TO BORROW OR NOT TO BORROW-THE CONCEPT OF GOOD AND BAD DEBT

First of all, let us even try to get a simple definition of the word ‘debt’. It is an amount of money borrowed from one party to another. There are other forms of debt that are non-monetary, but we are dealing on the part that has to do with money. The definition above keeps the issue of debt pretty indifferent, i.e it is neither good nor bad. It is just an exchange of money between two parties with a promise for repayment from the collecting party to the giving party. Simple right? Not necessarily. If you have followed the other articles(quote) in this series, you would understand that statement better. The problem I have come to discover most times is not in the collection, it is in the paying back and that to me most likely is the reason debt has become a big issue. But does that mean that we shouldn’t borrow money? Are we now saying that we do not need to leverage on other people’s money (OPM) to take advantage of some opportunities in life and solve some problems where we lack the financial capacity to take it on and it is something that has to be done? Does it mean that there is totally nothing good about debt? These questions and more continue to form the basis of many arguments that are still going on in the financial world. There are many viewpoints, but I will give you my own.  But before I give you my opinion, let me take you through the major points on which the arguments on debt are centered on. They come on these two concepts, the concept of Good and Bad Debts. (Please note that I will not touch on examples of bad debt in this article as I have that area covered in the previous articles on this series).

What are Good Debts?

Good debts are debts that help you to “generate income and increase your net worth.” I think that is easy to understand. Let me list some examples, borrowing to start or invest in a business, buy real estate, go to school (student loan), own a house (mortgage).These activities are deemed to make us better in the future and that is why borrowing for them is justified by many. Most people living in my country (Nigeria) will find it hard to understand the concept of borrowing to go to school (student loans) because it is not part of our culture for now. If you are in that category, I urge you to take out just 15 minutes of your time and Google it up. 

But there is a side to the concept of good debts which antagonists of this concept emphasize. They argue that the reasons for borrowing listed above are good in ‘ideal’ circumstances, but this is life, and in life, life happens. There are really no guarantees that all will turn out well in the future. Take for example, the risk of failure of a small business is still real and should be factored into the discussion. Also, there are no investments with 100 percent pay back guarantees. The fact that you went to school does not automatically translate to a better life of wealth and success upon graduation (you know some examples). What happens to your mortgage payments if you lose your job, or the major bread winner in the family is no more?

I am a Christian and I also sort to see what the bible has to say on this. Many verses came up. At this point I will still like to point out that this is a very volatile issue even among Christian financial experts as there are still divergent opinions. I will give you the two sides and give you my own opinion. (I believe I am entitled to that, and will not try to impose it on you). Let me start with those who are against any form of borrowing.

This group argue that there is ‘nowhere’ in the bible that debt was explicitly encouraged in the bible. Prov. 22:7, Rom 13:8, Prov 17:18, Prov 22:26-27, Prov 27:12&23 and many more are used to back up their arguments against borrowing. They argue that God’s will for his children has never been to bless them through debts which has sorrow attached to it, Prov 10:22 readily comes in to justify their position at this point. I can go on and on, but let us look at the other group who actually support the concept of good debt, even with scriptural back ups.

This group believes in the concept of good debt. Yes, they don’t show you any direct verse from the scriptures supporting borrowing, but they show you places where it supports it indirectly. 2 Kings 4:3, Luke 5:3, Mathew 21:2, Mathew 5:42, John 6:9-11 are some common places they use to support their claim. They argue from these scriptures that borrowing was used to better lives, and that neither the lender nor the borrower came to any loss. They therefore support borrowing from the angle of investments and in order to multiply resources which will bring about a win-win situation for both parties.

My position (Please you are entitled to yours as am not trying to impose my opinion on anyone)

I go with the group who supports good debt. I can only recommend borrowing in these situations (for now, as knowledge is progressive).

-       Where borrowing is used to multiply money all take advantage of a given opportunity in which the profit made can comfortably settle the capital amount borrowed and the accrued interest. But serious care has to be taken when money is to be taken for the above reasons. The inherent risk(s) should always be factored into any venture, and that is why I advise that you do not pursue any venture with total debt financing. You as the borrower should put in something to at least have a stake in the risks involved. Also due diligence must be done before you embark on any venture. Most people just hear about a business and just take out 30 minutes to google the business before they start ploughing resources into it. Don’t invest in anything you don’t have a firm and grounded understanding of. Get knowledge first, ask questions, draw up your business plan (no matter the size of the business), cover as much areas as possible before you launch. Have you not seen someone who collected a sum of money for a business and used over half of it to pay rent and buy office equipments? Some buys cars and hire staff and over a short while, the money runs out even before the business starts to break even. Even if you borrowed money for that ‘investment’, you have already gotten into debt and this goes against the point I am trying to make (although it is what most inexperienced people do).Get knowledge first and ask the right questions, set up the right systems, start small and then grow it over time.

-       Another reason to borrow that I am not against is borrowing to tackle natural mishaps. I dealt with these issues in our articles 2 and gave my solutions to them in article 7. Read them.

In conclusion, NEVER borrow money for consumption purposes. Clothes, jeweries, shoes, hand bags, weddings and aso-ebi, house warmings, burial and birthday celebrations etc. Whatever you borrow money for that there is no guarantee that you will get returns enough to cover  up for them is highly discouraged. Learn to live your size per time, run away from friends and associates that live above their means. You came to this world alone (even if you are a twin, one came out before the other), don’t allow people to make you spend money that you do not have.  Debt really is not a sin, but sometimes it can be an unnecessary weight, and it is wickedness if you borrow and fail to repay. Be frugal, learn how to manage, save and multiply money. And above all, always trust in God to meet your needs, and believe 1 Cor 10:3. If you look well, you will discover that God has already made a way of escape before the trouble came. If you can reason well, what you have is enough. Don’t go borrowing at any small instance, you may be denying yourself the opportunity of having your needs met by God (Phil 4:19). Be patient, sometimes, borrowing is an easy way out of a situation that was supposed to help us to increase our faith in God. Allow God meet your needs and you will live a joyous and fruitful debt-free life.

Stay blessed.