Why the borrower is servant to the lender

When I exercise, I listen to podcasts and often the podcast I choose is Dave Ramsey. There was a time where I really did not care for him that much; and I still have some reservations –but I have grown to appreciate him a lot more.

The thing about Ramsey is that he understands something very important about money: the money game is a psychological game. If you can figure out the psychology, you can win with money.

Let me give you an example. Let’s say that you are trying to pay off two debts that look like this:

$10,000 at 10% interest
$20,000 at 15% interest

Which one should you focus on first? To a financially astute person, the answer is obvious. You should pay off the one with the higher interest rate first. In the long run, that saves you interest. However, Ramsey says to pay off the debt with the lowest balance first. He is emphatic even though he knows full well that you end up paying more interest that way.

Ramsey teaches that because he knows he is not talking to financially astute people. He is talking to people that are losing at the game of money and he knows that they need some wins to develop the confidence to push through and turn their financial life around. Paying off a debt is a win and the lowest balance is the easiest one to pay off first. Ramsey is willing to let his students pay more interest because he thinks that is a small price to pay to get them a win that will build some confidence for them.

What I just wrote is extremely important so let me repeat it a different way: in the game of money, the money itself is not the most important factor. The psychological component of developing the right mindset about money is far more important. If it costs you money to have the right mindset about money, that is money well spent.

I will give you another quick example to illustrate my point that mindset is ultra important. Have you noticed that NFL stars often end up broke later in life? Which would have been more valuable to them back in their twenties: their million dollar paychecks or a better mindset about money? The answer is pretty obvious, isn’t it?

That brings me to the Bible maxim that the borrower is servant to the lender. First of all, we need a disclaimer. When you read the Proverbs, you have to interpret them through a lens that these maxims are general principles rather than promises. For example, does God guarantee that a soft answer will always turn away wrath in every situation? Of course not; but in general, a soft answer is a wise approach. It is no different than Benjamin Franklin saying that going to bed early and getting up early makes one healthy, wealthy, and wise. He did not mean that as an infallible prescription, but rather as a general rule of life.

Because we are talking about a general principle rather than an explicit command, I am not anti-debt. There is a place for debt and it is sometimes unavoidable. But as a general rule of life, debt is not helpful and it does enslave you. Here is an example. I can remember a time about a decade ago where my loan officer (yes she was called that) would come to my business to see how things were going. If she saw something she did not like, she could have pulled our business loan. I got very nervous when she came around and I did feel like she had all the power. I sort of did feel like a servant to her.

The immediate negative impact of debt is directly related to your overall financial weakness. If you are weak, you are more controlled by the lender. Our business was struggling back then and that was why I was so worried about that loan officer. When you are strong, you are much less worried. However, even during strong times, debt enslaves you in different subtle ways and intangible ways. Again, a lot of it is psychological. I am not saying you can’t live with it because you can. The question is why you would want to if you can prevent it. You would be better off and a lot freer if you can avoid debt.

To help you understand the intangible damage, let me ask you something: what could you change in your life if you were not shackled by debt? Could you move from a place you hate to a place you would love? Could you dump a job you hate for a career you would love? Could you marry your life partner sooner? Could you invest more of your time in people you love? Could you pick up a hobby you have always longed to do? Could you give more to people you want to help? Could you sleep better because you are not under as much pressure to earn? Could your marriage be better because you don’t have financial stress?

See what I mean? Debt is a money thing but the impact goes way beyond money. Debt ties you up in ways that go way beyond bank accounts. There are important intangible things going on and some bad psychological things. You do indeed become a slave to your debt.

To get personal for a moment, I drive a Ford F-150 that I bought new a few months ago. I love that truck. It is awesome, powerful, and fun; and I like to go places just for a chance to drive it. Trust me though, Ford does not give away trucks. The average price a Ford truck buyer pays is $50,000 and that is about what I paid. Don’t judge me for buying a new truck for $50K. There is a unique reason why I sort of need to buy new that I won’t go into here but it is a valid reason.

Now here is the thing: I paid cash for the truck but Ford wanted me to finance it for 6 years at something around $600/month. I don’t know what percentage of truck buyers put those handcuffs on but it is probably well north of 80% of them. At 5% interest, that deal is going to cost them about $8,000 in interest. While that is not chump change, it does not make them a slave to the lender. What makes them a slave to the lender is what they give up intangibly and psychologically to drive that fun, awesome truck. I wonder how much marital stress those loans create and how many other things have to be given up to feed those loans. It is a big deal and just not worth it even if the interest rate is 0%.

You would think that what I just said would be widely preached and there are some (like Ramsey) that preach it. But if you go to Google and research, you will find expert after expert telling you that it is a good idea to get a car loan even if you can pay cash. Seriously. Go check me out if you don’t believe me. They explain it in financial terms that make sense to financial people but they completely ignore the intangibles. They ignore the psychology. Frankly, while they are wise with money, they are idiots in other ways.

I think you get my drift. Debt gets in the way of your life. I am not saying your life will magically turn around when you pay off your last debt but I can pretty much guarantee that paying off and avoiding debt will make your life better because doing so gives you more freedom. Financial freedom is worth so much more than getting to drive a fancy truck. I am speaking truth.