Using Debt to Generate Wealth. Bible Guidelines

Debt is bad. Yes, it is. The average person pursues and accepts debt as if it were candy, but it the baited hook to take the fish to it's death - or it could be.

Debt is often paraded as an answer to prayer, the solution to the problem, the life-saver in a moment of crisis. However, debt is a slowly tightening noose, and if the debt in question is a student loan or IRS debt - then there is no way to declare bankruptcy and walk away.

The Bible says in Romans 13:8, "Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law."

Life can change in an instant and you may no longer be able to hustle for income. Should that happen, you will quickly see that it actually takes very little money to survive (think Third World population). However, no income will make debt a horrid slave master that will cause many to consider death as a preferred option.

The blog title was written tongue in cheek. The strategy of using debt to generate wealth should only be done by those who have already established a debt-free mindset. Hating debt and seeing it for what it really is, means if you reluctantly use debt to achieve a specific goal, the debt-free mindset will drive this person to borrow as little as possible and repay it with utmost priority. The average person does not have this discipline so I would never advise this, unless they do so under an eye of accountability.

Using debt to generate wealth should only be done by those who have a debt-free mindset." #DebtFreeWealth

The Bible does speak very negatively about debt, while at the same time giving guidelines for it. There are guidelines for those who lend and warnings to those who borrow. I have read the Bible several times with my 'money glasses' on so that those lessons jump out at me. Some of those lessons led me to write the book The Bible on Business . However, the topic of debt and how it should be used to generate wealth, deserves its own scrutiny.

Debt Will Generate Wealth - especially for the Lender. Be the Lender! Trudy Beerman

Being a LENDER is a fantastic money-making adventure. So, in the world of debt, be the lender and not the borrower.

Psalm 112:5 "Things go well with the person who is merciful and lends, who conducts his affairs with fairness" (CJB)

Proverbs 22:7 "The rich rule over the poor, and the borrower is to the lender."

The Bible also makes a point of when you lend to a 'brother' versus a stranger.

Deuteronomy 23:20 "You may charge a foreigner interest, but not a fellow Israelite, so that the Lord your God may bless you in everything you put your hand to in the land you are entering to possess."

Earning interest on money loaned is a BOSS way to build wealth. This is why banks and credit card companies offer loans. They are in the money-making business. Today, it is possible for the average person to enter the loan market as a lender.

Peer to Peer lending programs like Prosper.com and LendingClub.com make it possible to earn an income through lending even small amounts of money. Some astute investors even use their whole life, life-insurance policies as lending vehicles for offering loans to family members to be repaid with interest. Many family banks have been created on this strategy.

Debt Can Generate Wealth - As a Borrower

This is the scary section of this post. Enter carefully and only enter if you have an exit strategy before going in.

What you borrow matters.

The Bible story in 2 Kings 4:1-7 shares about a widow who was told by Elisha to borrow as many jars as she could from her neighbors. These jars would be instrumental in her miracle, and afterward, she was to sell the oil, pay her debt and live on the rest. Read the 2 Kings 4:1-7 for the story and the context but there are some points I want to make

1.Sometimes we can borrow tools or valuable things other than money to generate new wealth.

2.She borrowed from her neighbors, those who would know her best.

3. She borrowed something she could return.

4. The loan of the items was for the short-term.

In the early 1990's I used to manufacture swimwear for a living. The very first sample batch I made were done on sewing machines I borrowed from friends. Having established that I could make this product, I was able to secure my own machines and create a new stream of income for my family.

Saul borrowed money from his servant (1 Samuel 9:5-7) because at the time they were away from home and Saul was cash strapped at the moment cash was needed. Sometimes cashflow timing makes borrowing worth considering. If the opportunity presents itself and your money will come later, then using debt to jump on the opportunity can be justified.

Secured debt is a strategy for ensuring what you borrow will be repaid even if the reason for the debt does not go as planned. However, the Bible does have guidelines for secured debt as well.

Deuteronomy 24:6 "Do not take a pair of millstones—not even the upper one—as security for a debt, because that would be taking a person’s livelihood as security."

The Millstone reference here is the income generating tool. This must be protected.

A millstone is a stone used to grind grain. When grain is milled, two stones are actually used: the bed stone, or base, which remains stationary; and the runner stone, which turns on top of the base, grinding the grain. The takeaway here is, do not expose the way you earn income to being lost as security to debt.

"Do not expose the way you earn income to being lost as security to debt." Trudy Beerman

It may seem counter-intuitive to offer your home as security for a debt, but honestly, I would rather put my home up, than offer my business or business equipment as collateral. Most people have the understanding of what is an asset all wrong. The average person sees their home as an asset. A home can become an asset eventually, not automatically.

Using the Accounting definition for Asset we see it says "An asset is an item of economic value that is expected to yield a benefit to the owning entity in future periods. If an expenditure is instead consumed within the current period, it is classified as an expense."

Until your home has significant equity built up, it is a HUGE EXPENSE! To pay for the right to live in that home, you must generate an income to pay this expense, and that is where your millstone comes in. Your income generating tool.

On that note, let me remind you that the Bible also says that BEFORE you build your home, you should secure your income and ability to own that home.

Proverbs 24:27 "Don't build your house and establish a home until your fields are ready, and you are sure that you can earn a living." (GNT)

This may not sit well with most, and I do not write this expecting a flood of agreement. The Bible rarely agrees with secular teaching. So many put their income generating ability at risk and protect the income sucking thing, when the reverse should be true. If you can't pay for the home you will lose it anyway, so why expose your income generation to risk at the expense of the home? It is better to put the home up for security is how I see it. Even better, don't buy the home if you do not have a clear income stream to pay for it over time.

"So many put their income generating ability at risk and protect the income sucking thing. Trudy Beerman

Some of you may know I hold my Real Estate Broker's license. My Bible style of doing things is not a match for what the world teaches. 

If you must borrow money for any reason, you must do so with a plan to pay it back.

Psalm 37:21, “The wicked borrows and does not pay back, but the righteous is gracious and gives.

The BEST Strategy for using Debt to Build Wealth is...

Drum roll please....

Using business debt instead of personal debt to expand your income.

I know the catch-22 of the small business/entrepreneur experience. We exhaust our personal debt to finance our passion, then once we are maxxed out, business growth often crawls forward or worse - stops in its tracks!

Now, if you own a small business, using business credit instead of personal credit is a strategy worth looking into. (Need help with this? Contact me!). Depending on how you legally structured your business - it may be seen as a legal entity to which credit can be engaged. Getting business credit solves this problem - however, the details of this strategy, well -that is a post for another day.