A question I often get when I'm teaching on debt and borrowing is, "What do you think about good debt vs. bad debt?" Personally, I'm not too fond of that question. It implies that debt can be "good" or "bad," words associated with morality when in essence, debt and borrowing are not moral issues. What is a moral issue is how people behave relative to these. I believe a better question is, "Are Christians allowed to borrow, and if so, when?”

Are Christians Allowed to Borrow?

The Bible has a lot to say about borrowing, but the primary message is simply that what is borrowed should be paid back. It doesn't prohibit borrowing, nor does it portray that borrowing is bad. However, sometimes, having to borrow results from not following God's commands (Deuteronomy 15:6 and 28:12), which may lead to excessive debt. Still, the need to pay it back remains.

What is meant by good vs. bad debt?

When people say "good debt," they generally mean borrowing for appreciating assets or an investment that generates an income. When they say "bad debt," they mean borrowing for depreciating assets. Appreciating assets like real estate, art, and precious metals usually hold or grow in value over time, while depreciating assets like cars, boats, and furniture lose value over time and may even cost additional money to maintain.

I like the way Robert Kiyosaki describes it. "Assets put money into your pocket; liabilities take money out of your pocket." It's smart and true, but it's by no means permission to go out and borrow to purchase as many assets as you can. For us, as Christians, there's more to it than that.

Biblically Approved Borrowing

Before you engage in any borrowing, you must first pray. You need to ask God if what you're about to do is His will. Let's assume you want to buy a house for your growing family. God cares about you, and He promised to provide, but what, where, and when is up to Him. 

Praying first will reveal God's will and perspective. Second, you need to know and understand God's financial principles because they are the guides to good decisions. Think of these as confirmations that you heard God correctly since what God says to you is always in agreement with His written Word.

The principles of borrowing and debt are well defined in God's word, and they will guide you in making wise decisions. Not knowing or not obeying these principles will always lead to unwise borrowing, excessive debt, and financial struggles.

Unwise Borrowing

When we were in our early twenties, my wife, Natalie, and I borrowed to purchase a new car. We financed 100% of the loan for five years. Shortly after buying the car, we had to reduce our expenses, and the car payment seemed like a good place to start. Unfortunately, the car's value was now worth less than the loan amount, so we were stuck with the car and the payment.

This one purchase caused us to stall and even regress in our financial health journey. When borrowing causes you to "lose ground" and diminish rather than increase your financial well-being and net-worth, you're making an unwise borrowing decision. 

5 PRACTICAL INDICATORS OF UNWISE BORROWING

1. Unable to easily make the payments.

2. No savings are available to pay off the loan if necessary.

3. The payment causes you to rob or underfund other areas of your budget.

4. Unable to save enough or at all for the future.

5. The item purchased is a liability, costing you additional money to maintain.

Wise Borrowing

Several years ago, God led us to purchase a rental property. It started when God directed us to create a Giving Account, in which we were putting all our surplus. Over the next two years, as the balance was growing, many giving opportunities came our way, but we never got the go-ahead from God to give. Then, this property was presented to us, and when we prayed, we heard God say, "Buy it!" 

Although it wasn't our plan, we obeyed and purchased the property. We took the amount in the Giving Account, which covered the 25% down payment, and borrowed the rest from a bank. Over the past ten years, the property has produced a considerable profit, which we've given away, and now that it's fully paid off, we continue to seek God for how to manage both the property and the profit it produces.

We had confidence in borrowing because we heard from God. But, we also knew we were not violating God's financial principles by taking on this financial obligation. We could easily make the payment out of our personal income, continue to safely provide for all our family's needs, and have enough margin to sell and pay off the loan if necessary. 

5 PRACTICAL INDICATORS OF WISE BORROWING

1. Enough margin exists to make the monthly payment easily.

2. The payment does not negatively affect your ability to provide for personal needs.

3. The asset can be sold relatively quickly to satisfy the loan if necessary.

4. The asset has good potential for monthly or yearly cash flow.

5. The asset has good potential for growth in value in the future.

Conclusion

Borrowing is wise when used to purchase appreciating assets or to fund a venture such as a business that has the potential to grow in value and produce a profit or a ministry that can expand God's kingdom and impact. However, borrowing should not be done to excess or done over a long time. It is best not to owe any debt, which should be the goal and pursuit of every Christian. But, needing to borrow is not wrong.

Christians who hear God's voice and have God's financial principles to guide them can make wise borrowing decisions. Borrowing is possible when it is God-directed, and the wisdom found in Biblical principles is applied through the purchasing process and the management of the asset afterward.

About the author: Leo Sabo is the president of the Christian Stewardship Network, where he gets to share the incredible impact financial stewardship and generosity can have in the Church. Leo loves to see people experience their own financial awakening. He’s spent the last 17 years working with couples, individuals and church leaders; helping them understand and manage finances conforming to Biblical principles.