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 let’s define debt-free .
When I write, what is Debt-Free, I mean, no debts, owing no one any money (or owing anyone no money, if you prefer). This is ground zero:
Definition: if you owe any money you have debts, if you owe no one any money, you are debt-free, simple isn’t it? (rhetorical question, evidently it isn’t that simple).
I do not believe in the Good Debt, Bad Debt theory. 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 thought 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 means owing nothing or not bound to pay to another, thus, a total debt of $0.
People say that debt-free is when your net worth is above zero, this is a misnomer . If my house is worth $500,000 and my investments worth another $50,0000, but I still owe $200,000 on my house, that does not mean I am debt-free. It means that if you give me enough time, I could get rid of my debts, that is not debt free. I still owe $250,000, so I am not debt-free.
Do I Mean All Debts?
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. If you have paid all your other debts off, but you have neglected to pay back that loan, you are in debt. 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, am I wrong about what is Debt-Free?