"What is 'your' definition of Debt-free? This is our situation, a financial question. - Talk About Marriage
Financial Problems in Marriage When financial times are tough, it adds to the stress we deal with on a daily basis. This section is for talking about how financial problems affect our relationships and ways to cope.

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post #1 of 40 (permalink) Old 01-19-2017, 08:09 AM Thread Starter
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What is 'your' definition of Debt-free? This is our situation. A financial question.

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post #2 of 40 (permalink) Old 01-19-2017, 08:19 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

I don't think rent qualifies as debt, because once your lease is up (or once you break the lease, if you have that option), you are under no additional financial obligation. Debt is paying back money to an entity from which it was borrowed; you didn't borrow the rent amount from anyone, you're not paying anyone back. You're just paying a monthly expense. So yes, you are debt-free.

If you were paying a monthly mortgage, then you would have debt.

The other poster who said you weren't debt-free doesn't understand the concept of debt.

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post #3 of 40 (permalink) Old 01-19-2017, 08:50 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

I agree with FIP. Rent is an housing expense, yes, but not tied to a property that you're liable for. Debt you are on the hook for no matter if the asset appreciates in value or depreciates - you agreed to pay that amount no matter what. Rent is just an expense that you can walk away from (sometimes with a penalty, but you can still walk away.)

But it doesn't really matter if someone has a different definition of debt. If you're happy with the lifestyle you have and proud to not have credit card, car, and mortgage payments, then be proud of it! I think you're doing very well keeping your expenses low and living below your means. So many people don't make that choice and end up in some real financial trouble.

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post #4 of 40 (permalink) Old 01-19-2017, 08:51 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

For what it's worth I do have a mortgage payment so I'm not debt free. But I insisted on a 15 year note that I would pay less in interest in the long run.

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post #5 of 40 (permalink) Old 01-19-2017, 12:58 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

Agreed, rent is not a debt, as debts are liabilities and not expenses. In regards to your living arrangements, I would consider you functionally retired, which simply means your not working to payoff debt. You have the ability to alter your cost of living and obtain income based on those costs instead of having to make all income decisions based on debt, great job!
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post #6 of 40 (permalink) Old 01-19-2017, 01:20 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

I wouldn't think of rent as debt, but I can see how it could be construed as such: you are borrowing the use of a living space in return for a promise to pay the owner for a set period of time, usually committing to a year at a time (lease - a liability). If you have more than enough savings to pay the rent for the remainder of the term, then I'd say you're debt free. If being able to pay depends on having an ongoing income, then you are indebted to the landlord.

Love is an ideal thing; marriage is a real thing; a confusion of the real with the ideal never goes unpunished. - Johann Wolfgang von Goethe

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post #7 of 40 (permalink) Old 01-19-2017, 01:54 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

Being debt free is not always the best financial path. On your income I would be buying investment properties as a way to increase wealth. You may be debt free now but paying rent when you are at retirement age will be a terrible lifestyle, always at the mercy of the home owner, no security, no control over the cost of rent.

I am fairly debt free in that I own my share of our home (valued at over $2mil so that is good equity), I own my car, no personal debt, no credit cards, share portfolio, cash in the bank etc.
But I have mortgage debt on various investment properties (3 of them will be given to my kids in the near future). Other people, renters like you, are paying off my investments. They may be debt free too but I am the one that is increasing my wealth.
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post #8 of 40 (permalink) Old 01-19-2017, 03:47 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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Originally Posted by MrsHolland View Post
Being debt free is not always the best financial path. On your income I would be buying investment properties as a way to increase wealth. You may be debt free now but paying rent when you are at retirement age will be a terrible lifestyle, always at the mercy of the home owner, no security, no control over the cost of rent.

I am fairly debt free in that I own my share of our home (valued at over $2mil so that is good equity), I own my car, no personal debt, no credit cards, share portfolio, cash in the bank etc.
But I have mortgage debt on various investment properties (3 of them will be given to my kids in the near future). Other people, renters like you, are paying off my investments. They may be debt free too but I am the one that is increasing my wealth.
True that. My partner has a lot of debt, because he owns three condos--all of which are rented out, so his tenants are paying off his debt for him. The first will be paid off within the next 5 years, I think, at which point, aside from taxes, it's just straight up income. Plus he has a decent amount of equity in each property.

He's trying to get me to buy my own place as soon as I can, so I can start doing the same thing. Not sure if I want to, but it's appealing. (It's hard getting over the mindblocks that come from growing up poor.)

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post #9 of 40 (permalink) Old 01-19-2017, 05:29 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

Debt is a financial tool and very useful if used correctly. Month to month credit card debt is usually a problem (except in special circumstances). Car debt may be, but not always. House debt is often a good thing - at least in the US tax laws often make house debt a positive thing.

College debt is not itself good , but the education it buys can be very valuable and overall borrowing money for college is often quite positive.
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post #10 of 40 (permalink) Old 01-19-2017, 05:58 PM
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Re: What is 'your' definition of Debt-free? This is our situation. A financial questi

The poster is wrong. Rent is not "debt" - it's an "expense" but it is not "debt." A mortgage is debt because you borrowed money and now you are paying it back. Property taxes are an expense. Car Payment? Debt. Car Insurance? Expense.

So her point may be that you still have to come up with XYZ to get through the month. So in her mind maybe the expense of rent is just as much of a stress inducing mental burden as a mortgage so she sees it the same. But it's not the same. If your husband loses his job, you can walk away from your rental and find something cheaper - live out of your car if you must - but you won't owe anyone money. If you walk away from your mortgage, you still owe money. You may be out of a living space in both cases, but you are only in debt in the mortgage scenario.

Ha ha, I don't know why this lady is irritating me so much but what she said was ignorant. It bugs me when someone corrects someone else, but they are the one who is wrong.

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post #11 of 40 (permalink) Old 01-19-2017, 06:02 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

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Originally Posted by TheGoodGuy View Post
But it doesn't really matter if someone has a different definition of debt. If you're happy with the lifestyle you have and proud to not have credit card, car, and mortgage payments, then be proud of it! I think you're doing very well keeping your expenses low and living below your means. So many people don't make that choice and end up in some real financial trouble.
Well said, except for the part I underlined. For some reason I find it so annoying that people seem to think they can have their own definitions for words - like what a word means is a matter of opinion! Debt is debt. Expenses are Expenses. People can (and do) say ignorant things all the time, but really there is only one definition for "Debt." (OK, I probably should look it up before I say something ignorant - there are probably multiple definitions - but the EXPENSE of rent is not one of them!
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post #12 of 40 (permalink) Old 01-19-2017, 06:27 PM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

Direct living expenses (ie, mortgage or rent) are typically not counted as 'debt'. You are debt-free by the standards of most people.

However, I strongly agree with the above posters that 'debt' can be used to your advantage. For instance, you asked why anyone would want to buy a house in California. My family bought a house in the early 1980s in what was then being developed as a high-end LA community (Rolling Hills Estates). At the time it cost somewhere in the upper $300k. When it was sold two decades later, it sold for somewhere around 3 million.

Paying rent will never give you equity in anything. It will never increase your wealth. It is a very safe plan, but if you don't take risks, you won't increase your wealth.

I have been buying and selling properties for years. When I bought the first one (a 200+ acre farm), I had to borrow money. So I was not debt-free. But when I sold it, I made a ton of money and used that money to buy another property, which I also flipped for a profit and which I didn't have to finance.... and on and on.

I also don't pay my bills the second I receive them. You don't get extra credit (no pun intended) by doing that. As long as you pay it before it's due, you will get the same credit benefit and you will have your money to use for a longer period of time. I too pay off my credit cards in full every month, but I do it on the day before the payment is due (online).

It depends on what you want. People who are very risk-averse and conservative don't usually build much wealth. You might eventually want to consider buying a home of some sort to build equity, because at 30 years old you have a lot more years of rent to pay. As long as you are smart about where you are buying and what you are buying, you can have your place paid for in 20 or 30 years when you really need to stop thinking about paying rent.

One of the best things you could consider doing is to buy a duplex and finance it - live in half and rent the other half. Let someone else's rent pay off YOUR property.

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post #13 of 40 (permalink) Old 01-20-2017, 03:20 AM
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Re: What is 'your' definition of Debt-free? This is our situation. A financial questi

Yes you are "debt free" from what you described. But as someone said, being debt free is not necessarily the most efficient way for wealth accumulation. Companies perform better when they take on some debt but they have to make sure they are comfortable servicing it and that their return on equity is good.
We have some debt (i keep it between 20-30% of assets) but the return on all our equity exceeds the interest we pay on our debt by quite a large amount. So without debt we would perhaps be getting 100k from investments whereas with some debt, the income is closer to 150k+). This is from investments alone. We also work.
I think being debt-free is nice and all (and for most people perhaps the best way) but it seems a pointless argument to me because it is not a very efficient way to accumulate wealth.
On the other hand, too much debt is absolutely deadly.

It is true that paying rent can have its issues. With a mortgage loan, you can have the interest fixed so while the value of your property is likely to go up over time, the amount you pay each month will be fixed. There is no such guarantee with rent, which tends to rise with inflation.


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post #14 of 40 (permalink) Old 01-20-2017, 03:29 AM
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Re: What is 'your' definition of Debt-free? This is our situation. A financial questi

Continued: On the other hand you have more freedom and less repair costs etc when you rent a place. So swings and roundabouts.
I personally don't like property as an investment as costs can be quite high and they are not especially tax efficient.


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post #15 of 40 (permalink) Old 01-20-2017, 05:20 AM
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Re: "What is 'your' definition of Debt-free? This is our situation, a financial quest

I don't consider my mortage payment as debt, though I do understand that it is debt as it's money that was borrowed, but if I was not paying a mortage payment I would be paying rent so I consider it a cost of living expense. Where we live I could not rent a house my size, which we need as we are a family of 6, for the same amount as my mortage payment. In fact I'm sure the payment would be double if I rented my home. Buying our home seemed like a smart investment that really cost us no more than if we did rent, but gives us great equity when we go to retire.

From what you explain of your finacial situation I would consider you debt free.
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