Prolegomena
(That means "the basics" for you without a copy of Bavinck's Reformed Dogmatics)
Debt something borrowed. For instance, if you borrow a wheelbarrow from your neighbor, you’re one wheelbarrow in debt. When most people discuss debt, however, they’re talking about borrowed money, usually at interest. But what exactly is interest? It’s the “rent” paid on borrowed money—the fee for using money that isn’t yours. This interest compensates the lender, who could otherwise be using or investing that money themselves, and it also covers the risk they take in lending. Charging interest isn’t just financially sensible; it’s a moral way to acknowledge that opportunity cost and risk.
Interesting Interest
When we talk about charging interest, we’re usually somewhere between charity loans and usury. Charity loans are those given to people struggling, where charging interest is minimal or even discouraged. However, with inflation, charging no interest at all could unintentionally transfer value from the lender to the borrower. A modest interest rate (e.g., under 4%) might be biblically acceptable, though socially it may still be seen as insensitive.
Usury, on the other hand, is exploitative. It’s an unfair extraction of value beyond reasonable compensation for risk and opportunity cost, often involving charging interest on both the principal and accumulated interest—compounding debt. The threshold for usury can vary by situation. For example:
Low-Risk Loans: If you borrow money for equipment that directly enhances your business’s productivity, the risk is relatively low, so the interest rate should be too.
High-Risk Loans: If you’re borrowing money for something uncertain, like an education that may or may not impact future income, the risk is high and warrants a higher interest rate.
Yet in today’s system, these relationships are often inverted, with small business loans costing significantly more in interest than federal student loans. So, there isn’t a universal usury limit, and charging something like 20% interest isn’t inherently immoral if it matches the risk involved.
Collateral and Securing Debts
In lending, collateral plays an essential role. When a borrower offers collateral, they pledge an asset as security for the debt, meaning the lender has a claim on that asset if the borrower fails to repay. This setup isn’t merely pragmatic; it aligns with biblical wisdom by helping to balance risk between both parties. The Reformed tradition values responsibility in financial dealings, and collateral is a tangible demonstration of the borrower’s commitment to repay, reflecting both accountability and the lender’s stewardship in protecting resources.
Collateral also encourages careful borrowing. When a borrower risks losing an asset, they are more likely to “count the cost” and avoid impulsive or poorly considered debt. This principle is especially valuable today, when many unsecured loans are marketed without immediate repercussions for default, leading some to borrow without fully weighing the risks.
Biblically, collateral isn’t without limits. In Exodus 22:26-27, God commands that a cloak taken as a pledge be returned to the borrower each night, ensuring that collateral doesn’t rob the borrower of their essential needs. From a Reformed perspective, this balance reflects God’s justice and mercy—acknowledging the lender’s right to security while preventing the borrower from being impoverished or humiliated by the loss of necessities.
When applied thoughtfully, collateral reinforces trust, accountability, and responsibility. For both borrower and lender, it acts as a safeguard, encouraging wise debt practices and aligning financial agreements with the biblical principle of fair dealing.
"But what about Proverbs 22:26?", I hear some of you asking through your computer screen. "Aren't we not supposed to put up securities for debts?". To that I say, you also aren't Rehoboam, and the proverbs are not universal truth claims. The very next verse explains the warning is so that if you do default, your bed cannot be taken from you. That sounds like an overextended debt to someone who does not adhere to principles given in Exodus. This advice was given to a man set to inherit Solomon's wealth, a prince with no reason to leverage debt in the first place, and does not at all somehow negate the rest of Scripture's teachings on the matter.
When Debt Becomes Unmanageable
What happens if a borrower can’t repay their debt? Are they destined to spiral into ever-deeper compounding debt? The Bible offers an alternative: indentured servitude. Under this model, the lender has to provide for the borrower’s basic needs, and the borrower would work off their debt until it’s repaid or until the Jubilee year, capping servitude at a maximum of seven years. This maintains their dignity, allows the lender to recapture at least some of the value they lost, and is harsh enough to seriously discourage anyone from getting into debt frivolously. In our modern system, we have bankruptcy, which serves a similar purpose by imposing serious but time-limited consequences on the borrower for unpaid debt. Bankruptcy, like biblical indentured servitude, offers a way to reset without indefinite hardship.
Principles of Wise Borrowing and Lending
For lenders, the biblical principle is clear: "Thou shalt not steal." For borrowers, the focus is on wisdom and shrewdness: it’s essential to “count the cost.” It may still be unwise to enter into a debt, even if that debt is not usury. Many car loans fall into this category. Interest rates are typically high, and cars, except for specific classic or work vehicles, are liabilities because they decrease in value and come with operating costs. Borrowing to buy a depreciating asset like a car is generally unwise unless the debt enables you to earn more than its cost.
A quick detour to define some terms
A liability is anything that drains your finances. While a liability might technically appreciate in hypothetical value, as long as it is costing you more than it earns, it remains a liability. Properties you do not rent out (including your primary residence), vehicles you do not use for work, student loans for a degree you don't use, employees that cost more than they make you, and inventory just sitting on shelves are all liabilities. That doesn't mean there are no situations that justify keeping these things around, just no purely financial ones.
An asset, by contrast, is anything that adds to your finances—it cashflows. Borrowing to acquire an asset can be financially sound as long as it ultimately increases your income and net worth. Common assets include dividend-yielding stocks, rental properties, businesses, high preforming employees, and licensable intellectual property. With the right approach, almost anything can be turned into an asset if it helps generate a positive cash flow. If you want to retain some liabilities, it may be a good idea to acquire assets first.
Why Blanket Prohibitions on Debt Are Unbiblical
It’s common to hear warnings against debt, sometimes even absolute prohibitions on popular radio shows. While the Bible warns us about the dangers of debt and encourages caution, a blanket prohibition on debt is ultimately unbiblical. Debt, when used wisely and responsibly, can be a legitimate tool for stewardship, productivity, and even generosity.
Scripture itself provides examples of debt that aren't condemned outright. In the Old Testament, God makes provisions for borrowing and lending, particularly in ways that help the poor or empower those in need of resources. Passages like Exodus 22:25 and Deuteronomy 15:8-10 address lending with care and fairness, implying that the practice itself isn’t immoral but needs to be approached with wisdom and compassion. Moreover, the parable of the talents (Matthew 25:14-30) hints at the acceptable use of financial leverage, as the master’s servant is rebuked for failing to invest His resources profitably.
From a Reformed perspective, debt can be a tool of godly dominion when used rightly. The Bible commands us to “subdue the earth” and use resources effectively for the glory of God (Genesis 1:28). Borrowing to acquire a productive asset—whether for a business, property, or education that expands one’s ability to provide—is consistent with this mandate, as long as the terms are fair and do not lead to exploitative relationships or irresponsible risks. In other words, just don't be dumb with your debt.
Prohibiting debt entirely risks promoting a fearful, restrictive view of finances, one that overlooks the biblical command to cultivate and multiply our resources. Instead, Christians are called to be prudent with debt, treating it as a responsibility and using it with a clear purpose, always ensuring it aligns with biblical principles of stewardship and accountability. When used properly, it allows people to accelerate their timelines of productivity by not having to first earn the prerequisite capital, and it allows those with capital to invest and promote human flourishing by lending their accrued capital to those with the time, energy and ideas to more effectively multiply it. By recognizing that debt can be used for both productive and charitable purposes, we honor God’s design for economic and relational interdependence, engaging with others in a way that reflects both His justice and generosity.
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