The Right Amount of Debt

Can biblical principles help us determine how much to borrow or when to borrow? Several of the biblical foundations of finance can help. First, we inhabit God’s time-bound world with social cycles and heterogeneous individual life cycles. There is a time to borrow to invest in a growth or infrastructure opportunity which will serve customers or citizens and then there will be a time to repay debt, and those times will differ among individuals. For example, those with excess resources during a recession can bring justice and love by investing them then rather than hoarding them in cash. In terms of personal cycles, younger people generally benefit from the borrowing that the savings and lending of older people make possible.

Second, the purpose of borrowing is to obtain access to resources which can we can use to create future resources which can be used for repayment. Borrowing for education, growth opportunities, and to reduce housing costs can honor God. Borrowing as a crutch to support living above your means does not, as discussed above under “Unproductive use of proceeds.” The Bible teaches against greed of all kinds, which can include borrowing money for the wrong reasons (Luke 12:14).

Third borrowers should be reasonably certain they can fulfill their promise to repay the debt—or at least that the risks of non-repayment are understood and agreed by lenders—as an act of love. This rules out false or misleading loan applications or personal references. Borrowing today because you expect to lose your job tomorrow is unlikely to show much love to the lender, for example. Running up a credit card balance without a clear plan to repay it is no act of love, either.

Fourth, the amount borrowed should be a modest or prudent amount compared to the risks we face. How could it be loving—either to ourselves or to those who lend to us—if we routinely borrow right up to our credit limits with no cushion for unforeseen circumstances?

Biblical principles of finance apply to personal, institutional, and governmental financial decisions, although the examples above are primarily individual. In general, these principles suggest moderate levels of debt in most cases and greater use of equity for individual, corporate, and government finance. In particular, borrowers would probably not take on as much debt if they remembered that by God’s design, borrowing creates a long term mutual relationship that God intends to benefit lenders as well as borrowers. Access to debt is not our sole concern. Blessing others through our lending and borrowing is.