midjd
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Post by midjd on Jun 30, 2011 19:18:43 GMT -5
I saw a Dave Ramsey bumper sticker this afternoon ("Happy to be Debt Free") and it got me thinking. What is "debt free"? Is that having no consumer debt? Is it having zero net worth (since technically, you could pay off all your debts at any time)? Or is it completely zero debt, even "good debt" like mortgages or SLs?
Just curious what the opinion is. I can see arguments for all of them, but I think I would consider someone with zero or positive NW to be "debt free".
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DVM gone riding
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Post by DVM gone riding on Jun 30, 2011 19:21:44 GMT -5
his definition is owing no money to any one at the end of the month, he would most likely even go so far as to include one month revolving debt such as CC and charge accts at stores.
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Post by debtheaven on Jun 30, 2011 19:27:39 GMT -5
Ramsey's definition is ZERO debt. That's why his advice is good for motivating people who have too much "stupid debt" (ie consumer debt) but lousy for people trying to build wealth.
To his credit, he does make a lot of people who might not have otherwise think about their finances. His first "baby steps" are good advice, IMO. His later steps aren't. Again, JMO.
Also, I think he lives in a very LCOLA. That helps a lot when you're anti-mortgage LOL.
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dancinmama
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Post by dancinmama on Jun 30, 2011 19:32:20 GMT -5
I THINK it has mostly to do with consumer debt: credit card and cars. Dave Ramsey is against consumer debt of any kind, including credit card debt that is paid in full every month and accrues no interest and earns rewards. The definition may also be sliding into home mortgage debt as some seem to questions whether/when homes will be an appreciable asset again in the future. I haven't watched DR recently so I don't know what his stand is these days on RE debt.
Many people who have mortgages in their later years, could very easily have the assets in a 401k or other tax deferred retirement vehicle to pay off the debt, but in order to use the assets one would have to pay a 10% penalty plus income taxes or take out a loan against the 401k resulting in another "loan" even if it is a loan to themselves.
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Post by debtheaven on Jun 30, 2011 19:35:20 GMT -5
his definition is owing no money to any one at the end of the month
Does that mean he produces his own heat and electricity? Does he have his own well, and his own gas pump for his cars? (I'm teasing you DVM LOL.)
ETA: I forgot, he must have his own cell tower too. ;-)
I'm just teasing in an effort to show how ridiculous some of it seems to be. His basic premise is good: don't buy what you can't afford, and don't carry debt for dinners long gone and clothes long gotten rid of. Sacrifice now and pay off those debts now when you're younger so you can live better when you're older. All that is good sense to me.
But then, hopefully common sense should kick in, and from what I have seen from the DR "groupies" on the board, sometimes it is sorely lacking.
Also, remember, DR ain't exactly slumming it LOL.
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DVM gone riding
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Post by DVM gone riding on Jun 30, 2011 19:43:59 GMT -5
debt--I said end of the month though I have to admit after I wrote that I thought, hmm that kinda includes the power bill but then justified it to myself by thinking Most power companies charge a startup fee so really you are paying for the next month, and that is how my insurance works too--my thinking was those things are the beginning of the month expenses, but then again so is my mortgage and he is definitely against that.
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Post by debtheaven on Jun 30, 2011 19:49:39 GMT -5
Hey, I forgot about the insurance. I guess he prepays LOL!
Seriously, I think you are absolutely right, he goes somewhat on semantics and can honestly say that he owes nobody anything "at the end of the month". Which is of course another way of saying that he can afford all his monthly bills.
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seriousthistime
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Post by seriousthistime on Jun 30, 2011 19:54:21 GMT -5
Sometimes when I've listened to DR's radio show he allows people to call in and talk about how they are debt free as they define it. It could be consumer-debt free or completely debt free. It has struck me while reading these boards that someone with $100K equity in a house with a mortgage is often viewed as being in debt, whereas someone who is renting a house but has paid off all consumer debt is debt free. It's an ever-moving double standard.
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Post by debtheaven on Jun 30, 2011 19:57:06 GMT -5
as they define it
Serious, I didn't realize that. I thought it was only 100% debt free, everything: consumer debt, SLs, mortgage(s), etc. In that case, he's more flexible than I thought. Or, he's changed his tune recently.
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Deleted
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Post by Deleted on Jun 30, 2011 20:09:36 GMT -5
I can work with those terms. I hope that I will be 100% debt free some day, with no more mortgage and no more student loans, but those are goals I am willing to reach over the life of the loans.
Eliminating consumer debt was more of a time sensitive priority, but the rest - less so.
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midjd
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Post by midjd on Jun 30, 2011 20:19:53 GMT -5
I agree. Unless I prepay my mortgage, I will be "in debt" for another 29.5 years - but by then I hope my net worth to be in the low seven figures, so I wouldn't really consider myself in debt at that point.
Right now my NW is -$2500, but I have no consumer or car debt, just a lot of SLs and a mortgage. Once my net worth is positive, I don't think I'll consider myself "in debt" anymore... it'll be awesome!
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telephus44
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Post by telephus44 on Jun 30, 2011 21:05:11 GMT -5
I think of "debt-free" as meaning not owing anything on loans (all types - student loans, car loans, mortgages, HELOC, etc.) or credit cards. If you have $200K in assets and $200K left on your mortgage, you wouldn't be debt-free in my book.
Where I disagree with DR is that being debt-free is the ultimate goal. It's not my goal. My goal is wealth building, and if carrying debt will help me with my goal (say, using extra money to invest rather than pay off my mortgage) I have no problem with that.
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busymom
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Post by busymom on Jun 30, 2011 23:19:53 GMT -5
DR is against taking out loans: student loans, auto, etc. The only type of mortgage he appears to "approve" of is a 15-year loan.
I'm all for limiting debt, but now that our oldest is close to college age, I'm having difficulty imagining college without some sort of loan.
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DVM gone riding
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Post by DVM gone riding on Jun 30, 2011 23:42:22 GMT -5
I have a positive net worth but definitely don't consider myself debt free. When my net worth is sufficient to cover all outstanding loans I have THEN I might consider myself "debt free" since I could pay them if I wanted to, but even though I consider my house to have value so that it covers its loan in the "worth" column that doesn't give me funds to pay off the house if I wanted to without selling it, which is the only way I could define being "debt free" while still having substantial loans.
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Post by BeenThere...DoneThat... on Jun 30, 2011 23:52:16 GMT -5
...this is a good thread, imo... ...we consider ourselves debt-free.... having said that, we have a loan that's contracted with a 3rd party and it's being paid as agreed... all the while we do have cash on hand to pay off the balance, if need be... so, is there an active note? yes... are we debt-free? yes... imo... but I'd like to think that Dave would agree...
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tallguy
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Post by tallguy on Jul 1, 2011 1:50:41 GMT -5
The only logical definition of debt-free is to have no debt. At all. Mortgages, student loans, car loans, credit cards.... Anything. I do allow for the phrasing, "Debt-free except for my mortgage" because it is still generally considered a positive to own your home and most people cannot do it without a mortgage.
There is perhaps something to be said for the strategic use of debt, and many posters here advocate it, but it is still debt. Whether you could pay it all off if you chose is also irrelevant. By acknowledging that you USE debt as part of your financial plan, you also acknowledge that you HAVE debt. And that's fine. I have no problem with people choosing to create their financial future however they wish. It is a risk vs. reward thing. If people want to elevate their risk in an attempt to elevate their reward, good luck to 'em. Over time it will probably work, but a lot of people have lost houses or fortunes because they didn't end up having the time.
I am now debt-free. In fact, I just wrote a REALLY big check to pay off my mortgage and become debt-free. It was the right thing to do in my situation and I cannot imagine going back. It's not for everybody, and it's probably not even possible for most, but there is a lot to be said for security, peace of mind, and the absence of stress as well.
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Post by Deleted on Jul 1, 2011 8:54:22 GMT -5
The only logical definition of debt-free is to have no debt. At all. Mortgages, student loans, car loans, credit cards.... Anything. I do allow for the phrasing, "Debt-free except for my mortgage" because it is still generally considered a positive to own your home and most people cannot do it without a mortgage.
I agree.
I also don't consider that positive net worth somehow negates the debt. I understand if you have liquid assets that cover your debt you can eliminate it any time and it may be, low or no risk and adventageous to do it this way, but it is still debt.
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RoadToRiches
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Post by RoadToRiches on Jul 1, 2011 8:58:20 GMT -5
Debt free - not owing anyone any money for consumer debt.
Dave Ramsey and David Bach were two people that kicked me in the ass and got me into totally different thinking about money. Not because I was stupid and didn't know that you need a budget and shouldn't get in cc debt, but because they simply scared me.
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kimber45
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Post by kimber45 on Jul 1, 2011 9:21:14 GMT -5
I guess my definition of debt free would be no payments to anything except regular monthly expenses such as heat, water, lights, cable, etc. No mortgage, car payments, SL's, etc.
We are getting close to that, about $20k would knock out our mortgage and HELOC.
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Tiny
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Post by Tiny on Jul 1, 2011 9:47:39 GMT -5
I don't know... about a paid for house being 'debt free' - you still have to come up with money to pay the taxes and insurance and maintenance. A paid for house can quickly become a 'debt' if you miss a tax or insurance payment.
For the most part I think people use 'debt free' to mean no consumer debt like a revolving credit card balance or car loans or personal loans. I don't think people consider a credit card balance that they pay in full each month as 'debt' - even though it is.
Personally, I think the meaning of 'debt free' changes as your financial situations change. I'm in a financial place where taking on carefully chosen debt is NOT a bad thing. Debt becomes a tool to increase my wealth.
I toss this definition out there: Debt would be any money you've promised to pay for the use of something - regardless of interest paid or not. So a yearly contract on a cell phone which you pay monthly would be considered 'debt'. Property taxes would also be debt... you're paying for the schools, library, police, fire, whatever...
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midjd
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Post by midjd on Jul 1, 2011 10:07:14 GMT -5
I guess for me there is a semantic difference between being "in debt" and not being debt-free. I can see the logical argument that any debt = not debt free. But at the same time, I wouldn't consider someone like Phil or WCP to be "in debt" even though they do carry debt (in Phil's case, the evil car loan! ) Maybe I should revise my goal to, instead of being "debt free", being "consumer debt free" with a positive net worth...
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doxieluvr
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Post by doxieluvr on Jul 1, 2011 10:18:38 GMT -5
Ramsey considers no debt as debt free. That includes car loans, credit cards, mortgages, even medical bills or family loans.
I have a positive net worth but i still consider myself in debt.
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swamp
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Post by swamp on Jul 1, 2011 10:21:03 GMT -5
Debt free = having no debt. Living expenses put on a credit card that gets paid monthly isn't debt.
I'm aiming to be debt free by 50.
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dancinmama
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Post by dancinmama on Jul 1, 2011 10:24:49 GMT -5
I am now debt-free. In fact, I just wrote a REALLY big check to pay off my mortgage and become debt-free. It was the right thing to do in my situation and I cannot imagine going back. It's not for everybody, and it's probably not even possible for most, but there is a lot to be said for security, peace of mind, and the absence of stress as well. tallguy: Congratulations!! Isn't it an amazing feeling? We have never carried any kind of consumer debt (okay, except for 0% loans that were paid off), but we have been mortgage free twice. Once when we paid off our first home at age 38 and again when we paid off our second home at age 44. We are currently on our third mortgage. DH took a job relocation to a much higher COLA in '05 so we bought and sold at the peak of the market. And although we have almost enough saved to pay it off, the interest rates are historically low, so we're holding off on it (for now). I know the to payoff/not to payoff is debated all the time on YM, and I don't think there is any right or wrong choice. Enjoy your new-found financial freedom!!
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dancinmama
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Post by dancinmama on Jul 1, 2011 10:30:20 GMT -5
I don't know... about a paid for house being 'debt free' - you still have to come up with money to pay the taxes and insurance and maintenance. A paid for house can quickly become a 'debt' if you miss a tax or insurance payment. For the most part I think people use 'debt free' to mean no consumer debt like a revolving credit card balance or car loans or personal loans. I don't think people consider a credit card balance that they pay in full each month as 'debt' - even though it is. Personally, I think the meaning of 'debt free' changes as your financial situations change. I'm in a financial place where taking on carefully chosen debt is NOT a bad thing. Debt becomes a tool to increase my wealth. I toss this definition out there: Debt would be any money you've promised to pay for the use of something - regardless of interest paid or not. So a yearly contract on a cell phone which you pay monthly would be considered 'debt'. Property taxes would also be debt... you're paying for the schools, library, police, fire, whatever... By your definition, no one could EVER be debt free. If you rent, you owe rent and utilities so you'd never be debt free. If you own a home that is mortgage free, you owe property taxes. IMHO, you take it way too far.
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Tiny
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Post by Tiny on Jul 1, 2011 12:55:11 GMT -5
By your definition, no one could EVER be debt free. If you rent, you owe rent and utilities so you'd never be debt free. If you own a home that is mortgage free, you owe property taxes.Yes, it is taking it way too far. I'm actually OK with defining 'debt free' as meaning just having a Mortgage payment. ETA: I paid off my house a year ago and I haven't really noticed any additional sense of 'security' or 'well being' or "warm fuzzies" or anything. Am I doing something wrong OR did I just have a really high sense of 'security' and 'well being' even though I owed money on the house?
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dancinmama
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Post by dancinmama on Jul 1, 2011 13:05:08 GMT -5
By your definition, no one could EVER be debt free. If you rent, you owe rent and utilities so you'd never be debt free. If you own a home that is mortgage free, you owe property taxes.Yes, it is taking it way too far. I'm actually OK with defining 'debt free' as meaning just having a Mortgage payment. ETA: I paid off my house a year ago and I haven't really noticed any additional sense of 'security' or 'well being' or "warm fuzzies" or anything. Am I doing something wrong OR did I just have a really high sense of 'security' and 'well being' even though I owed money on the house? No, I don't think you're doing anything wrong. I totally understand where you MIGHT be coming from. The economy is so crappy right now, I think it is hard for anyone to get that warm, fuzzy feeling about their finances. How many people are just a job loss away from devastation? My brother saw 30% of the administrative work force let go yesterday where he works. DH will see 1200 from his division walk out the door at the end of the summer. It's hard for me to feel good when I know so many people are suffering.
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Post by Deleted on Jul 1, 2011 14:00:15 GMT -5
I don't care to ever be debt free. If I can take out a low interest 40 year mortgage at age 70, I will do so.
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Post by Deleted on Jul 1, 2011 14:00:37 GMT -5
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Clever Username
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Post by Clever Username on Jul 1, 2011 14:02:38 GMT -5
To Dave Ramsey He'd call you debt free if you just had a mortgage. He'd say you had debt if you used a credit card and paid it off monthly. He'd say it was even better if you had no mortgage.
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