What Counts as Being Debt Free? – A Life Without Debt

In writing this column, one of the things that I see frequently in the comment trail is an argument about what counts as being debt free. Some people argue that debt free means freedom from consumer debt such as credit cards and car loans. Keeping a mortgage, whether for a personal home or a rental property is okay. Others argue that debt free means that you have absolutely no debt, including mortgages. Is one viewpoint more valid than the other?

Part of what feeds this argument is that even the “experts” have differing definitions of being debt free. Dave Ramsey will let people call into his show and scream about being debt free even if they still have a mortgage. Yes, he wants you to get that paid off, too, but he considers you debt free once your consumer debt is gone. Suze Orman also generally allows callers to consider themselves debt free as long as the only debt is a mortgage. The idea is that a mortgage is both good debt (debt on a generally appreciating asset) and so large that many people will take most of their working lives to get rid of it. These experts seem to look at it more like an unavoidable monthly expense like the power bill rather than debt. After all, if you rent you’ll have to pay something monthly so why not just treat the mortgage like rent? Others argue that debt is debt and you cannot truly be debt free until you owe nothing. They make no distinction between “good” debt and “bad” debt. Some people go even further and argue that using credit cards, even if you pay them off in full each month, means that you have debt because you are technically borrowing money.

I can see both sides of the argument. Personally, I don’t owe anything to anyone. I have no consumer debt, no mortgage, no secured loans and no student loans. I am truly debt free by any definition of the phrase. I believe that being completely debt free is a great goal and one that people should shoot for. It just makes life so much easier. However, I don’t get upset when someone who still has a mortgage or uses credit cards but pays them off each month declares themselves debt free. Consumer debt is so destructive that to be free of that type of debt is already to live a markedly better life than someone who is mired in it. If
someone can make it to that point, I say, “Hooray!”

I can also see the point that to live anywhere you have to pay something each month unless and until you can own a home free and clear forever. If you choose to rent your whole life, you’ll always have a monthly payment, even if you’re not technically “in debt.” Why treat someone with a mortgage differently than the lifetime renter? If the person with the mortgage can comfortably afford the payment while achieving other savings goals, is working on paying off the mortgage and plans to own that home free and clear at some point, I have no problem with them screaming about being debt free.

When I had my small mortgage for five years, I still considered myself debt free because it was the only thing I owed and it was a lot less than I had (or would have still) been paying in rent. I was aggressively paying it off and I could easily afford all my other savings goals, so it wasn’t hurting me. Now that it’s gone I can definitely save a lot more, but the time I had it didn’t derail me any more than paying rent did.

I think insisting that someone be rid of their mortgage before declaring themselves debt free is off-putting to many. Mortgages can be so large and intimidating to pay off early that many people just figure they’ll never get there. They may adopt the mindset that, since they can never be truly debt free, it’s not worth the effort to shed other debt. However, if they can get excited about being debt free, even if they still have the mortgage, it can motivate them to get rid of all the bad debt. Maybe then, buoyed by their success, they’ll attack that mortgage.

What do you think? Do you think you’re only debt free once your mortgage is gone, or do you consider yourself debt free if your only debt is a mortgage? Does “borrowing” money on a credit card that you pay off every month count as debt? Does it upset you when people declare themselves to be debt free yet still carry a mortgage, or do you cheer them on? Why do you feel this way?

This entry was posted in Debt, Personal Finance and tagged , , , , , , , . Bookmark the permalink.

16 Responses to What Counts as Being Debt Free? – A Life Without Debt

  1. Annie Jones says:

    I consider a mortgage in a class of it’s own, so I always say that our first goal is to be free of all non-mortgage debt (we’re almost there btw).

    I also do not have a problem with a person charging items to a credit card if they pay that card off in full each month. That’s not carrying debt; it’s using the card as tool, in my opinion.

    On the other other hand, if a person had multiple mortgages, such as more than one on their primary residence, or mortgages on some properties other than their primary residence (rental properties), then I would consider those to be debt and say they are NOT debt-free.

  2. BlackDiamond says:

    I think mortgages and car loans are different than credit card debt and personal loans because with a mortgage or a car loan, the debt is directly tied to a large, needed (assuming it’s not some insane luxury car) item that you will use every day and that has monetary value and that you will continue to use even after it’s paid off.

    I consider houses and cars assets, not debt. And most people (at least most people I know) do not have the cash to buy a house or new car outright. Also, these types of loans tend to be much, much lower interest than other debt.

  3. Jody says:

    Yup, I think you are only debt free once the mortgage is paid off. I am technically debt free except for my mortgage and can hardly wait until it is gone (6 yrs, 10 mos). If you use credit cards as a tool and have the money to pay them off each month then I do not consider that debt.

    Ironically, once I paid off my car and became debt free except for my mortgage, I started to consider any unused room in my RRSP’s (Canadian version of 401K) to be debt. We can put up to 18% of our gross income into this retirement fund each year and if you fund less than that in a year you have 7 years to play catch up or it disappears. Even though there isn’t a bill or any interest charged – knowing that it is a major lost opportunity for securing my retirement has me treating it like it is credit card debt and I am going after it with intensity just like I did my consumer debt. Whatever works, right!

  4. WR says:

    I agree that a Mortgage in some cases should not be considered in the overall debt pool.


    All mortgages are not created equal. If a person goes in and consciously buys too much house for too much money or does some other thing that would possibly disqualify them for this status, for example:

    1. wraps in furniture, high end appliances or overtly opulent ‘stuff’ into the mortgage.
    2. Refinances and uses the equity to buy a bunch of consumer stuff. How is this different than a credit card?

    The idea is to modify your lifestyle to fit your income…to live below your means.

    Whether you pay rent or pay a mortgage, the utility you get from your housing dollars is what counts. If you hide behind a mortgage by using it to buy consumer goods and call it ‘good debt’ you are only fooling yourself.

  5. Brian Marine says:

    I think that technically, a debt is a debt. However, the differences being discussed here are really between secured and unsecured debt.

    In our business, we help folks becomes “debt free” by working with them to eliminate their unsecured debt, which can be credit or charge cards, personal loans, cell phone bills, etc.

    But we do not work with unsecured debt like mortgages or auto loans. With those loans, the lender really “owns” the property and can repossess it if the loan goes into default.

    Since many of our customers are renters, and don’t own homes or have a mortgage, when they eliminate their unsecured debt … they truly are debt free!

  6. Jackie says:

    I think that being debt free is literally not owing any money to anyone anywhere. I’ve heard people say things like “Oh I’m debt free!” and then they add “except for my mortgage, and my student loan, and my car payment, but I don’t consider that debt.”

    Personally I’ll probably feel debt free when all I owe is money I’ve charged on a credit card that month, but I’m not going to be debt free until I go home and send in the money for whatever I bought.

  7. Isabelle says:

    I had never thought about this before. I do think a mortgage is different from consumer debt. Here in the UK, where I live and in many other areas, it is impossible to buy a ‘living space’ for a savable sum – especially when prices were rocketing up. Renting is also difficult in the UK as it is mostly done on short tenancies which makes it very insecure and it can be expensive.

    So, no, I don’t count mortgage as ‘debt’ as such and considered myself debt free when I had one.

  8. EEinNJ says:

    If you borrow money and have to pay it back, you’re not debt free. Simple. It doesn’t matter what you bought with it.

    I think people see this in shades of gray because debt for some purchases (house, car) seems unavoidable. But that’s like saying your a vegetarian except you eat cheeseburgers because everybody goes to McDonald’s.

  9. Gail says:

    I know my son who is paying off a student loan considers himself very much to be in debt, but other than that, he is completely debt free. He owns his car free and clear, rents a cheap apartment, holds down a full time job, has money in the bank. Money for him is tight, but Praise God, this child who is now 26 is autistic and when he was younger I thought I would be ‘raising’ him the rest of his life. His life is a miracle and I wish so much I could take over that debt burden for him as he does without many of the things other guys his age have but he can’t afford them and is so good about it. I don’t know how any one could say that except for their student loans they are debt free–those things hang on you like a monkey on your back!

  10. Augustine Arize says:

    We love to make ourselves feel good.. But keep in mind that there is nothing like being debt-free in this economy. Let me explain what I mean — with my house, credit cards, cars and student loans all paid for, I still do not believe that I am debt-free.

    Usually around March, I would receive property taxes ranging close to $ 5000 plus insurance on the house near $2000 so that I MUST have $600 saved per month until death to be at least close to being debt-free. Is that being debt-free? I have not included electricity and other stuff.

    For me, I do not like to deceive myself by the notion of being debt-free. so I would argue that “you cannot truly be debt free.” If I do not save $600 per month I will immediately realize that I am not debt free when the above 2 bills arrive.What will make it difficult to save $600 per month. One quick is illness (layoffs) that prevents one from saving $600. Remember, I am not arguing that it is not good to romancitize the debt-free idea. Dave Ramsey and Suze Orman are to me, persons that only want my money through selling books. If they both don’t talk on radio or TV fo a year, they will know that they are not debt-free. It is all in your imagination.

  11. Larabelle says:

    I think that debt free is debt free meaning that you owe no one anything. It is a very black and white issue to me. I am $12K from being debt free Praise the Lord!!!

  12. Tom says:

    Mortgage is a different type of debt. Renters can’t get off by saying that their debt free just because they are asset free.

    And if you live in a state with sizable property tax (>2% of the value annually), then you’re in decent debt if you’re not paying it monthly.

    In the end, debt-free is in the eye of the beholder. Some people recommend being in debt with your house, while others want to owe nothing. Just an opinion

  13. tazo says:

    I am with the poster that said you will always be in debt. We use a service (e.g. electricity, gas, water) from a supplier then they send us a bill every month. Same goes for credit cards, we “use” their services, then they send a bill, difference being the interest charged.

  14. Cherry Champagne says:

    We had a 30-year mortgage on a house we built ourselves. It is a long time to owe a lot of money each month so we took a good look at a 15-year mortgage. It turns out you can save thousands of dollars by shortening the amount of time in which you pay it back but it only cost us $50.00 a month more. If more people knew about this they might see the value of paying off the mortgage faster.

  15. Nightvid Cole says:

    Person A has a mortgage and saves $20,000 over the course of 5 years to buy a car with cash. Person B has a mortgage, and prepays every month, totalling $20,000 in prepayments over 5 years, then takes $20,000 on a heloc to buy a car.

    Person C is like person B, except uses a car loan instead of a heloc.

    I don’t see any reason to call A debt free but not B (since this would amount to a distinction not based on current finances but on how they got there, whereas “debt free” is a statement about current finances, not past ones!).

    I also don’t see why C is any less debt-free than B, given that he/she could at any time use a heloc to pay off the car and be identical to B financially.

    So if person C is in debt, so is A!!! (You can even replace the car with a one night stay at a very high-end resort, the logic follows through just the same.)

    Following through with this line of thought, if you have a mortgage you are not debt free (or even better financially than someone who has “consumer” debt) since every expense you have takes money that could have otherwise been used to pay down the mortgage!

  16. Craigo says:

    It’s very simple. You are debt-free when your net worth is above zero. That should include most adults.

Leave a Reply

Your email address will not be published. Required fields are marked *