Most people will advise against doing either because of potential tax consequences, but in order to honor paying a debt you may have to consider ALL assets. Of course you only want to take this route if the tax consequences don’t put you in a deeper hole than you are already in with your debt.
Get an additional income.
The inability to satisfy a debt is often due to short term financial difficulties, like a rash of unexpected expenses. Consider getting a part-time job to get over the rough spot. You can even consider starting a side business cutting lawns, shoveling snow, doing home repairs, typing or tutoring.
Though it’s usually one of the first options people consider when they need money, you’d probably be better off avoiding borrowing money from family or friends to pay your debt. You may not be able to repay your family member or friend for all the same reasons you can’t pay your creditor, and that could add relationship conflict to a debt problem.
Note from Bob: If you find yourself in this position, we have partnered with a Christian Debt Management company that works with you to help you better manage your debt rather than settling it. Find out more here.
Debt settlement should never be used to engage in strategic default.
Debt settlement should never be used as a backdoor path into strategic default or anything that looks remotely like it. You engage in strategic default when you walk away from an obligation when it no longer benefits you to honor it. However, failing to pay a debt that you could in fact pay is really another form of theft.
Debt settlement should only be undertaken when it’s a matter of personal financial survival. You’re working out some sort of debt reduction as a means to provide life’s necessities for yourself and your loved ones. Any other purpose for debt settlement can be a form of strategic default. And as Christians, that’s not a route we should ever take.
If after considering all of the potential options, you do enter a debt settlement with a creditor, be sure that all terms are agreed to in writing before sending the creditor any money. Verbal agreements are not enforceable in court.
This is a tough issue! What are your thoughts on Christians settling their debts for less than what they owe? Leave a comment below!