Muslim’s Guide to Debt and Money Management Part 6

Intro | Part 1 | Part 2 | Part 3 | Part 4 | Part 5

V. Cars, Houses, and ….. oh yes… STUDENT LOANS

So now we have learned insha’Allah how to budget our money, and implemented a strategy to knock out our credit cards and other debts. We have 1k in savings. Now we move to the next steps. Ideally, a person should start focusing on creating an emergency fund – 6 months worth of expenses (not income) set aside for a rainy day.

Most people now after knocking out these major debts, are worried about cars and houses – and let’s not forget student loans. We’ll look at cars and houses first.

One disclaimer before continuing this article. If it has not already become readily apparent, the 3 main sources I am using for my research are:

  1. AMJA
  2. Lectures by Sh. Ghassan Barqawi
  3. Total Money Makeover by David Ramsey

The reason for the first two sources is because from my own personal research in the English language I felt that they provided the best rulings on contemporary finance issues due to not only their Shari’ expertise, but their experience and expertise with the finance system that we live with and deal with on a day to day basis (most specifically in America). In the sources I was able to come across, no one else dealt with these issues in as much depth as they did. As far as the Ramsey book goes, then I elaborated on this in a previous post in this series. It is hands down the best personal finance book I have ever read, and overall the most in tune with the basic principles taught to us in Islam – namely that of avoiding debts and interest.

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Car Buying

Car buying in America is a nauseating experience. There’s so many variables and factors, and let’s be honest – there isn’t a single contract out there that’s 100% halal. This includes lease contracts, purchase/finance, etc. As far as car leasing goes, it seems on the outset to be halal since its like a fixed rental agreement. Fiscally speaking though, it’s a really bad contract to get into. Plus, our goal is to be debt free and emancipated from monthly payment slavery. How else are you going to build wealth?

Leasing: I’m not personally sold on leasing as a halal alternative. First of all, they use some type of interest in calculating the amount (which according to some is irrelevant since they quote a fixed price to you). Secondly, the contract itself includes a purchase option at the end of the lease, which according to some scholars is an invalid condition since it’s 2 contracts in one (a sale and a lease). But it does at least seem more lawful than any of the purchase options they have. Conclusion: I wasn’t able to find anything conclusive from any scholar who has analyzed the leasing arrangement offered by automobile dealerships here and given a ruling, if anyone has, please post it.

Buying: There seems to be 2 things here. First, is financing a car purhcase by a third party, whether its your bank or the car company hooking it up through someone. That is definitely money for money, and then money for car. The second one is when the car dealership sells you the car directly at a fixed price (even though they worked interest into the amount). For example, the car dealership says “we sell you this car for $250/month for 60 months” – again same conclusion. If anyone has anything conclusive in the halal/haram sense, please post it.

Now that the halal/haram factor is out of the way (not really since I don’t have any real answers) let’s step back and look at it fiscally now. The best advice I found on this topic was from Dave Ramsey (surprise). His recommendation: Don’t waste money on new cars, they depreciate in value way too quickly. It’s like buying a Lexus, driving out of the dealership and throwing $100 bills out of the window – that’s how quickly your car loses value. A lease is similar, you don’t own it and you are bound by mileage requirements and other conditions.

The best thing to do is find a moderately used car, something reliable and gas efficient, and buy it on cash. Again, big surprise. If you’re driving a clunker, and need a new car, ride it out until you can buy something better on cash. This is where the previous steps come into play of living frugally and putting money into savings, and being free of debts. This is the tool to freeing up cash to be able to do things like put 10k on the table to buy a car on cash. It’s a long process that takes discipline – but then that’s really the big story of money isn’t it? If you buy a car for 1k, and save for a year the $300/month you would put towards a payment, after one year of toughing it out, you can buy a $3600 car on cash. Do it again for another 2 years, and you can upgrade. But all the while – you are financially independent which is the ultimate dream isn’t it? If you lose your job, you don’t have to worry about your car getting repo’ed after 4 weeks if you are behind on the payment.

Also, that monthly payment (the average for American households is about $450/month) can go a long way towards debt reduction or saving. Especially if you are planning to buy a house, thats another easy 25k you can save in 5 years if you have a reliable car you got on cash, such as used Accord or Camry, that lasts during that time.

Ramsey gives an interesting breakdown of leasing in his book. If you rent a car worth $22,000 for 3 years, at the end of the lease it is worth about $10,000. The monthly payment not only covers that depreciation, but also the interest amount built into the payment which gives the car dealership profit. Just covering the loss would be a monthly payment of $333. Plus you have to pay per mile if you go over the allotted amount (usually about 12k miles for one year). On top of this, if the car is not returned in mint condition, the dealership will charge you for excessive wear and tear.

The last statement I will make about cars is that no one disagrees on the fact that the most halal and undisputed way of buying a car is to lay down the cash and buy it straight up. Even if it means getting a used car instead of a new one, but insha’Allah Allah (swt) will put more barakah in that car. Maybe it won’t break down, maybe you won’t get into a car wreck, maybe your car insurance will be cheaper, maybe you will save money on gas and maintenance, and maybe it won’t get totaled or die forcing you to get a new one. All kinds of things can happen that are not in our hands. Insha’Allah if we do our best to have taqwa, Allah (swt) will protect us and our property.

Houses

I’m not going to beat around the bush here. Mortgages are haram according to practically every scholar I have heard discuss this issue. It is straight up money for money. The question arises with Islamic mortgage companies. According to AMJA, the contracts they utilize are not Islamically sound. Some companies are also known to sell off the debt to other corporations like Fannie Mae after taking your contract. Anyone interested can listen to these CD’s – How to Buy a House Islamically by Sh. Ghassan Barqawi. AMJA’s website also has more information on specific companies and their schemes. One thing of note, oftentimes the “shari’ah” endorsements on the websites of these companies are given to a general scheme, and not necessarily to the specific contract the company ends up utilizing, so do not let that mislead you. Most of the contracts used still have interest, but just under different names.

Regarding buying a house through a bank due to necessity, AMJA gave the following ruling,

AMJA asserts that banks’ interest is prohibited riba; therefore, acquiring loans from banks is prohibited except in the case of necessity as defined by Islamic law. This is true whether the acquired loans are for building homes or otherwise. Moreover, necessity should meet the following Islamic prerequisites:

a) In order for necessity to be considered from Islamic perspective it must be a reality not a speculation. This means that a real danger against one’s creed, soul, reasoning ability, offspring, or wealth must already or most probably be in existence. This is the condition that justifies doing what otherwise is prohibited.

b) The danger should be of an urgent nature such as danger of death, or losing a limb or its function if one does not commit what is prohibited.

c) Lacking other lawful alternatives.


AMJA also asserts that general need may take the ruling of necessity in permitting what otherwise is prohibited, provided that the prerequisites of this maxim are met, such as:

a) The materialization of need as defined by Islamic law. Islamic law defines need as the repulsion of harm and physical weakness, which prevents people from taking part in the hustle and bustle of daily life.

b) Lack of other permissible alternatives such that the unlawful covers all areas of the earth and that all means of earning are corrupted, so that the people find no way at all to seek the lawful.

c) To keep within the boundaries of need, otherwise all that relates to comfort and luxury remains prohibited.

d) Inability to move to other places where one can find legitimate alternative.


AMJA’s resolution in this regard explains that the person who cannot afford to buy a home through an interest-free, permissible means should be content with renting.


Renting a residence provides a way out from falling into the riba that is prohibited by Allah and His Messenger. However, if renting becomes extremely hard for some people due to irreconcilable considerations such as the number of family members that exceeds what is allowable in a rented place, an amount of rent that supercedes the family’s financial capacity or any other legitimate urgencies, then, it becomes permissible to use mortgage in light of the aforementioned governing principles.


Nonetheless, this permission can only be used after referring to the people of knowledge, in order to estimate the extension of the need, and to ensure that the prerequisites of necessity-like need are fulfilled. (source)

Now, as far as the contemporary “Islamic Finance” schemes are concerned, the most popular among them is the co-ownership scheme. This is where you buy the house as ‘partners’ and then you pay rent on the portion which you do not own. For a detailed discussion of this contract, listen to the CD set by Sh. Ghassan linked to above. Even a cursory glance at their contract/scheme looks like it is interest with a different name. In fact, I will tell you exactly what happened to me while writing this. I found the declining ownership percentage/payment chart of one of these Islamic companies, and compared it to a mortgage amortization chart. The columns in both are exactly the same. In fact, the only difference is that the words “principle” and “interest” have been changed to “RofC” and “RonC” [Return of Capital (principal), and Return on Capital (interest)]. It also took me less than 5 minutes to take the example chart they Islamic company had on its site, play around with an amortization calculator, and figure out exactly what interest rate they used in the example chart on their site (you might save money going through the bank ;)).

Alhamdulillah though, for Muslims in America it seems there is one company that has gotten the approval of even AMJA, and that is Devon Bank. You can see the relevant fatwa here, and go through the financial section at AMJA’s website for more details.

But of course as has been the theme here, let’s step back and look at it fiscally. If your mind is already made up on buying a house, then from the research above, Devon is the best way to go. And looking at Devon, I would say unless you’re ready to put serious money down – like 25-50% down, then it might be a lot of money to go through them. But then, that should tell us something too. If we can’t afford it – it means we can’t afford it. I hope by now we have learned the 0% down fads are there to help us get into debt by getting things we can’t really afford.

In any case though, buying a house does involve taking a significant amount of debt on your head – we’re talking 6 figure debt. That is not something to take lightly. Especially for something that’s not a necessity when you can rent a nice apartment or even rent a nice house without all the burdens.

I was surprised to read in Ramsey’s book that he actually recommends buying a house on cash. I was shocked to hear this. Muslims are so busy trying to run loopholes around the shari’ah to finance houses with interest under another name, that no one is actually preaching the value of saving and buying on cash. It might take a while, sure, but what price can you put on that peace of mind? I know of many people who have purchased houses on cash, and I’m not just talking cheap houses either, but houses close to the half million dollar range. In the Millionaire Mind, they showed that many of the houses bought over a million dollars were actually bought on cash. It’s doable, but it takes some saving and persistence. If saving an amount like 50k or 100k or 150k sounds otherworldly, maybe its a sign that in reality buying a house is not something that you can truly afford to begin with. Besides, what’s wrong with renting a house, or a nice apartment?

One last note on houses. Many people justify buying a house due to the tax break you receive. I will quote something from Ramsey’s book regarding ‘Stupid Tax’:

If your mortgage payment is $900 and the interest portion is $830 [RofC if you are using “Islamic” Finance ;)], you will pay that year around $10,000 in interest. What a great tax deduction! Right? Otherwise, you’d pay $3,000 in taxes on that $10,000. But who in their right mind would choose to trade $10,000 for $3,000?

Student Loans

Again, let’s get the halal and haram of student loans out of the way. Here is the official answer. I can’t give any more than that on whether it is halal or haram. For more you would need to take it to an Imam and go over your specific situation. What I can offer here though insha’Allah, is some advice on the ‘taqwa before fatwa’ and a fiscal look at how the student loans work out.

Dave Ramsey has an excellent discussion on College funding in his book. The most striking quote to me was this zinger,

College degrees do not ensure jobs. College degrees certainly don’t ensure success. College degrees do not ensure wealth. College degrees only prove that someone has successfully passed a series of tests.

No matter how you look at it, at the end of the day, you only get out of your college education what you put into it. Before taking a loan (obviously in the case that you deem it to be permissible due to your situation), consider a few of the following points. Have you put research into what the most cost-efficient college or university to attend is?

Can you save money by going to community college for 2 years and then transferring somewhere else? If you take a loan, is it strictly for education, or is it also – as many people do – financing the college lifestyle of the apartment, food, car, and everything else? Are you going to a public university instead of a private one? Can you live at home and save extra money?

When I went to university, alhamdulillah I was fortunate enough that my parents were able to pay my tuition in cash. However, I should also add that in order for this to happen, I lived at home and commuted almost an hour each way every day. I opted for the local, public university instead of something out of town or a private university. I also worked to help cover some of the expenses. Before taking out a student loan, we should evaluate our situations. Can we work extra to save money for college? The majority of my classmates in college were actually full time employees with families that were going to school part time to complete their degree. Many others worked extra and took less classes per semester in order to pay for tuition. You may not graduate in 4 years flat, however, you can get an education without it being tainted by a student loan. Shaykh Muhammad alShareef had a conference call on finance for AlMaghrib last summer. In it, I remember him clearly telling people that if you cannot afford something like medical school, maybe you are not meant to be a doctor. I thought that was a bitter pill to swallow, but it is an important one. The education we get in college is what we use to seek out our jobs in order to support ourselves and our families. Are we willing to have the entire root of that tainted with ribaa?

Going to college in a manner described above is not only practical, but done by thousands upon thousands upon thousands of people every year. What occupation are you going into? Is the actual college you graduate from really that important? Many big corporations do not even require a degree as long as you have relevant work experience. In fact, it is often difficult to find people in the corporate world who are actually even working in their field of study, much less actually applying the education they got. In high school it seems like the college you go to is the end all be all deciding factor of your future so it is sometimes hard to look ahead. For most subjects though, it is not that big of a gap. Do you think the Calculus or History textbooks at your local community college are going to be that different from ones at MIT or Berkley? The education you receive more often that not is a result of exactly how much work you put into it irrelevant of where you are actually going.

Another option is to get a full time job with a company and then have them pay for your schooling. I know many people who were working full time and having their company sponsor even their Bachelor’s degrees, not to mention graduate degrees.

In Ramsey’s book he also mentions that many options of financial aid are often overlooked. If you take out the time to hunt down scholarships, you can get some, even small ones. I remember receiving a scholarship for almost half a semester’s tuition for simply writing an essay that took about 20-30 minutes. You have to seek it out. When there is a will, there is a way. Above all though, if you are serious about college and need help paying for it, make du’a to Allah (swt), and of course, before selecting any degree or college make Istikharah insha’Allah.

Insha’Allah this will conclude the debt series for now. I know I left out a big section on ‘wealth building’ and retirement/stocks, however, I have been unable to make any significant strides in researching those issues. Hope you enjoyed the series and I look forward to your comments :)

36 / View Comments

36 responses to “Muslim’s Guide to Debt and Money Management Part 6”

  1. Avatar Samir says:

    Jazakallahu Khair, being a student, that last section on student loans was a call to concrete action.

  2. Avatar Asim says:

    One thing that bothers me about Islamic House Finance Schemes: Even if such a scheme is in and of itself Halal (which, it seems after reading this article, is itself a metter of contention between different scholars/muftis), isn’t every financing company going to ask the buyer to purchase home-owner’s insurance for as long as they are not paid off?

    When we buy 3rd party car insurance, the fatwa (that I have seen) states that since the law of the land requires it, and it is a matter of compulsion, one may get the insurance, and would (Insha-Allah) be excused for it.

    What excuse, though, can be made for buying homeowner’s insurance when it is a private party (the financing company) that is requiring it, and there is no compulsion by the law of the land (“get insured or else you’ll land in jail”) to engage in this Haram transaction?

  3. Musa said, “I think you may be a bit too cavalier in dismissing the importance of a college education.”

    Thank you. Exactly what I was thinking.

    It seems that some Muslims like to make life harder for themselves. If every potential law or medical student threw the towel on the idea, how would our ummah be educated?

    Let’s remember the first verses of the Quran revealed to Prophet Muhammad (saw).

  4. Avatar Amad says:

    Leases are perfectly halal… There is no interest in it. Its a purely rental contract, where a lease rate is used to calculate a profit. We may not see it, but all rental car company use their own research to calculate margin and ROI.

    There is no obligation to buy at end of lease. A price is known if you want to buy it and established in the contract. But it is not a sale until you decide to buy. I have never heard a scholar say that it is forbidden.

    As for the wisdom in buying new cars, that is a different issue. I agree its a ripoff in the sense you lose a lot on the initial depreciation. I never bought a new car (for 15 yrs since I started driving) until last year when I leased an environmental friendly :) prius. And I can tell you that the peace of mind that comes with new cars is pretty hard to beat, even if it may not be financially best. So I agree in principle with you but it does depend on your opportunity cost of time that you may waste in buying and maintaining a used car. My lifestyle is so busy that this is one hassle that I am glad I don’t currently have.

    W/s

  5. Avatar ibnabeeomar says:

    regarding college… :)

    i know the article came off a bit strong, but my intent is not to dismiss the notion of college. in fact, i actually think that imams and community leaders SHOULD have a college education of some sort :)

    here’s where im a bit cavalier though, is that i think people put too much stock in
    a) going to the best school for the best degree no matter what, and
    b) finishing college in 4 years, masters in 2…. etc.

    organic muslimah – i dont think people have to become doctors in order to be educated. when there’s a will there’s a way.

    definitely, we need educated folks, but not educated from haram sources. i have talked to medical students for example, who have told me it is not at all uncommon for people to go to school, take a year off to work and save money, then go back to school again and continue in this manner. i have met parents who worked 80 hours a week to save money to send their kids to school (a bit extreme if you ask me, but hey…)

    in the same way, i myself am inshallah looking at the prospect of doing a masters degree while working full time, taking advantage of my company’s tuition reimbursement policies.

    no one is saying dont be educated, all i’m saying here is make sure you have a plan of paying for it in a halal manner before embarking on the journey. can you go to med school, get a masters, phd, and all that on cash? yes. will you go to the US News top rated school and graduate in 4 years… maybe not. but i do venture to argue that those who might go to public university and may take 6 years to do their bachelor’s are not necessarily any less educated than the others.

  6. Avatar ibnabeeomar says:

    another option for college, or even house buying – get together with your family and extended relatives and see if they will give you a HALAL LOAN. masjids do it all the time when building projects come around, why cant you do it with your own family?

    my main beef is that i think people try to just assume the only option is a student loan and jump into the interest and debt without really evaluating other available avenues. i hope this will shed light on some of those other ways of making it work :)

  7. I am personally attending a public university and have avoided loans with interest thus far. I’ve used the community college route as well and have saved a lot of money. However, I know many friends who don’t have the option but to take loans out with interest. Remember, if you are a dependent, you are almost always ineligible for state and federal grants. And for some degrees, you are required to enroll with the university as a freshman.

    It’s not as simple as you put it. I believe, ya akhi, Islam is flexible. Your ideal picture makes it almost impossible to live in the West in a halal manner.

    A college degree isn’t a guarantee for a job, but it does open the doors to a career. Especially if you are going into a professional field as engineering, pharmacy, education,etc. As a matter of fact, having a bachelors is becoming worthless and most people have to work on some sort of graduate level degree to be recognized and receive a raise. This is true at least in my field of study.

    I don’t believe taking out a loan for education is haraam. I think our communities need professionals in EVERY field. I would like my physician to be Muslim, my lawyer to be Muslim, my congressman to be Muslim, my psychologist to be Muslim, my children’s teachers to be Muslim, my pharmacist to be Muslim, etc.

    And unfortunately, not everyone has rich family members who can chip in for their education. You state the ideal, but who can really afford it?

    I appreciate the research you put in your articles, but as much as this particular post is relevant to my life, I haven’t found it to be practical.

    • Avatar Riyaz says:

      ‘Your ideal picture makes it almost impossible to live in the West in a halal manner.’

      I have a problem with this kind of thinking. Why should the west be privileged to make exceptions to the Islamic way of life and the rest of the world be left behind. To speak the truth, it’s harder to be within the guidelines of the permissible in the ‘non-western’ world.

      Islam doesn’t work on exceptions.

      I know I was too strong but I may if required give pertinent explanations to what ever I said in detail.

      Jazak’Allah.

  8. Avatar ibnabeeomar says:

    organic muslimah – the question arises again though – can someone work full time and go to school part time to minimize the amount of the loan or possibly even knock it out altogether? there’s lots of people who are not financially well to do that make it work this way. all im saying is we shouldnt we too quick to just grant a pass to taking a student loan with interest if there’s other ways around it.

    and i agree.. it DOES make it difficult to live here in a halal manner. i truly believe that the financial situation we face here is one of THE BIGGEST tests that we face as muslims. who said it was supposed to be easy ;)

  9. Avatar ibnabeeomar says:

    amad – what if you do enough driving that you’d easily eclipse the mileage limit?

  10. Avatar Amad says:

    The price specified for purchase is usually easily lower than market price so most people will buy and sell it, make some money, and not worry about mileage.

  11. Avatar Yus from the Nati says:

    Bismillah,

    I’m not understanding why there’s a “problem” with the co-ownership deals. I’ve looked at the chart as well and…yes…it IS exactly the same as the mortgage table.

    However, correct me if I’m wrong.

    The issue is, the loan (mortgage) vs. you investing and being a part of the “product (house)”

    When you take a loan from the bank, that’s exactly what it is…you OWE them that money right? meaning no matter what…it’s a “F-You, Pay-me (excuse my language)” situation. Meaning you can take ALL the loss…you don’t share a loss if there was one to be shared, or you don’t share a profit if there was one to be shared.

    In the co-ownership…if something happens and you can’t pay…you BOTH lose (according to the percentage both parties own?) or both GAIN if you sell the house (according to the percentage owned?).

    Basically what I’m saying is…isn’t the issue of WHO shares the perceived risk involved which makes it haraam (on top of the riba)?

    In mortage (you take all the risk)

    In co-ownership (you share the risk)

  12. Musa, yo man I hate to call you out but all that talk about college gave me a headache. Aside from a small pool of career choices college is a complete waste of time and money.

    I regret going and I also went to grad school where I was always at my professors throats because they were fools for the most part. Independent thinking? Ha! They were the most jaded and close-minded bunch. When you start challenging their intellectual assumptions things go all fourth grade and they either ignore you or start making fun of you.

    Also, Islamicization of knowledge is one of those meaningless modern contrivances. i have an article in the works about that, stay tuned to my blog inshallah it will be up sooner or later.

    But man no more of that go to college stuff. It’s not an education its a ritual. People would be better off taking the money and the potential earnings from working instead of going to school and invest it, try and start a business or use it to study Arabic and memorize the Quran overseas. All worthy exercises unlike listening to some blowhard professor prattle along about some inane theory and then give you an assignment on the philosophical evolution of dissonant harmonic flatulent poetry theory amongst the pre-industrial indigenous Maori and how this relates to the occurrence of pedophile, republican islamophobes from Oregon’s hinterland.

    I can see how this will be valuable for the “islamicization” of knowledge whatever that means.

  13. Avatar aarij says:

    Another excellent article on an issue that is really important for Muslims here in N/A. My take on University/Colleges:

    The education is extremely important. NO doubt about it. And the name is important too (for prestige and jobs). So let’s not write this off. I remember when I was in high school, the prestige of the Univ. meant a lot to me.

    The issue is: how can we go to a big name Univ. while not taking haram loans?

    1. Co-op/Internship. Some universities have internships starting at 2nd or 3rd year. My university had a co-op program that gave me 2 years of work experience interspersed throughout my schooling. This gave me the money to pay tuition and not need debt. So when applying, keep this in mind.

    2. Studying something useful. Don’t study French or German or “General Arts” or something (unless you have a plan to translate the Qur’an into French or something). Study something that will get you a job in the summer and right after graduation. It’s a tough thing to say, but it’s a reality.

    3. Save up before University. Get 2 jobs in the summer before University or during high school (if possible). And save each penny. Buy cheap Filos instead of the expensive Nikes…etc.

    4. Take a year off. One of my friends did this, and another one is planning to do so. This is one of the best options. You can take a year off to work and pay off your tuition. And in this one year, you can even do something as awesome as complete your hifdh. This is one of the best options…don’t overlook this.

    5. Make a list of rich uncles and aunties. Ask them to loan you money without riba. Tell them that you have a plan to pay off the money in x years time (goes without saying, you should have a plan in mind). Some brothers have managed to get massive loans this way, alhamdulillah. This is one of the best sources of halal loans.

  14. Avatar Fatma says:

    Assalaamu alaykum,
    Jazakallah khayr brother for the articles. They were of immense benefit.
    I was wondering if you came a cross anything on education savings plans as you were researching for this series. What I mean by this is that, in Canada for example, the government gives people certain incentives to save for their kids education. This requires that you have a Registered Education Savings Plan(RESP) at a financial institution and depending on your income, they’ll give you 40, 30 or 20 cents for every dollar you save in a given calender year. The problem though, is that there is Riba involved as the only way to get that money from the government is to go through the RESP route. I’ve heard of instances where some scholars have said that you can ge the RESP account in order to get the money from the governement but not take the interest that accrues. Is there any merit to this? Have you seen anything on this topic in your research?
    Jazakallah khayr.

    • Avatar Jr23 says:

        There are some investment companies in Canada that will allow you to open an RESP account without interest accruing on the balance. You just have to ask.

  15. Avatar zfnd says:

    ibnabeeomar,

    jazakallahkhair for your research and easy-to-digest presentation, great stuff.

    well….almost all of it was ‘easy to digest’ :)

  16. Avatar ibnabeeomar says:

    fatma -wsalam.. unfortunately i didnt get to dig that deep into it. im struggling with the ESA stuff here myself :)

  17. Avatar Ammar says:

    I agree with you on Dave Ramsey. His show comes on here in Toledo on AM 1560 at 3pm.
    I try to listen to him anytime I am in the car and its on.
    While he seems to be Christian preacher, his advice is very Islamic, especially staying out of debt.

    On student Loans. Some schools, like my Law School, don’t allow a student to work more than 10hrs/week in freshman year. I think that is a nationwide law school requirement.
    It will be very difficult to finance law school working 10 hrs/week. I agree on going to state schools and living at home.
    But when it comes to professional and doctorate programs, I think taking loans is the only viable option. Unless you have some rich friends who can give you $15,000/year or more.
    Two other points, Professional schools, even state schools, cost at least $15,000 year.
    Second, there is no financial aid or grants (Free money) for professional schools.

    ~Ammar

  18. Avatar ibnabeeomar says:

    http://islamqa.com/index.php?ref=101903&ln=eng

    a good fatwa on when buying a house constitutes extravagance.

  19. Musa, man I phrased my response deliberately hoping to pick a fight and you have to all go and agree with me.

    At least you reminded me to also criticize the pedantry and obnoxious elitism inherent in “academic” language.

    By the way Aarij, prestige via University Indoctrination is (for the most part) an illusion and the piece of paper that you get doesnt get you any jobs, it makes you a slave.

    I could go on but I’m not in the mood.

  20. Avatar H.Ahmed says:

    Asalaamualaykum wr wb

    Jazakallah khair for the great advice. Its all about living within ones means, and not transgressing.

    Great advice about cars, homes, etc. Do we really need to buy multimillion dollar homes? Do we really need luxury cars? Not only will it help our money management, but also our nafs’ management.

    Alhamdulillah I am very blessed to be fortunate enough to have parents that are able to pay for my schooling (I went to a state school for undergrad, and am currently in a state school for med school).

    Unfortunately, many students feel that they have the right to attend the best private schools, and to live ‘like the professionals they aspire to become’ while they are still in school (many classmates of mine are easily taking 40+k/year loans).

    Not only will a sacrifice in school name now save us the worry of loans in the future, but refraining from loans and trying to stay shariah compliant will also put more barakah in our studies.

    However, at the same time it is a reality that there are many who cannot even afford state schools/ community colleges – even with part time jobs, taking time off to work, – or for whatever reason. It is important not to be judgemental or critical of those who have to take loans for school – as dispensations can be made in our deen – as was alluded to earlier in this article. Only Allah knows best.

    Also, all this anti-university rhetoric isnt very practical in today’s day and age. It is true that the whole concept of 4 year universities in todays day and age has become a huge multi-billion dollar business and its actual practical value in terms of knowledge from classes in the real world work is debatable for most majors. Nonetheless, it is hard to be taken seriously in this society without that “piece of paper”, especially in todays world where our country is headed in towards a recession and well-paying jobs are already become scarcer .

    Lets all keep each other in our duas

  21. […] Intro | Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 […]

  22. […] The Muslim’s Guide to Debt and Money Management: Intro | Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 […]

  23. Avatar Yusuf-Rasheed Reed says:

    Wow! What an eye opener. Al Hamdulilah I found this series. I am seriously playing with fire. Insha’Allah I will take all this in and get out of debt. Jazak Allah Khair for this series. I am really ashamed at how I have been living. I should know better.

  24. Avatar LH says:

    Assalamu Alaykum,
    I really like this series. As far as student loans, I had taken them for undergrad, however, I wasn’t a practicing Muslim then and by the time I realized taking riba-based loans was haraam, I was out of college and repaid the full loans as soon as I could. I went to a public university, lived with my parents, and worked part-time while in college. My only regret is that I should have gone to the local community college in my town for the first two years. My sister also went to the same school as me and I tried as soon as I could to pay off her school loan as well. Alhumdulillah, we have not college loan debt. But I can’t say the same for a lot of the Muslim brothers and sisters I know. Also, on another note, I had changed my major when I became a junior and graduated a year later, however my last year I was not eligible for a loan and had to pay for the last year of school (which turned out to be better for me). A lot of students going into college don’t know what major to take or they change it a few times while in school. This also can cost a lot of money in taking summer classes and/or graduating late and taking more classes. I think we should have more career counseling in high school and the first two years of college to help students make wise decisions in pursuing a major. Both my sister and I changed our majors. Thankfully, my sister changed her major at the end of her freshman year but she still graduated a semester late.

    I just hope a lot of students read this series so they can examine their situation and make decisions on how to stay away from riba and still aim to get a college education.

    Walikum Assalam

  25. Avatar Maria says:

    Dear Author or anybody who is knowledgeable,

    Assalamu ‘alaykum!

    I have one question regarding acquiring a house without riba. As I searched on the internet, I learned that some scholars allowed acquiring a house through conventional mortgage based on neccessity – – a fatwa based on Abu Hanifah. While there are also some scholars who differ it.

    Since there are differences of opinions, I would better rent until I have enough cash. But when? A question that I don’t know the answer since I ‘m just a stay at home mum. Only Allah (s.wt.) knows.

    Now, my question is:

    Do I have part of riba if I own a house through my brother who originally did it with bank mortgage?

    What happened is this: my brother bought a house through bank mortgage. He is still paying the monthly payment for that mortgage until now and he wants me to share the monthly payment to 50 – 50 so that he can keep the house. Otherwise, he will sell the house because he can no longer afford to pay its monthly repayments.

    If I’ll agree to share, do I have part of riba transaction?

    If I’ll agree to share, is it not buying a house in installment without morgage? It’s him who did the mortgage, not me. I’ll pay my monthly share to him, not to the bank.

    Thanks a lot for your guidance and help.

    Maria

  26. […] Muslim’s Guide to Debt and Money Management: Intro | Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 […]

  27. Avatar Abu Zainab says:

    There are several good observations made in this series. The best suggestions:live within your means, pay cash, and avoid ribaa like the plague. Living without credit and without ribaa (and reaching the debt-free level) is hard in Western countries, as one sister pointed out. It is also completely possible.

    One major obstacle to tackling the debt issue was mentioned: the desire for immediate gratification. The American culture revolves around this. Muslim Americans are just as affected by it as everyone else.

    A major obstacle may also be the weakness of an individual to resist family and societal pressure. Muslim families are as prone to materialism as other Americans. It can be hard to tell your parents you want to “work-as-you-go” through med school. Or to resist the pressure to buy a $300,000+ house on mortgage when all the other Pakistanis/ Bengalis/ Palestinians/ (insert ethnic origin) have one. What would they say if they knew you rented ? A family I know rented an apartment for almost twenty years and then bought a dream home in suburbia…cash! So it can be done.

    I love this blog. I also usually skip the comments because they are loaded with “I think” and “in my opinion.” These are dangerous and irresponsible phrases. The nature of the topic begs a reminder for Muslims to research the “halal / haraam” issue before they begin any endeavor, financial or other.

    For Sr. Maria and others who posted questions that are essentially asking for fatawaa, Islam QA is a reliable resource. Search results for loans, ribaa, mortgages, student loans, etc. Their writing style is adapted for the student of knowledge. QA presents all sides of the argument, including the “differences of opinion”; they consider the evidence in light of the Qur’an and Sunnah; they are flexible and moderate within the framework of Islam; and the shuyookh that research the topics are aware of current events and lifestyles in Western countries.

    Thanks for the series. I enjoyed it a lot. May Allaah continue to bless your efforts. Ameen.

  28. Avatar Abdullah says:

    I also wrote a piece on $30,000 not a penny of interest.. It explains how I managed to avoid paying interest on a huge student loan for my university expenses.

  29. Avatar Mr Thomas says:

    How mch?

  30. Avatar ZAI says:

    I think Shaykh al-Shareef’s saying that if one cannot afford to become a doctor maybe they weren’t meant to be is atrocious advice. With all due respect to him…I totally disagree with that line of thinking. It’s pretty much a way of saying if you were born rich than great, everybody else is outta luck. Over time a lack of upward social mobility creates huge disparities in society and we would be stuck with a type of Islamic caste system. This is already visible in many Muslim nations like Pakistan, Afghanistan, Egypt and many others where a rich upperclass is like an educated elite living in bubbles financed by the luck of generational wealth in land, and most of the masses are peasants who never had and continue not to have any prospect for bettering their situation in life.

    Nodoubt Islam teaches a belief in the Qadr…especially with things that we cannot change or affect, but nowhere in Islam do I see a demand to submit and resign oneself to a Qadr that we HAVE the power to change if opporunity presents itself. Taking qadr to an extreme would be a form of fatalism that stagnates and retards the ummah. What’s the point of even being on this Earth and tested if we make no effort at anything?

    A better course would be to offer constructive halaal approaches that help Muslim people regardless of where they fare in the genetic lottery. For instance, the US government offers programs to help finance non-loan grants and even forgive debt if new doctors agree to allot a certain amount of time to practicing medicine in rural or very underserved areas. Aside from taking advantage of such a program, why can’t we Muslims start something akin to that? Why can’t we have a non-profit chain of Muslim health clinics that agrees to finance a students educations if they agree to serve 5-10 years or more at the place after graduating?

    That’s just one example. We need to start thinking out of the box and coming up with halaal solutions that balance deen with duniya. These fatalistic pronouncements are a non-starter, especially because they assume an ideal that doesn’t exist in the Muslim ummah…

    Sorry, but education effects a lot of things. It affects who you marry or if you can even get married, it affects in turn what you can or cannot provide your children,what kind of neighborhood environment(safe/unsafe) you live in, and on and on.

    It’s easy to tell someone not to get a loan to get educated. Are those same idealists gonna then gonna give their daughters hand in marriage to the uneducated guy or the doctor? Are the uneducated guys gonna sit on the masjid board or are the doctors and engineers sahibs? Real easy to make these prnouncements as if we’re living in an ideal world.

    The day Muslims get over classism, being obsessed with status, money, etc. tell our youth not to take a loan for education. Until that day, better to come up with halaal alternatives. All due respect to Imam al-shareef, but I TOTALLY disagree with that type of thinking. My advice to the Muslim brothers and sisters: try your hardest not to take loans, work towards providing alternatives for future generations and be modest in balancing duniya and deen…but TAKE the loan if you sincerely have no other choice and God is a forgiving God and knows whats in your heart. Until our entire COMMUNITY changes its priorities, it’s totally irresponsible only to tell a few people to and doom them to a life of difficulties in everything from marriage to community…Ali

  31. Assalam u Alaykum,

    I have read parts of your wonderful article series from time to time. Please consider creating a pdf ebook of the whole series and sharing that here or through your other websites. Perhaps an infographic would be beneficial too. islamographics dot com might show interest in creating the infographic

    Perhaps you already know if not then check out Halal Money Guide pdf by 1st ethical.

    jazakAllah khayr

  32. Avatar Asif Iqbal says:

    Assalamu Alaikum

    Great series on money management. I understand and agree with your statement about not buying something that we cannot afford. My question to you is, do you recommend this rule for buying a home as well?

    Because, one of the worry with renting is, the longer you wait, the higher the price of houses go (in general). What is your advice in regards to buying, of course using an Islamic finance?

    If you are against buying with loan, please advice how we should invest our savings wisely because just keeping it in the bank is not an option as we do not want interest money.

    Jazakumullahu Khairan.

  33. Avatar Azeezat says:

    as salaam alaykum.

    Th link for the official response regarding student loans is not working.

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