Personal Finance Advice

I talk a lot about being debt free, but recently this question came up amongst friends: Am I as free as I think I am? I have no debt of any kind, so I am free from obligations to creditors. The bank cannot come take my house if I don’t pay my mortgage, my car can’t be repossessed by the financing company, and the credit card company cannot harass me for payments. I own all of my stuff outright. In that sense I am free.

However, I am not free from financial obligations that may mean the loss of my stuff. If I don’t pay my property taxes, the county can take my house or car. If I don’t pay my income taxes, the IRS can take almost anything they choose. If I don’t pay my car inspection and tag fees, they can take the plate and make it illegal for me to drive it. If I don’t pay for state mandated car insurance, I won’t be allowed on the road. There is a long list of bills that I am still required to pay, even though I have no debt. In that sense, I am not free.

As my friends and I talked it over, we agreed that we are not as free as it may first appear. Should we fall on hard times, we risk the seizure and restriction of some of our belongings. However, the good news for us is that with no debt payments that day is likely farther off than for many. Short of moving into a cave, there is virtually no way to become completely financially free. There will always be some required payment that you must make if you want to keep your stuff.

The difference between debt and these other types of payments is twofold. First, these required payments don’t carry interest charges (unless you pay late), so you do not owe more than the item is worth. Your taxes reflect the cost of your home, not the cost of your home plus another 5% APR. While you may have to make the payments, they are fixed and do not end up costing you more than the market value of the item. Second, I could avoid some of these expenses if I had to. I could sell the car or the house and escape at least some of the insurance and taxes. With debt, you cannot escape the charges. Even if you sell the car, the bank still wants it’s money back. If you sell the TV that you charged on the credit card, the credit card company doesn’t care; they still want their money. You cannot walk away from debt without consequences whereas you can dodge some of these required payments if you choose to.

Yes, I still experience some forms of financial bondage. Even with no debt there is still a risk that I could lose my stuff. I am not truly financially free. Neither is any other debt free person, really. However, the fact that I don’t have debt means that I have a lot more money to put toward these other required expenses so I can keep the tax man away from my door much more easily. I may not be totally free, but I am still much less stressed and anxious than I would be if I had to make debt payments plus these other required payments. If I’m not totally free then at least I’m as free as I can be.