Debt is an interesting thing in that it doesn’t always find its way into your financial situation through the overuse and abuse of credit cards. While that is a common occurrence, debt has a way to sneak into peoples’ lives sometimes in more subtle ways.
Many people tend to look for quick and easy solutions to get out of debt. People typically want debt to go away as quickly and subtly as it appeared. But as many of you know, getting into debt isn’t all that hard. Getting out of debt is much more difficult and takes some work.
Today I’m going to explore two common debt situations and some thoughts for overcoming them.
1. I need a reliable car. I’m going to apply for a five year loan so I can afford the payments.
Often people accumulate auto debt through the purchase of a new or even a used car. I think this is probably one of the quickest ways to get into debt. In fact, everyone knows you can end up with a sizeable loan simply by spending an afternoon at the dealership. Have you ever signed the papers and felt the anxiety set in as you completed the process? Then you wondered if it was really the right decision.
Needing a reliable car is a valid reason to start looking, but it may just not be a good enough reason to go into debt. Too often we are quick to solve the problem ourselves without turning to God to provide for our needs. Personally, I’ve been there and unfortunately it has extended the time required for our family to become debt free.
Consider this approach
Try to slow down the process. Are there other modes of transportation you can use until finding a reliable car? Could you take public transportation or even work from home? Perhaps you could borrow a car from a friend at church? The idea is to brainstorm every possible option that will keep you from having to make a quick decision and end up with a loan!
Most importantly, turn to God to provide to provide for your needs.
You can be sure that God will take care of everything you need, his generosity exceeding even yours in the glory that pours from Jesus (Philippians 4:19, The Message).
That’s a powerful scripture to remember. God will take care of everything! I love that God can take care of our situations and needs in ways exceeding our expectations and in unforseeable ways. Just remember it might not be in the exact way you have planned. 
2. It’s a good money making opportunity. I’m going to borrow the money required to get started from my retirement account.
If you have entrepreneurial spirit, you know the feeling you get when a new opportunity is presented. Your mind begins working. Could this really be possible? I’d certainly like to look at this a little closer! Oh, it requires an initial investment? But the return on this investment seems highly likely and the rate of that return looks to be pretty quick.
Perhaps you’re not entrepreneurially inclined, but the thought of making some extra money after investing a little money may sometimes become quite enticing. In either situation, there is a danger in borrowing money to fund investments. More dangerous is borrowing from retirement accounts to fund investments.
Why is it so common to cross over into savings marked for other purposes and use the money for something else? Borrowing against retirement, is running up debt because it must be repaid. You’ll also end up paying a penalty or fee for the loan and it’s considered taxable income (see your tax advisor for more information).
What’s your motivation for the opportunity? Seek some Biblical guidance.
When such investment opportunities are presented, we must consider the reason we are engaged in opportunity and know that borrowing from money marked for retirement is never a good idea. Don’t let the idea of making money lead you to unwise decisions. Invest in such opportunities with money saved for doing so and avoid the pursuit of money as your primary focus.
For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs. (1 Timothy 6:10).
How have you avoided these common debt situations? Are there other common debt situations you’ve done well to avoid? Let us know about them in the comments.
{ 11 comments… read them below or add one }
I really like the point you made about cars. Yes, a reliable car is a necessity, but I think people often overlook the benefits of fixing an old car. Even if it seems expensive at the time, its smarter to pay a $1000 & keep the car running for another 12 months instead of taking on debt that requires a payment of $300 over the next 24 – 36 months. From a financial perspective, the best way to approach this would be to push back that car purchase as much as you can while contributing some money every month towards a new car fund.
Nikunj, yes, exactly. I’m really am hoping to convey the importance of not running out and immediately jumping into car debt to solve a car problem. You provide great ideas here in fixing up an old car and saving towards a car by paying yourself a payment. The idea, as I mentioned, is to avoid the quick decision. There are numerous options that are available to avoid the debt. I learned the hard way.
Yup, we pay ourselves a car payment ( quite large actually) each month. We also take repairs and such from that money. Every X years, we have plenty there to buy something new (new to us…). However, we run cars until they completely fall apart.
Another thing to investigate is the home and mortgage issue. I’ve avoided going into debt in one simple and HUGE way. I’ve not bought a home. I don’t need one really, and my aversion to massive amounts of debt is greater than any dislike I might have about renting. So often today the common answer is that it’s just impossible to live in a home without borrowing money for 30 years. This just isn’t true, and has really only been the common thinking for the relatively recent years. 50 years ago, people didn’t borrow money for 30 years on a home. We’re saving money for a home in cash, just like we buy cars. I’m not sure how that will all turn out, the time horizon is pretty far out there. We’ll see.
@Jason: Awesome article! I love your reference to Philippians to support not borrowing for a necessity. There are plenty of great reasons not to go into debt to buy a car, but it’s refreshing to have one from God’s word! Thanks for the insight!
I usually grabbed an opportunity for low interest cash advance payable in certain number of months to pay some of my debts only to realize that the more I can’t get out of debt. That’s one thing I learn to avoid.
I like the Article Jason!
A reliable car is a must have for most people, and if you drive an old car at some time it will start having issues. Sometimes the cost of maitaining a clunker (time ,money, and stress) may not be woth. If therefore you drive a ‘clunker’ like me saving up to buy a better car is the way to go and entirely avoid debt.
I have a 1993 Honda accord that have served me well for seven years… it has almost exceeded it’s useful life with over 280K miles; it started giving signs of ‘quitting’ last year. I replaced the transmission but we also started saving to replace it this summer. We will pay cash for the next car.
On the car and the small business opportunity – can’t stress enough the point that you must be in line with God’s will and prayerfully open to His guidance. For us, there was a pride issue that was not acknowledged at first. There is something difficult about driving a “semi-beater” 10 year old car (or more) when everyone – even at our church – is driving something “better,” unless we focus on God. Taking unnecessary risks or the wrong partners to try to become a “successful small business owner” (as defined by the world) is not in line with His teaching either… all mistakes we’ve made when looking around instead of to Him. ♠
Infinion, good point about home mortgages. It’s wise to to make sure you have enough saved for a good down payment and to avoid the pressure of jumping into a mortgage too soon.
Deacon Bradley, thank you! I think God truly wants us to seek him for help in these situations. Unfortunately, we tend to work on our timing which can lead us away from following His principles.
joseph, 280K miles? You’re my hero! You give me hope for my Honda Civic in which I plan to drive into the ground!!!
NikkiWW, Wow, you really touched on a good point. Pride! I’ve wrestled with this plenty of times. It’s tough to sometimes let go of ourseleves and be open to God’s will and Him working in our lives. Obviously, God works in all areas, but I sure do love that He works in the area of money when we are open to following His plan.
Another aspect of car loans is that a lot of buyers will “roll over” the debt from their previous car into a loan on the new one. By getting a five year loan and trading every four years or whatever method.
I know someone who bought a used car and financed it for four years. The car died before the four years were out, so they kept paying for a dead car.
Minimal rule of thumb: Never take out a loan for longer than the car will last.
Car debt is a big problem for the reasons you describe, but for another reason too: the “I deserve it” mentality.
Too many people not only get sucked into thinking they can afford it with low monthly payments out to 5 years or more, but they talk them selves into believing that they deserve or need the new car as opposed to a used car. I’ve seen people talk themselves (or be talked into) buying a brand new $24,000 car because they were convinced that it must be much better than the same model, 3 years older that was only $12,000.
And Joseph raises a similar issue used by many: reliability. Often times people think it’s more economical to buy the new $24,000 car because they can forget about maintenance costs, but many of those costs are only “what-ifs”.
You may never need to spend $2500 on a new transmission, but if you buy that new auto you will definitely be spending much more when it’s all said and done, not to mention depreciation!
Wow, two tough scenarios. Years ago I went with the $99 lease for a Honda Civic because I got tired of paying repair bills. 13 years and 225,000 miles later, I’m getting ready to pass it down to my 16 year old.