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Saturday, 28 April 2012

The Debt Debacle: The Consequences and Resolve

“Just in 18 to 20 installments, you too could be the proud owner of this [name as expensive gadget that’s too expensive].”
“Swipe your card and this [family packaged furniture set] will be yours. We deliver instantly right to your doorstep, for no extra cost.”
“We accept all major credit cards for purchases above $10.”
“At a 12% interest, your monthly installments will still remain $10 per month. (Installments may take up to 35 years).”
“We offer 100% financing for all your needs. (Terms and conditions apply).”
“How long have you been dreaming of this home? How many times do you look at the gleam of this car... give us a call now, and we can turn all of your dreams into reality.”
Does the above sound familiar?
It probably does if you’re living somewhere in the West, or somewhere away from the West but where the nuances of financing and credit cards are becoming the norm.
Swipe that card and just wait and see. What ever you want or need is now yours. You can always pay it off later, even in a few installments. Online shopping? Not a problem. Key in a few numbers of your credit card and you can have that product delivered to your office or home within two days. Running low on cash and need to go on holiday? Apply for a personal loan – spend first and enjoy – dish out a few bucks every month as payback – you won’t even notice it.
This is the life of convenience.
The above scenarios are all too real and while it seems superficial to some, it is not that difficult to fall for the debt trap. It may seem harmless – those few dollars in monthly repayment - and at times, it may not even seem like debt.
The convenience of shopping with credit cards; being able to own something that you won’t be able to own otherwise; the ease of receiving something without putting up some hard work in the first place. It seems like the icing on a very convenient cake of life.
And because taking up loans and swiping credit cards have become the mainstream of spending, everyone, including Muslims, get caught up swiping credit cards and taking up loans, to the point that we forget that there is danger in committing to these types of spending habits.
In reality – and in Islam – this is what we call debt.
Living in the Mainstream Mode of Money

But the same goes for the television set that we purchased using the store’s flexi plan; the clothes that we purchase online by using a credit card; and the loan repayment on the car and on the house. When we enter into these types of transactions, we are technically in debt.Borrowing money to buy or finance something that we can’t afford in the first place means that we are going in debt. We owe someone, something; we owe someone money. It may look harmless to borrow a few dollars from a friend for a quick lunch, but in reality, that money is not ours, and we need to repay our debt. That is just a few dollars of debt over a meal.

Borrowing is allowed in Islam for sustenance over things that are necessary. God even stands by those who borrow money with sincere intentions to pay these funds back. There is a hadith that reads:
"Whoever takes people’s wealth intending to pay it back, Allah will enable him to pay it back." (Ibn Majah)

Prophet Muhammad (peace be upon him) also said:

"Allah will be with the borrower until he pays off his debt, so long as the loan is not for something that Allah dislikes." (Ibn Majah)
Perhaps a home and a car are seen as necessities today. But what about everything else? Gadgets, matching furniture, an excessive collection of clothes and accessories, second cars and second homes, quarterly holidays abroad... personal loans for personal shopping, personal loans for financing – how do these add up in light of the Quran and the Sunnah? Are they not luxuries, rather than necessities?
In the Quran, chapter 17, there is a verse that shuns over expenditure, something that is also hated, after miserliness:
{Nor overextend it (like a spendthrift) means, nor be extravagant in spending and giving more than you can afford, or paying more than you earn, lest you become blameworthy and find yourself in severe poverty.} (Al-Isra’ 17: 29) 
Credit card advertisements as well as easy installment plans may look harmless and even attractive, but it also hones in onto our nuances to end up spending extravagantly. Of course, it is subjective as to what constitues a “need” and a “want” from person to person but humans’ desires are often insatiable and these types of schemes play to our weaknesses. We all know that extravagance leads to greed and a propensity to show off, which in turn, leads to miserliness and attachment to materialistic wealth. Materialistic wealth roots us in the worldly affairs and causes us forgetfulness of the Hereafter.
When Usury Happens

Credit card companies and conventional banks are the tycoons of interest – they thrive on such income. Interest – also known as usury – is largely forbidden in Islam, defying the cause of lending to those who are financially in need:But besides extravagance, the sordid problem with debt is compounded when riba (usury) piggy-backs on loans and credit card plans. This causes borrowers, not only to be oppressed, but to incur sin.

{Allah will deprive usury of all blessing, but will give increase for deeds of charity} (Al-Baqarah 2: 276)
In a strong hadith, Abu Hurayrah related that the Prophet Muhammad said:
"On the night of the Miraj I came upon a group of people whose bellies were like houses. They were full of snakes which could be seen from outside their bellies. I asked Gabriel who they were, and he told me that they were the people who had practiced riba." (Al-Albani)
Even during his farewell sermon, Prophet Muhammad reminded sternly but kindly about the dangers of usury. He said:
"Allah has forbidden you to take usury; therefore all riba (usury) obligations shall henceforth be waived."
You would never hear of usury obligations being waived today. And many families are falling into financial hardship in repaying debt that is laden with usury. A house worth $200,000 could end up with an additional $100,000 worth in riba. A shopping spree at the mall worth $5,000 in credit card charges could have an additional $2,000 slapped on to them in the form of interest, and that is not even including late payments, which can often happen.
Being stuck in debt is torment. It is deadening and stressful, especially when there are still daily expenses that have to be paid, families that are also growing, and with them come multiple needs and wants. Another problem is also inflation – with the value of money decreasing, those who are in debt are wrangling with even less real income to deal with daily spending, repaying off loans and credit card bills and trying to put a bit of savings to salvage the future. Overwhelming debt can lead to bankruptcy and depression – there have even been cases of suicide relating to debt.
A Muslim in Debt
Taking on debt, whether interest-based or not, has some serious consequences as a Muslim. It was narrated by Aisha that the Prophet used to say in his prayer:
"O Allah, I seek refuge with You from sin and heavy debt. Someone said to him: “How often you seek refuge from heavy debt!” He said: When a man gets into debt, he speaks and tells lies, and he makes a promise and breaks it." (Al Bukhari & Muslim)
Imagine the Prophet being afraid of debt – he was afraid of debt as he was afraid of heavy sin!

"Now his skin has become cool for him." (Ahmad)When we purchase something with a “promise” of repayment in a stipulated number of installments, it begs to wonder whether we will live to see the debt through. Imagine the burden of debt being carried to the grave. The Prophet refrained from offering the funeral prayer for one who had died owing two dinars, until the companion Abu Qatadah promised to pay it off for him. When Abu Qatadah saw him the following day he said, I have paid it off, the Prophet said:

It is gut-wrenching to know that such a small price of debt can lead to harshness in the grave. Imagine being denied Jannah (Paradise) because of a few dollars. Narrated from the companion Thawban that Prophet Muhammad said:
"Whoever dies free from three things – arrogance, cheating and debt – will enter Paradise."
Gone were the days where people worked hard, saved up and then only purchased the goods that they needed. But with all sorts of financing and credit card schemes ruling the roost, the norm is to buy first and then pay later. Unbeknown to many, this type of culture actually pushes prices of goods and services to go up.
Think about it. Let’s say a standard home costs $300,000, for example, and only a handful of people have that amount of cash. This leaves the majority – let’s say 80% - of no-home owners with the option of taking up a housing loan, the prices of houses will continue to rise, as there is a provision of taking a housing loan, when you can’t actually afford a home in cash. Taking up loans also feeds income back to these institutions that are already thriving and growing on usury.
However, if the 80% majority just rejected house loans and refused to purchase a home through a loan, property developers would be forced to lower prices of homes to meet the market demand. Depending on the income bracket, this could mean a plunge in property prices and allow most of the 80% of purchasers purchase homes without having to incur debt. Banking institutions would also lose out on interest income and find ways to eliminate interest from their transactions in order to woo consumers. This may seem far-fetched, but if every single person bans together to combat interest, this could certainly be a possibility in the future – it just has to take a few to start the ball rolling, and that is an obligation upon all of us.
Undebting Ourselves: Plan, Work Hard and Ask God for Help

As for necessities, it is strongly encouraged to seek non-interest based forms of financing. Whether it is through true Islamic financing institutions or borrowing from friends and family with strong-willed intentions to pay back, interest-free debt could be a reality. Of course, it is best to ask those who hold the same beliefs about debt. Prophet Muhammad says:There are ways to avoid debt, or at least, curtail the amount of debt one can manage. Strictly separating needs from wants, with discipline and brutal honesty, helps us reduce the risk of going into large amount of debt.

"If anyone would like Allah to save him from the hardships of the Day of Resurrection, he should give more time to his debtor who is short of money, or remit his debt altogether." (Muslim)
Finding a loaner who believes in this makes borrowing less burdensome, but this does not absolve the need for strict repayment:
"The one who takes people’s wealth intending to pay it back, Allah will pay it back for him, and the one who takes it intending to destroy it, Allah will destroy him.” (Al-Bukhari)
Allah requires us to work hard (in a halal manner) in order to repay debt and always to make du’a to Him for guidance and strength in order for us to relinquish our debt on earth.
Prophet Muhammad entered the mosque and saw the companion Abu Umamah. He said:
"O Abu Umamah, why do I see you sitting in the mosque when it is not the time for prayer?
He said: Worries and debts, O Messenger of Allah.
The Prophet said: Shall I not teach you some words which, if you say them, Allah will take away your worries and pay off your debts?
He said: Yes, O Messenger of Allah.
He said: Say, morning and evening: ‘“O Allah, I seek refuge with You from worry and grief, and I seek refuge with You from incapacity and laziness, and I seek refuge with You from cowardice and miserliness, and I seek refuge with You from being heavily in debt and from being overcome by men."
Abu Umamah said; I did that, and Allah took away my worry and paid off my debt. (At Tirmidhi)
It is possible to be free of the dangers of debt. But it takes sincere intentions, determination and prayer to prevent going into debt in the first place.
Although borrowing is allowed, there is a grand obligation to be steadfast in repayments and only borrow from those who have similar beliefs – those who are stringently aware of the dangers of riba and those who strongly believe in helping those who are financially in need.

(On Islam / 24 April 2012)

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