By Matt Fraser

Recently a friend posed a question concerning debt and savings. Is it better to pay extra on debt or put more in savings? This is a great question because it gets us thinking about these two very good activities. Unfortunately the answer is a little more complicated than a simple either/or. The answer largely depends on how much debt we have and what our goals are.

First, understand that debt is not necessarily a bad thing. It’s a neutral thing—like a banana or a shirt. Like other things, debt can be bought, sold, marketed, misused, abused, and can also be used wisely. But unlike most bananas and shirts, debt can profoundly affect our lives in the long term.

Debt can be used to our advantage, enabling us to purchase things that would otherwise be out of our financial reach, such as a house or a car. It provides businesses with a way to leverage their production as they expand. And yet the downside of debt can be severe. Debt comes with a cost—it’s called interest—and by the time we pay off a large debt and the associated interest, we may have paid much more than the actual value of the item purchased. When we leverage ourselves with debt, we have to count on our income stream remaining steady in order to make our payments. If our income diminishes significantly, we’re in trouble. It’s easy to take on debt hastily and end up at the bottom of a huge financial hole with seemingly no way to get out. In the final analysis, debt should be used like a ladder to help us reach our goals—not a shovel to dig our own pit.

Besides the obvious financial aspects, debt can have a spiritual effect on us, as well. It can cause us to become too dependent on material things and limit our opportunities. (Many mission organizations require their missionaries to be debt-free.) Debt can make it so easy to accumulate things that we lose our focus on God and become greedy—always wanting more.

The parable of the seeds in Matthew 13:22 applies well here. “The one who received the seed that fell among the thorns is the man who hears the word, but the worries of this life and the deceitfulness of wealth choke it, making it unfruitful.” If we aren’t careful, debt can suck vitality from our lives as it binds us to worldly institutions, focuses our eyes on the next payment, and gives us a taste of the cake before we discover what we actually must swallow.

OK, so what about savings? Saving for saving’s sake alone can be just as spiritually dangerous as being in debt; however, saving that is guided by appropriate planning and an open heart can be a very good thing.

It’s helpful to divide our savings into four types of funds: short-term, mid-term, long-term and emergency. Short-term savings should be kept to cover expenses anticipated in the next year or two. Mid-term funds should be set aside considering the next five years, like automobile purchases or big trips, and long-term savings should be used in planning for as far ahead into the future as we dare—kids’ college funds, maybe?

Arguably the important of these is an emergency fund. If at all possible, we should set aside enough to cover expenses for six months and keep enough available for those unexpected expenses that sometimes catch us by surprise, like a blown transmission. Here’s a good way to create an emergency fund: each month for six successive months, buy a six-month CD at a local bank. If successful in this endeavor, when the seventh month rolls around, we will have funds available, if needed. If the funds are not needed, we can let the CD renew automatically. This way the money is not burning a hole in our pockets, but one of the CDs will be maturing each month in case we do really need it.

We all struggle with the discipline of saving. Sometimes, I feel like a miser who would die atop a pile of gold dressed in a worn-out shirt and old pants worried that something might happen to my treasure. But, God asks us to be open with His money—it is all His money, by the way. In the context of savings, we should be more inclined to forgo saving in order to meet the need of another. Like they say, we can’t take it with us, but we can send it on ahead.

Finally, in answer to the original question: If we don’t have an emergency fund then building one should be a high priority for us. Having extra cash on hand when emergencies occur can keep us from falling back on high interest debt, such as credit cards, often the first step into a dangerous debt spiral. After this is established, we can evaluate where our priorities are. If we really want to become debt-free, we should attack our debt with a firm plan and a defined budget. We can easily get discouraged in the process if we haven’t fully thought out our goals.

On the flip side, if we’re comfortable with our payments, and we have cash in hand with no immediate purpose, we can start growing our savings, while remaining sensitive to the leading of the Holy Spirit to give to those in need. However, we should avoid making this type of decision based on how we feel at the moment. It is wise to plan for giving within our budget, and then be busy praying about how God wants us to use it. This minimizes the emotion factor and enables us to make sound decisions based on God’s leading.

Sometimes, trying to keep tabs on our finances can feel like wrestling an alligator, but we don’t need to get pulled under by it. God has promised to take care of our needs (Matthew 6:25-34). At the same time, He wants us to be responsible with what He’s given us (Matthew 25:14-30). As we start to think about our goals and what we’ve done in the past. We may find that we haven’t done so well, and we need to change a few things and reprioritize. Or, we may find that we’re in better shape than we thought. The important thing is to go through the process of making goals and structuring a plan. Simply letting these things happen is a greater risk than having lots of debt or no savings at all.