Church debt has become a major issue for many church leaders. As a stewardship professional, I often hear from churches desiring to reduce or pay off their debt. There are specific philosophies related to church debt that play a prominent role in church finances. It is not just a theological issue, and not just a management issue, but a combination of both. With today's uncertain economy and the growing number of families pursuing their own "debt-free" lifestyles, it is time to address the many issues related to church debt that staff and lay leaders are facing.

Getting Perspective on Debt
Debt can be acquired in many different ways, but some ways are wiser than others. Debt can be acquired when a church is seeking to advance its reach into the community with a facility expansion. This debt is usually incurred after a church has reached certain growth limitations due to space. New construction expense is the No. 1 reason behind church debt. The church must answer the question, "Do we continue to grow by expanding our facility, or do we cease reaching our community due to lack of space?"

Another cause of church debt is a lack of cash flow to support spending. In this circumstance, a church will increase debt to continue current ministries or start a new ministry. Sometimes the plan calls for the new ministry to become self-supporting and repay the debt. Many times, this does not occur due to poor planning or faulty execution. Occasionally, debt is increased to simply keep the doors open. The churches who take on this type of debt usually do so with hope that things will soon turn around or new growth will be ignited. This debt can be caused where there is a local economic downturn that the church cannot react to quickly enough. It is not uncommon to see young churches leverage credit card debt, or to see established churches borrow repeatedly from designated accounts.

A third type of debt can be caused by unexpected maintenance costs or other emergency situations that the church is unprepared to fund. Many churches have poor facility maintenance plans; they do not set aside cash reserves for major repairs and are often caught with a large bill and no means to pay it. A broken air conditioning unit must be replaced by the following Sunday, so a church will go to the bank to take care of this expense. Unfortunately, church budgets are usually not prepared to repay this debt.

Debt is not inherently right or wrong. As a matter of fact, we should not even think in terms of debt being right or wrong, but rather if it is wise or unwise. For many churches, their debt load is not overwhelming. But leaders and members tend to have more tolerance and acceptance of personal and business debt, but not church debt. Church debt can create a negative response that causes leaders to make reactionary decisions. Instead, leaders need to plan wisely for the future, act in obedience, and view reasonable debt as a tool for church development.

Four Basic Church Debt Structures
Church debt can be generally categorized four ways. First, there is the church that has no debt. These are often established churches with plateaued or declining growth that have not constructed a new facility in many years. Or, they may be young churches that do not own property. There are also a number of vibrant churches that have embraced a no-debt philosophy.

Second is the church with manageable debt. This church is typically stable and able to invest an above-average amount of funds in staffing, ministries, and missions. However, it is not uncommon for this type of church to live in a state of heightened financial awareness until all debt is paid off, even though debt is a small percentage of its annual budget. This church may decline opportunities to develop until all debt is retired or it perceives itself as wisely positioned to seize the future.

Third is the church that has recently completed an expansion project. Its debt total can be up to 30% of annual receipts. Finances are tight, but growth is strong and income is growing. This financial stress has been planned for and is temporary. As the church continues to develop and spend wisely, the debt pressure consistently declines.

Finally, there is the church that has a disproportionately high debt amount. It has built too much, declined numerically, or experienced an unexpected turn in the local economy. This can be the result of unwise planning, unrealistic expectations of the future, or a catastrophic event that could not be anticipated.

These debt realities produce a variety of experiences and responses. Some are justified and produce wise planning; others produce reactions that detract from the church mission.

It is important to identify where your church is when it comes to debt. Why do you have debt? Is it wise or unwise debt? What is the reality about your debt vs. the perception? What will the future look like if you do nothing about your debt? What will it look like if you do something?

Getting a Biblical Perspective on Debt
One of the most memorable verses in the Bible concerning debt is that a borrower is a slave to the lender (Prov. 22:7). This verse is often used to promote debt-free living as financial obedience to God. However, Scripture also gives wise advice on down payments, loan repayment, and debt forgiveness (Ex. 22:14-15; Deut. 15:2-3; 24:10-11, Ez. 18:7,8,16, 33:15).Debt is not described as sinful or disobedient to God in the Bible. However, poorly planned debt can be crippling!

Leasing can often be more expensive and constraining than debt. For young churches, leasing has far more limitations on what can be done in the facility, when it can occur, and what type of ministries can be conducted. Leasing can be less free than owning and can even limit kingdom growth. It is common to see churches grow dramatically when constructing the right kind of new space. This growth can be exponential and would have been highly improbable without the additional space.

The Bible gives solid principles and guidance on borrowing, lending, saving, planning, giving, and repayment (Prov. 24:3-4, 27:23-24, 30:25). It should not be concluded from the Bible that debt is sinful for an individual, business, or church. In the ideal world, everyone would love to be free of debt. This is not reality for most individuals or churches. Therefore, church leaders need to be very wise with their strategic financial choices because debt is binding, but, if used wisely, it is a valuable tool.
           
Strategizing for Wise Financial Practices
What would wise debt look like? Wise debt could be categorized as debt that the church incurs to expand its ministry into the community or around the globe. It is the means by which the congregation will grow numerically. Perhaps growth would come to a standstill without it. The amount of debt needs to be manageable and should not limit the church's ability to develop and minister in a healthy fashion. Wise debt produces growth. This growth should produce increased cash flow to manage and decrease the debt.

Wise debt is managed in the operating budget of the church. While it certainly is permissible, and even biblical, to raise funds above and beyond the tithe to fund major initiatives, it would be unwise to continually fund operating expenses, including debt payments, with designated offerings. It is quite normal to raise funds for a three-year period to initiate a construction project. Once construction is complete and permanent financing is obtained, the church should be able to pay the debt service through the general budget giving of the church. This enables the church to move on to new development initiatives. It should not be the practice of the church to continually service the debt long term with special offerings.

It would also be wise to continually review spending. A church can develop expenses that become inflated and ineffective. Culture shifts and ministries that were effective 20 years ago may not be as effective today. Churches should challenge how they fund different items in the budget. The church has far too many sacred cows financially. How much additional money could go toward reducing church debt by restructuring spending or by investing more in growth opportunities?

Church leaders should also regularly fund cash reserves for emergencies. Unplanned events are going to happen, the local economy can shift, people can move from your community, and major maintenance issues will occur. Will your church be able to adjust when they do? The time to prepare for the future is now. Church leaders can be in God's will and still experience financial tests. The goal is to be prepared, be flexible, and be obedient.

Strategizing to Reduce Debt
Reducing debt is a positive choice as long as it does not override ministry and limit a church's impact for the kingdom. So how can a church go about reducing its debt to increase its impact? There are three options. A church can reduce debt by increased giving, decreased spending, or a combination of these two.

There are several options to consider when seeking to increase giving as a way to reduce debt. First is to present a general stewardship initiative to educate the congregation on church ministries, spending, cash flow, and debt service. For this to be successful, it needs to be conducted as a major church-wide initiative that is a combination of information and inspiration. Many do not understand God's calling to give or how their gifts to the local church change lives. This leads many church attendees to tip God instead of tithe. Then there are many duty givers who have tithed for years, but they have lost sight of the investment in eternity that results from their gifts. Both groups need to be inspired, challenged, and called to act in obedience. This general budget initiative can increase budget giving. It might be presented as a one-year giving emphasis to reduce church debt, establish an emergency savings, and fund some new growth initiatives.

Another option is to do a three-year giving project. When conducting a three-year designated giving project to raise funds solely to reduce debt, church leaders' expectations can often be too high. Raising funds strictly for debt can be uninspiring to many donors. Statistically, leaders should expect to raise half as much for a debt-only project in comparison to an expansion project. It is wise to consider combining a ministry vision initiative to help the church develop its future while also reducing debt. This can dramatically increase giving response.

Church growth is the No. 1 way to reduce church debt. It is generally much more cost-effective to invest in reaching people. It also increases the church budget. Over time, this reduces the debt ratio. And most importantly, it grows the kingdom of God, improves church health, and increases the leadership base. In short, reducing debt is best accomplished with a broader development approach rather than just paying down the mortgage.

What Is a Leader to Do?
Here is some closing advice to leaders regarding church debt. First, make solid decisions regarding the future. Spend wisely and accurately plan on the front end. There are seasoned professionals who specialize in church development and financial planning. Engaging a professional is a wise investment.

Second, do not be afraid to challenge past spending practices. This is an obedience issue. God has a plan for how church leaders spend the holy offerings of His people.

Third, do not allow the existence of church debt to drive your vision.

Fourth, focus on kingdom development and ministry.

Finally, live by faith in the present and the future. The right stewardship decisions today lead to more open doors tomorrow. Church leaders should constantly be positioned to think forward, be obedient, walk in faith, and be prepared for the future. The Bible is true when it teaches we reap what we sow (2 Cor. 9:6-11). It is no different in personal, corporate, or church financial situations. For every church that is suffering, there is a church down the street that is not. There are no quick fixes to church resource challenges. The slow, steady, and wisely paced leaders succeed!

Todd McMichen is chief executive officer and president of McMichen Development Group, an organization designed to help churches create spiritually driven stewardship strategies to address major needs, www.developchurches.com.