Over time, Bible scholars have formulated rules for interpreting whether a verse is literal or figurative. These rules are useful, and we will look at them, but ultimately, only the Holy Spirit can lead us to all truth. Teaching the various "figures of speech" is not part of this study, but I have included them here for your convenience.
Hermeneutics is "the science of interpretation and explanation; exegesis; esp., that branch of theology which defines the laws whereby the meaning of the Scriptures is to be ascertained." Schaff- Herzog Encyc.
D. R. Dungan, in his book "Hermeneutics", p. 195ff. has laid down his rules and I borrow from them heavily with some changes and additions:
1. Assume that the verse is literal and the words mean exactly what they say.
2. One is not at liberty to arbitrarily decide that a word or phrase is figurative. It must meet one or more of the exceptions.
3. If the Bible directly says that the words are figurative, then they are figurative and not literal.
4. If the literal meaning of a word or sentence requires or results in an impossibility, it must be figurative.
5. If the literal meaning makes a contradiction to itself or to the harmony of scripture, it must be figurative.
6. If the literal meaning implies an absurdity, it must be figurative.
7. The immediate context will help determine whether it is literal or figurative.
8. If making a passage literal would demand actions that are wrong or forbid things that are right, it must be figurative (Matt. 5:29-30).
9. Language is figurative when one thing is said to be another, (Matt. 26:26-28).
10. Language is figurative when a part is put for a whole or the whole for a part; when the plural is put for the singular, and etc.
11. If any part is figurative, the whole is likely figurative.
12. If there is any action between a figurative symbol and an unknown, the unknown is likely figurative, too. (this is related to context)
13. When the definite is put for the indefinite, it must be figurative.
14. When it is said in mockery it cannot be literal.
15. Common sense must be used
16. Most importantly, the Spirit must lead.