10 Reasons to Avoid Debt, Part 1

No Comments

Loan payment schedule of a 1-year, fixed-size ...

Image via Wikipedia

Austin Pryor, in his book Sound Mind Investing, lists ten reasons to avoid debt. Though the list is directed towards individuals, I believe it is also very appropriate for businesses. Here are the first five:

  1. Debt presumes on the future. Scripture clearly says, “Do not boast about tomorrow, for you do not know what a day may bring forth” (Proverbs 27:1 NASB). When you commit yourself to payments over time, you are presuming: no pay reductions (i.e. no loss of customers/clients), no loss of job (i.e. you’ll be able to keep your doors open), and no unexpected expenses. That is a dangerous and improbable assumption.
  2. Debt lowers your standard of living in the future. Money that you borrow today must be repaid over time along with the cost of renting the money (interest). From a business perspective, think of it as an increase in opportunity cost – what opportunities does your business lose out on because of the repayment and interest?
  3. Debt avoids life-style decisions. It allows you to make the decision of whether you can afford to buy an item by focusing on the low payment rather than on the cost of the item. The question of whether you can afford it should include all the cost: purchase price, operational expenses, and finance charges. Credit is dangerous because it is too easy to say yes to low payments over time and ignore the real decision – can I (my business) afford it, and do I (does my business) need it?
  4. Debt places the awesome power of compound interest at work against you. Here is an example for credit card debt. If you borrow $100 on your credit card and make only minimum payments, it will take up to 30 years to repay the loan. Items charged on your MasterCard (or items purchased for your business via term debt) can cost you double, triple (or more) the purchase price!
  5. Debt may delay God’s plan for your life (for your business). Or it might cause you to forfeit a blessing God had planned to give. Before you obligate yourself (or your business) to payments, give God a chance to provide your needs.

I’ll post the next five tomorrow.

Avoiding debt is essential for business prosperity. If you would like to discuss more about avoiding business debt or how you can transform your business using the Bible as your guide, email me at info@commonsensecfo.com.

Enhanced by Zemanta