Tempted to borrow more money?
by Bill Newton
Posted on Saturday, July 4, 2015, at 8:33 am
A married couple sat down with me for financial counseling and asked, “The television ad said we could qualify for a mortgage of 100 percent of the value of our home, so should we refinance, pay off some of our credit card bills, and have some extra money for a nice vacation?”
This is a common question I hear from couples of all ages. Most are surprised when I respond, “I don’t know.”
They assume if they can qualify and the lender will lend them the money, it must be a no-brainer. But nothing could be further from the truth. Just because we are able to do something does not make it advisable.
And before I can give any knowledgeable financial advice, I need to see their income statement (a listing of earnings, salaries, and expenses on a yearly basis) and their balance sheet (a listing of all the things owned and owed). An income statement will tell me whether they have a spending problem or if they are living within their means. A balance sheet will tell me whether they owe more than they own and if they’re saving for the future.
It normally takes days to gather all this information and some couples will refuse to supply it, saying it’s too intrusive. They’ll ask, “Why do you need so much data from us?” I explain it would be irresponsible for me to offer financial advice without knowing their complete financial picture. To tell them it’s OK to borrow money without knowing this information might hurt them more than help them.
Once we have the data in hand, I then tell couples to ask themselves five simple questions before they take out a new loan:
- Do we have a spending problem? Often the reason the loan is needed is because the couple has never disciplined themselves to live within their income. If this problem is not dealt with prior to the loan, the couple will simply dig themselves into a deeper hole.
- Have we prayed and asked for God’s direction? Easy credit makes it possible to buy things, but God may be saying, “Beloved, wait on this item. The time isn’t right for you.” Or, “You don’t need this at all.”
- Is our home worth more than the loan? Should they suddenly have to sell their home, the possibility of it being worth less than the 100 percent mortgage and all closing costs is a real possibility. Where will the extra cash to pay off the excess come from?
- Should we endure the stress of extra debt? Any amount of debt creates stress. With more debt comes more stress.
- Have we ignored God’s warnings to get what we want now? The Bible never says that borrowing is a sin, although it specifically warns against surety (personally guaranteeing a loan). But it does always warn against the dangers of becoming “slave to the lender.” The lure of easy credit is temptingly delightful.
Has this delight enticed you?
Bill is a pastor based in Asheville, N.C. He also serves as a member of God's World Publications' board of directors.