Given the relative success of my Let’s Define Retirement post, I figured I’d take another swing at a term that I hear a lot these days, and that is Debt Free.
When I use the term Debt Free, I really mean, no debts, owing no one any money (or owing anyone no money, if you prefer). There must be ground zero and this is it:
Definition: if you owe any money you have debts, if you owe no one any money, you are debt free, simple isn’t it?
I do not subscribe to the Good Debt, Bad Debt hokum, remember I have said All Debt is Bad more than once. The concept of Good Debt was created by Banks and those who wish to lend you money, so you don’t feel bad (it’s like Ice Cream companies saying that there is Good Obese and Bad Obese).
I felt that maybe I didn’t understand what Debt actually meant, but I looked at Dictionary.com and found Debt defined as:
something that is owed or that one is bound to pay to or perform for another: a debt of $50.
There are other definitions there and I invite you to look it up in your dictionaries, but in my mind that is Debt, well-defined.
From this Debt Free must mean owing nothing or not bound to pay or perform for another: a debt of $0.
I have heard people say that debt free is when your net worth is above zero, which is an optimistic point of view, but a misnomer (in my opinion). My house may be worth $500,000 and my investments may be worth another $50,0000, however if I still owe $200,000 on my house, that does not mean I am debt free, that just means that if you give me enough time I might be able to get rid of my debts, that is not debt free. You still owe $250,000, so you are not debt free.
I am also speaking of all debts, so if your parents were kind enough to loan you $50,000 to help with your home’s down payment, and you have paid all your other debts off, but you have neglected to pay back that loan, you are in debt. This one is really only my opinion (and many families would argue that is not the case), but seriously, if you owe your family money and you have no other debts, what kind of schmuck are you to not pay them back? (look up schmuck in the Joys of Yiddish)
Here is my reader question, is this an incorrect definition of Debt Free?