Othman, Sipon, Zulkiple and Jusoff (2013) mentioned that four major debt effects which led to miserable life and full of financial stress are loss of freedom, loss of cash flow, loss of time and loss of opportunities. These four effects could lead to high amount of stress. Debt causes loss of freedom because it limits choices, and constricts one’s ability to accumulate wealth and plan for the future. Besides, it also causes loss of cash flow because individuals have an obligation to pay their debts to the receivables.
So, their cash are decreasing from day to day. Besides, debt has increased households purchasing power. This has led to an increase in demand, especially in the property sector. Therefore, the demand for residential property also increased which resulted in a price hike. (Zakaria, Kader, Jaafar & Marican, 2012). More financing is needed for households to purchase homes. As a consequence of that, Zakaria, Kader, Jaafar and Marican (2012) acknowledge that households have utilized the economic condition by maximizing the use of credit.
While, banks find their way on how to maximize their profit. This has resulted in the current situation of huge household debt. This phenomenon should not exist in debt management of Islamic perspective. Moreover, bad debts also can cause bankruptcy. Bankruptcy is basically the official way of announcing that a person can no longer repay his debts in his current situation. So, it will impact negatively to the individual career, future financial planning and family members. Besides, Othman, Sipon, Zulkiple and Jusoff (2013) stated individuals will trap themselves with the clause under Bankruptcy Act 1967. The bankruptcy action could be commenced against those owing as low as RM30,000 to any lender. Thus, this financial burden indirectly causes financial stress not only to those individuals involved but to the other family members too. Individual will be blacklisted by the CTOS (Convergent Technologies Operating System) once they have declared bankrupt. Whenever they need to apply any loan for their basic necessities such as applying the house loan or a car loan, their application will be declined because of the financial stress that they being facing. Thus, this led to disastrous effects on the society in short and to the overall economic cycle in a long run. A man is forced to work hard in order to pay off his debts and live in a financial constraint in fulfilling other basic needs since the limited capacity behold him from spending even to other most important necessities. Clearly this is against the objectives of the Syariah. Islamic traditions point to the fact that indebtedness may not only affect the conditions of a Muslim’s life in various aspects, but also give impacts over the eschatological world as well. (Bensaid, Grine, Nor & Yusoff, 2013). In other words, the person who is indebted will be questioned on the Day of Judgement. Prophet Muhammad is reported to refrained from performing a funeral prayer on a passed away debt. Prophet Muhammad would ask his companions whether the indebted deceased had anything with which to pay off his debt. If he had nothing, he would say, Pray on your man (yourselves). In another narration on the authority of Jabir, the Prophet was asked, Will you pray on him?’ He took a few steps and then said, Has he any debts?’ We replied, He has a debt of two dinars.’ Upon hearing that, the Prophet went away. His companion Abu Qatadah then took charge of the debt. We thereafter went to the Prophet and Abu Qatadah told him, I would pay the two dinars.’ The Prophet then said, The creditor’s right is guaranteed and the deceased is free from debt?’ He said, Yes.’ The Prophet then prayed on him. According to Sipon, Othman, Ghani and Radzi (2013), debt is one of the main causes of poverty and it has slow down the economic development of indebted countries and has prevented them from investing in essential services such as healthcare, education and others. When someone need to pay a lot of debts and he or she cannot afford that. That means he or she is in the state of poverty. In certain cases, marital problems also occurred because of financial debt. It is because of the increasing levels of conflicts, stress, and marital pressure, which diminish the level of happiness. Hence, divorce is most likely to happen in the case of this problem. Islam discourages heavy debt as much as possible. It is considered to have a serious and direct effect on a Muslim’s faith or belief for it can lead to harmful consequences. There is positive correlation of household debt and health outcomes. (Adamu, Rahim & Hamed, 2017). Anxiety, mental health and depression can be happening to those indebted persons. It is true that money cannot buy happiness. Moreover, it will create more debt if ones cannot manage their money wisely. Othman, Sipon, Zulkiple and Jusoff (2013) claimed some of debt-ridden life style activities are over spending, overloaded with many loans. They also have no planning in financial spending and never bother to get to know why we need budgeting in life. In Islam, it is forbidden for us to practice this lifestyle because it leads us many bad effects. As a result, we will face financial stress bankruptcy such as overburden with the loan payment, no financial allocation for other important needs of life and it also will impact towards family problem. From the Islamic point of view, accruing debt is a serious matter and it should not be undertaken except in cases of important and crucial necessity. In Islam, luxury and extravagance is really contradicting to core Islamic values that condemn excess and waste. The best way to avoid unnecessary borrowing and indebtedness is to live a moderate lifestyle, and honesty constitutes good behaviour in life. (Adamu, Rahim & Hamed, 2017). Muslim can live a moderate life by avoiding extravagant lifestyle, as Allah commanded the faithful to avoid being extravagant or misers in their life, as in the verse below: And those, who, when they spend, are neither extravagant nor niggardly, but hold a medium way between those extremes. (Qur’an: Furqan 25: 67). Imam Al-Tirmidhi narrated hadith which states the Prophet Muhammad also equated the freedom from debt with the entrance to paradise, stating: Whoever dies free of three things which are arrogance, theft, and debt. Then, he will enter Paradise. In another hadith narrated by Imam Muslim the Prophet Muhammad said: Allah forgives the martyr everything except debt. It is clearly seen that debt is a serious matter in our life because it will affect our life in the hereafter. The importance of settling debts is further repeated in the following hadith narrated by Imam Ahmad: In whose hand Muhammad lies, if a man is killed in the cause of Allah, then lives, then dies in the cause of Allah, then lives, and he has a debt, he will not enter heaven until the debt is settled.