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Determining Your Debt Tolerance© Sound Mind Investing | January 2008
A budget is a short-term tool that you can use to achieve long-term goals. It is a spending plan to help you allocate money with an eye toward avoiding debt and saving for future needs. I'm not going to focus on the mechanics of budgeting at this time. Rather, I want us to consider another side of the equation: goal setting. Goal setting is a chief prerequisite to effective financial management. As you consider what you want to do with your money in the years to come, you need to think about where you want to wind up—financially. Obviously, everyone's goals will be different. Our backgrounds and temperaments affect the way we live today, and your financial needs and wants will not be the same as mine, nor will they always line up perfectly with your spouse's. What you'll need to do is find a reasonable compromise. All of our goals must have two things in common: They must be written, and they must be biblical. Written goals are more apt to be achieved than the dreams and ideas that remain in our heads. Set your goals. Then ask God for wisdom. Read the Bible, looking for goal-setting nuggets. (Proverbs is full of them.) If you're at SMI's Level 1, a first step in goal setting is to determine your debt tolerance. How much debt, if any, should you have? More specifically, given the economic uncertainties we continually face, how much debt should you have? If you lost your job or were forced to take a pay cut, how much debt could you handle? My own debt-tolerance level is close to zero. But that is a personal conviction. The Bible doesn't prohibit borrowing; it establishes specific limits on borrowing. As with lifestyle limits, the biblical wisdom regarding debt levels does not come in a one-size-fits-all format. Rather, I think the Lord gives us reasonable boundaries within which we can operate. When it comes to debt, the minimum boundary is found in verses like this one: "The wicked borrows and does not pay back" (Psalm 37:21). In other words, if you borrow money, you are obligated to pay it back. As Christians, we cannot take on debt that we have no reasonable expectation of repaying. If you get to the point in your borrowing that you sacrifice your own reputation or jeopardize your family's financial position because you cannot repay a loan, you are beyond God's limit. On the upper end of the borrowing spectrum, the biblical principle is that you should be able to lend money to those in need, including those who can never repay you. "If you lend to those from whom you expect to receive, what credit is that to you? Even sinners lend to sinners, in order to receive back the same amount" (Luke 6:34). If you are in debt to the point that you're not able to lend to the needy, then you are operating outside of God's design. In a marriage relationship, husbands and wives often have vastly different debt-tolerance levels. Typically (and this is admittedly a generalization), a woman is far less comfortable with indebtedness than her husband is. She sees debt as a burden; he sees it as a necessary means to achieve their goals. Don and Karen came to see me because Karen was frantic over his level of indebtedness. While attending medical school, they had run up nearly $150,000 in school loans. Don had finished his residency and had joined a five-person obstetrics practice. With an income in excess of $125,000 a year, Karen felt like they should pay down their debts. Instead Don opted to borrow to buy a bigger home and borrowed to invest in some real estate deals with his partners. "I can make enough money on these two deals to pay off the school loans," he told me. "But what if you don't?" Karen argued. "I want to get out of debt—not get in further." After several more sessions, Don reluctantly agreed to get out of the investments and concentrate on paying down their debts. Barely two years later, Don was diagnosed with leukemia. He received extensive chemo treatments and a bone-marrow transplant, but he died three years later. At the time of his death they were totally debt free (after selling their house) and Karen had enough money to relocate and finish her nursing degree. She has often shared how being debt free helped her cope with Don's death and being faced with raising two children alone. Remember, debt can be an anchor, but it will never be a life preserver. If you are married, talk with your spouse about your debt-tolerance level. Find out what the Bible says about debt by reading passages such as Proverbs 3:27, 6:1-5, 11:15, 17:18, 20:16, and 22:7. If your current debt load exceeds your personal comfort level, talk and pray about ways to reduce it. If you need assistance, Crown Financial Ministries has resources and volunteer Money Map Coaches to help you get out of debt. Excerpted from Crisis Control in the New Millennium
 by Larry Burkett. Copyright © 1999 by Larry Burkett. Published by Thomas Nelson. Reprinted by permission.RELATED ARTICLES
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