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How can God forgive sin?

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God forgives sin by upholding both mercy and truth through the sacrifice of Christ.

God is able to forgive sin because both His mercy and His justice are fully satisfied through the death of Christ on the cross. The law, which demands justice, is met with truth while simultaneously allowing for mercy through Christ’s sacrificial act as the sinner's Substitute. Thus, God's character remains intact—He is just in punishing sin and merciful in forgiving those who believe in Christ.
Scripture References: Proverbs 16:6, Psalm 85:10, 2 Corinthians 5:21, Luke 7:41-42, 1 Peter 3:18

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