Muslim’s Guide to Debt and Money Management

Debt Perceptions – The Consumer Culture in America

To owe someone $8,000, for about $6,500 worth of stuff, and be enslaved to paying a small fee of it every month, for 15+ years is normal to most Americans. The average American household, according to many statistics, is over $8,000 (if not 9,000) just in credit card debt.

This doesn't include the $200,000 house that you will pay approximately $303,000 with mortgage, or the $25,000 car you drive that will end up costing you closer to 30 after it is all said and done. Oh, and did I mention the $50 a month for the new furniture, $30 a month for the new computer, and the $15 a month for the new washer you had to buy because the old one unexpectedly broke down?

Such is the way of life for an average household. Enslaved, almost quite literally, to the monthly payment. A simple purchase transaction goes something like this:

Consumer: I'd like to buy this item.
Business: Great, how about we sell this to you at 28% interest?
Consumer: As long as the monthly payment is not more than $40 it's ok!
​

It has gotten to the point now, that even experts differentiate now between “good” debt and “bad” debt. One article I came across said,

…experts say, your total monthly long-term debt payments, including your mortgage and credit cards, should not exceed 36 percent of your gross monthly income.
​

Hold on. That sounds nice, but let's rephrase it. For every dollar you make (after taxes), you should keep only $0.64 for yourself, and pay $0.36 to the bank. That's for your long term debts. As interest accumulates, is there any hope of ever paying it off? Of that 36 cents there is a good chance that 24 cents are going to interest/fees, meaning only 12 cents will actually go to the principal amount. That is for every dollar you earn. Put it another way, for every hour you work, 15 minutes of that hour are for the privilege of paying someone back more than they lent you, so you could enjoy something you cannot afford in the first place. And this is recommended by experts. Does anyone see anything wrong with this picture?

Did you know, that for every dollar a credit card company collects in principal, they collect $2 in interest/fees?

I remember a conversation I overheard between 2 people at work. One was mentioning how his family was doing Dave Ramsey's debt snowball plan to get out of debt (a lot more on this later in the series), and the other person responded by saying, you mean completely out of debt? He said yes, and she said, “Why? It's good to have some debt.”

If you watch TV, you cannot help but see this new Visa commercial where a person who is not paying with Visa is all of a sudden disrupting some kind of flow everyone else has going on – i.e. to pay with anything other than a credit card is now slow and uncool. This is the culture we have created. It was not terribly long ago that fast food chains did not accept credit cards, now they happily take any card you have, even for 99 cent chicken nuggets. Alḥamdulillāh, our halal meat store owners are still keeping it real though, with their hand written signs posted at the one cash register with a working credit card machine, “No Card for Less Than $10 Charge. Thanks You, Management.” (There shouldn't even be a credit card option in Muslim operated business)

There is no concept of saving up and buying something on cash. In a world where installment plans are the bread and butter of a Sunday ad paper, people simply think that to purchase any item, it must be on credit or on payments. Car ads don't even advertise the price anymore! New Accord, $199/month. Does anyone even care what the bottom line is on these items?

In fact, the consumer culture has made it 'financially' attractive to open a credit card account. Purchasing furniture? Put it on the store brand credit card, and save 10%! Do you buy gas? If so, then open up a British Petroleum credit card to get 5% back on your gas!! That's right, to save 15 cents a gallon, you simply have to sign over your financial future. And don't forget about the rewards!! If you spend $10,000 on your credit card, you can get a $75 gift card to Babies R Us or Banana Republic! It doesn't take an MBA to figure out the faulty math here. They would not be offering these things if the vast majority of people did not end up paying significantly more than the 'reward' amount back in interest.

It is no wonder that this cycle has created an entire generation of paycheck-to-paycheck households. How much can you truly enjoy all this stuff when most of your paycheck is spent before you even receive it? Most of these households have no chance at ever establishing any kind of savings. If an emergency comes up, just add it to the (ever expanding) line of credit that you have. It's no surprise that things like predatory lending (the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against) are on the rise. Some are faced with the choice of either payday loans, cash advances, loans based on car titles, or other such abusive practices in order to prevent defaulting on their credit cards, car payments, or worse, house payments. It should come as no shock then, that things like house foreclosures are on the rise.

This drive to attain material goods is causing families to lose their homes, declare bankruptcy, have their marriages split apart – all because of their debts. It is a vicious animal that does not get much attention. In the consumer culture we live in, credit is made out to be this great thing that allows you to get everything that you need easily and 'affordably.' In the next part of the series we will explore the Islamic view of having debts inshā'Allāh.

For a better picture of the ideas expressed here, I very highly recommend watching the movie Maxed Out, a documentary about the debt crisis in America. If you simply own a credit card or have ever contemplated having one, much less have one with money you owe on it, this is a must see.

 

But, seriously, banks are so impersonal too. To be informed about how the government can back a loan from the taxing of rich individuals is now the cause of the century. It is the Green cause to Not believe in an Invisible Hand for the capitalist Nature of balancing the waste against the reduction of Waste.

Mahmoud Ahmedinejad: I should have only studied Capitalism.

 

Nothing to argue about with your assessment, Abdul.

 

While I disagree with your approach to issues outside of this, I agree with the original author.

I'd take my rep back if I could

 

you should at least post credits to the original author if you're going to pawn off his work as your own

http://muslimmatters.org/2008/01/08/muslims-guide-to-debt-and-money-management-part-1/

 

Ok, now that you have stated the obvious, what is your point?



and I don't owe anyone anything except monthly bills.

 

I did. But they appear to have disappeared.

 

Debt Perceptions – Islamic View of Debt

Even a brief review of basic literature in Islam regarding debt shows that it is unequivocally discouraged. Period. Debt.Is.Bad.

The general principles in Islam include only buying what you actually have money for, agreeing to a fixed price before purchase, and, oh yes, avoiding interest! Allāh (swt) said in Surah al-Baqarah that HE DECLARES WAR on those who deal with interest. That 8.9% APR is hell on an installment plan. Would you like that paid out over 24, 36, or 48 months?

Did you know? The longest āyah in the Qurʾān is the āyah of debt (2:282).

It is narrated in Bukhāri and Muslim that one of the du‘ā’'s the Prophet (saw) used to make at the end of every ṣalāh was seeking refuge in Allāh from heavy debt. Someone said to him, “How often you seek refuge from heavy debt!” He said,

“When a man gets into debt, he speak and tells lies, and he makes a promise and breaks it.”

In Sunan an-Nasa'ee this hadith is narrated,

We were sitting with the Messenger of Allāh (peace and blessings of Allāh be upon him) when he raised his head towards the sky, then he put his palm on his forehead and said: “Subhaan-Allāh! What a strict issue has been revealed to me!” We remained silent and were afraid. The following morning I asked him, “O Messenger of Allāh, what is this strict issue that has been revealed?” He said, “By the One in Whose hand is my soul, if a man were killed in battle for the sake of Allāh, then brought back to life, then killed and brought back to life again, then killed, and he owed a debt, he would not enter Paradise until his debt was paid off.”
​

We know the immense rewards of the shaheed, so imagine that even these rewards are withheld for the one who dies with debt.


In Tirmidhi a hadith is narrated that,

“Whoever dies free from three things – arrogance, cheating and debt – will enter Paradise.”
​

In a chilling narration from Musannaf Abdur-Razzaq, ibn Umar (ra) said,

Fear Allāh and do not die in debt, lest it be taken from your good deeds when there will be no dinars and no dirhams.
​

Imām Qurtubi made the following statement about debts,

Our scholars said: It is a disgrace and a humiliation because it preoccupies the mind and makes one worried about paying it off, and makes one feel humiliated before the lender when meeting him, and feeling that he is doing one a favor when accepting a delay in payment. Perhaps he may promise himself that he will pay it off then break that promise, or speak to the lender and lie to him, or swear an oath to him then break it, and so on. Moreover, he may die without having paid off the debt so he will be held hostage because of it, as the Prophet (peace and blessings of Allāh be upon him) said: “The soul of the believer is held hostage by his debt in his grave until it is paid off.” All of that undermines one's religious commitment.
​

For more information similar to what is above, please refer to 'Seriousness of Debt' at Islam-QA.

The main lesson we learn is that Islam has discouraged debt as much as possible, and that debt is something that has a serious and direct effect on one's īmān.

One thing that must also be mentioned is what actually comes before debt in Islam, and that is the belief that Allāh (swt) is Ar-Razzaq. He alone sustains us, so we should depend upon Him for our needs, and not turn to what is Haram. Inshā'Allāh this will be covered in more detail in a later post on why Muslims are in debt, but it's important to take note of this point for now.

When a Muslim falls into the credit card trap, or into major debt, they do not realize the ramifications of it. Islamically speaking, it has the potential to corrupt a person's most basic forms of sustenance. In two different hadith, the Prophet (saw) mentioned,

“No one ever eats any food better than that which he has earned with his own hands. The Prophet of Allāh Dawood (peace be upon him) ate that which he earned with his own hands” (Bukhāri)
​

And,

“If one of you were to take a rope and bring firewood on his back and sell it, thus preserving his dignity, that is better for him than asking of people who may give to him or withhold from him” (Bukhāri)
​

When a Muslim falls into the trap of buying things on a credit card, it is quite possible that he is even purchasing the food he feeds his family on money that is tainted with ribaa. This is because the hard earned money is no long being cashed out to meet your needs, but is going out before you get it to catch up on the monthly payments that are due.

A person may now have a halal job, but by his wealth being spent in ribaa, and his food and drink now being bought on ribaa, this person is now under the threat of having his supplications rejected for sustaining himself with haram – despite the fact that his job itself may well be halal.

The fact that the Prophet (saw) sought refuge in it so regularly (as regularly as he prayed!!) should be enough of a warning to us to not be involved in debts.

The ramifications outlined as consequences above hold true to this day. Think about something as simple as lying to your parents, or your spouse, or siblings regarding your financial situation. This is especially the case for seemingly 'well off' Muslims who may be concealing debt, embarrassed to know that they are living in a 300k house, driving a Lexus, yet, due to their debts they may not even have Zakat due on them!!!! [at least according to one opinion of the fuqahaa on this issue].

The greatest fear a Muslim should have though, is to die while being in debt, and thus being held hostage from entering paradise!


http://muslimmatters.org/2008/01/11/muslims-guide-to-debt-and-money-management-part-2/

 

But,... but the Pythagoreans said the Odd is good and the Even is bad.