HomeDebtYou're not debt free if you have debt

You’re not debt free if you have debt

I was talking with a man yesterday who said, “I was raised with a strong German upbringing so I don’t mess around with debt and am proud to be debt free.” As we continued chatting about his finances he eventually told me he has both a mortgage payment and a car payment. Wait, hold the phone. Hate to break it to ya buddy, but you’re not debt free if you have a mortgage and a car payment. Have these types of loans really become such a standard in our culture that we forget they’re still debts?

I get it. Some people think certain debts are “good” and others are “bad”. This man has obviously decided for himself that mortgages and car loans can be classified as good debt, but last time I checked, my blogs name wasn’t Punch Bad Debt In The Face. No, it’s Punch Debt In The Face, because I believe “good” debt is a term we Americans use to feel better about ourselves and our financial situation (It’s like being called festively plump instead of fat). I don’t discriminate, I punch all debt in the face, regardless of how “good” it might be.

What I think this man, and many others, mean when they refer to things like mortgages and student loans as “good” debt is that these types of loans are not as bad as credit card balances or payday loans. How about we change your perspective though and admit that “good debt” is really just another way of saying “not-as-horrible-but-still-pretty-sucky debt” (has a nice ring to it doesn’t it).

Obviously this gentleman is comfortable maintaining a car payment and a mortgage as part of his personal finances, and to be perfectly honest, I have no authority to tell him to change his ideology (contrary to popular belief one can have debt and still be financially responsible), but I can definitely call him out when he tries to pretend that he is debt free. I am debt free sir, you are not.

Has our culture become so numb to consumerism that we think we can have a car loan and be debt-free at the same time? Do you believe in good debt? Why or why not? Should I have punched this man in the face for being so naive?



  1. Hmm if I were to start a blog this would be a good post to start with 🙂 Most people do think that there are good debts like student loans, mortgages, and business start up loans. Those debts cloak themselves in goodness because it focuses on the result, not the burdens they truly are. Sometimes the ends justify the means, just make sure it is truly worth it.

    Speaking of being brainwashed, I find the financial companies are doing the same these days telling everyone to put money into their retirement accounts and you will be rich later on. I just cannot get myself to board this ponzi train for the current baby boomers :/

  2. I’m with your definition of debt free. He should have said “I’m consumer debt free” but that just doesn’t have the same ring to it does it?

  3. It really grinds my gears when people tell me it’s okay to have student loan debt for the rest of their lives because “it’s good debt”.

    You’re right! There is no such thing as good debt! It may be a NECESSARY debt, but that doesn’t make it any better.

    Sure, it’s a low-interest debt for the most part, but you know what? For the first car I bought, I was able to secure a 3.5% loan. That’s lower than some of my student loans!

  4. “I am debt free sir, you are not.”

    You are debt free only because you have paid off a student loan recently, and have not yet contracted for a mortgage.

    • I stand by my statement of fact. I didn’t say “I have been debt free all my life and will never have debt again.” I was using that statement as a means to show that ONLY people who have no debt, can say they are debt free.

      But, as you mentioned in a comment below debt-freedom may not be the goal for everyone, and I agree. That’s why I said…

      “Obviously this gentleman is comfortable maintaining a car payment and a mortgage as part of his personal finances, and to be perfectly honest, I have no authority to tell him to change his ideology (contrary to popular belief one can have debt and still be financially responsible)”

      • Worth reading (because it considers debt in relation to one’s entire financial picture, rather than an isolated evil in itself):

        I ran the numbers and found I have a leverage ratio of 4.6%, a debt-to-income ratio of 9%, and no high-intereset consumer debt. (IOW, my total debt equals less than 5% of my total assets. And less than 10% of my monthly gross goes towards the minimum on my only debts, a mortgage with 8 years left and a car loan with 2. Conclusion: I’m not worried about my debt situation.)

      • Ninja,
        I don’t want to be a hater, but the way I understand your post: “debt free” = ZERO debt.
        Going off of that, you do have credit card debt….that you pay off in full each month (full disclosure: I do the same thing). So technically you DO have debt, but you have the cash to cover it and you are not paying any interest on said debt.

        I completely agree with you that:
        mortgage + car loan = debt = not debt free.

        But I’m just playing devil’s advocate on this one 🙂

      • How can you say, “I’ve been debt free all my life and will never have debt AGAIN?” How can you have anything AGAIN if you never had it in the first place?

  5. i don’t know, i have a very low interest rate on my student loans(1.7%) and I don’t have a credit card. isn’t this a good way to keep my credit score up without risking high interest rates?

  6. The term good debt (as used by most) is used when one has leveraged their future income for some current benefit which may have a greater future value than the leveraged amount. This would include most student loans (studying underwater basket-weaving at a $40k per year private school on student loans is not good debt in any means). This is more of a necessary or considered debt not really a “good” debt. These loans are more like business loans – people get them in the hopes of being able to increase their productivity in the future.

    Do I believe in “good” debt, yes, but in very limited conditions. I currently have one “good” debt – my car loan. It is a 0% loan with no fees and I am sitting on the cash to pay it in full. I consider this good debt because at any time I can liquidate the loan and be debt free at the same cost as having bought the car outright for cash. The difference is, I have that cash payment earning me interest (negative with “true” inflation accounted for) and providing a cushion that could act as secondary emergency savings. In my case if I ever had to dip into this secondary emergency savings, I would definitely drop the label of “good” from describing the car loan.

    Good debt, in my opinion, is not debt acquired because of smart leveraging, but rather debt acquired at no cost and that can be liquidated at any time with no effect on one’s financial situation.

    • Ladam,
      I really wouldn’t what you have is traditional “debt.” What you are doing is more like investing. If I could borrow $50k at 0% interest and invest it at even 1% in a savings account, that is making me 1%. I would do this as long as I have the 50K in liquid assets to pay the loan. The best kind of car is the car paid for in cash. You pretty much have done this, but you have $xx,xxx.xx earning you interest while you pay 0% on your car. If you had to pay off the car today, you could. This is acceptable in my book.


  7. Good debt is kind of a loose term. Unless I’m mistaken, good debt is a debt that you can make money off of. But if you don’t actively do something to earn money, and still live paycheck to paycheck, is it really good anymore?

    I do agree with you somewhat, though the debts you mentioned are installment loans. I’d rather have debt in that then credit card debt. But still, if people ask me if I have any debt I say “other than my mortgage, no.”

  8. I believe in “better debt,” not necessarily good debt. My student loans are worth the struggle I’m facing now to pay them off quickly because, without them, I would not have been able to afford to go to college. So yay, student loans! But they still suck, and it amazes me when PF bloggers lose momentum to pay off debt once they get to their student loans. No offense to anyone! That’s when I really gained my momentum and started writing GRB. I was so excited about paying off my credit cards and the personal loan from my parents that I thought, “Hot diggity! Now I can pay off ALL my debt!”

    Anyway, I know a lot of bloggers who consider themselves debt free with their mortgage, or look at their mortgage as rent and don’t include it in their debt total. To each their own. I think a mortgage is “better debt,” but I’ve never heard anyone say that a car loan was good debt. Don’t know who this guy is listening to! I did have a coworker (who has since left the company) who thought car payments were a necessary part of life. And she’s saying this to someone who’s never bought a car with a loan, never had a payment. It’s funny because my mom has had new cars since I can remember, always had a car payment. I must have grown up with my auto-body Dad’s feelings about cars. You drive them until they’re ridiculously worn out, and then you save and buy a new-to-you used one. (Of course, he just bought a new truck a couple years ago at my mother’s insistence. “He’s never owned a new car, Red!” she said to me, as if that was some awful plight for a person.)

    I agree with you though. Debt is debt. Unless it is a TRUE necessity of life, I don’t think you can call yourself debt free when you have a mortgage, and definitely not when you have a car payment!

  9. I always tell people I’m debt free except for my house. I don’t lie to myself or anyone else about that. The guy you were talking to is not being honest with anyone. And by the way, there is no debt is “good” debt because debt is a bondage and is never as advantageous as using cash. Even house debt doesn’t qualify as good debt (just ask all the people being foreclosed on).

    I teach people in my “Celebrating Financial Freedom” course that you have to be honest with yourself and recognize that no matter what, cash is always better. Of course I won’t beat up on anyone about taking out a mortgage to buy a home as long as it is done in a very sensible manner (20% down, no more than 15 years) because its usually better than renting, but still, cash is always king!

  10. I think it depends on your perspective. Yes, a mortgage is debt. No, I don’t enjoy debt. But I certainly consider shelling out my mortgage payment every month MUCH better than shelling out rent. Rent where I live is astronomical. That is money we will never see again. When we make our mortgage payment I know that we will see the money again. We bought when the market was at its lowest in years. We write off our property taxes and interest on the mortgage. We will see the money again. So even though it’s debt, I consider it good debt…much better than rent.

  11. I think before I begin we can throw out the term “Haters gonna hate” but I think it is really unfair for you to judge your friend. Now, I’m really not trying to just hate on you but it really bothers me when people feel as though they can just offer their judgement and not even be in the same situation. You don’t own a home. Especially when you write “I don’t discriminate, I punch all debt in the face, regardless of how “good” it might be.” Hate to remind you but you throw away a mortgage payment a month just renting a place that you’ll never own. Are you planning to purchase your home in full cash to fulfill your statement above?

    • I am not judging him at all. Did you not read this statement:

      “Obviously this gentleman is comfortable maintaining a car payment and a mortgage as part of his personal finances, and to be perfectly honest, I have no authority to tell him to change his ideology (contrary to popular belief one can have debt and still be financially responsible)”

      All I was saying is that he can’t call himself debt free if he has debt. Period.

      I definitely plan to take on a mortgage and have blogged about my desire to be a home-owner many times. But, I will not consider my mortgage to be good, but only a necessary debt. To me there is a difference between the two statements.

  12. I agree. We won’t be completely debt free until there’s no more debt payments, including the mortgage. Right now, all we have is that one and the student loan payment. Still, debt is debt. I will often tell people that we’re credit-card-debt-free, which is probably what he was going for.

  13. I don’t think there’s good debt, but I do think there is reasonable debt. Now what is reasonable for you may be different from what is reasonable for me. But it is only by way of debt (a home mortgage) that my husband and I were able to purchase a house in 1998, and continue to live there at what would have been a reasonable rent at that time. That house, by the way, is now worth about double what we paid for it, and there’s no way we could afford it at this point (job changes, two kids, a dog, etc. have all worked together to decrease our income and increase our non-discretionary spending).

    Don’t get me wrong, there’s nothing luxurious about the house — 1,400 sq ft, 2 bathroom, 2 bedroom house. But it’s more than enough for us, and we only have it because we were willing to take on a fair bit of debt in 1998. And that debt will be fully paid off in 2018, right before our elder child leaves for college.

  14. Dave Ramsey is like an old-fashioned preacher, appealing to his congregation’s sense of sin and guilt, except that in Ramsey’s skewed view of Christianity, the ultimate virtue appears to be managing your money, and the ultimate sin is debt.

    If you buy into this view of virtue and vice, then you will congratulate yourself for every payment you make in full using cash, flagellate yourself for every loan you take on, and think of debt as a “bondage” or as an enemy to be “punched in the face.” (Why not “kicked in the groin”?) In such a scheme of things, your life is a balance sheet in which there are no liabilities, only assets and capital. Ever hear of a business without liabilities?

    A more rational approach, it seems to me, is to ask whether or not the benefits of acquiring an asset outweigh the interest you might have to pay if you need a loan. Would you forego a college education, for example, if you needed to take out a student loan? I can’t see any benefit in paying interest on a credit card because the annual rates are exorbitant. But if you can negotiate a good rate on a mortgage, student loan, or even (shudder!) a car loan, and you have reasonable expectations of paying it off on schedule, then I don’t see any great harm in taking on that kind of debt. You could save up for decades to pay cash for your house, or you could take advantage of today’s historically low interest rates. And as your income increases, your monthly payments become a smaller portion of your expenses, and over time you also are paying with cheaper dollars due to inflation.

    The most likely debts you will incur in your lifetime are student loan, mortgage, small business loan, and/or car loan. But remember your double-sided bookkeeping: every liability must be balanced equally by an asset. So you’re not only taking on debt in each case, but you’re acquiring a valuable asset.

    • Honestly thought I wasn’t going to like what you were going to say, but in the end I liked it! If I’m playing the Devil’s Advocate, though, is there an argument to be made that a household is NOT a business and therefore one can’t approach his family’s finances as such?

      • “Honestly thought I wasn’t going to like what you were going to say,”
        Interesting comment. Have you made up your mind that you don’t like what I have to say?

        “but in the end I liked it!”
        So did I.

        “If I’m playing the Devil’s Advocate, though, is there an argument to be made that a household is NOT a business and therefore one can’t approach his family’s finances as such?”
        Sure. But it sounded good when I wrote it.

        • No I enjoy your comments. I thought maybe this time around your comment was going to be laced with deprecating comments about Christianity 😉 Just trying to strike up conversations whenever I can. I hope you’re not offended!

    • I absolutely agree with everything that you said, Larry. As always, you add pleasure and insightful thoughts that are well worth the read.

      Yeah, it’s great to be debt-free, I guess. I mean that’s what I’m ultimately going for. In fact, I wouldn’t consider myself wealthy until I have several passive income streams coming in, but have no debt obligations.

      I think the argument should be to manage debt wisely, and to minimize, if not eliminate in total, all revolving consumer debt. The point is that when we are paying interest, we are losing money that can be in our own pockets. So I guess I”m not anti-debt, but anti-interest! That is what inspires me to pay my homes off in ten years. Paying $200,000 in interest payments is ridiculous!

  15. Cash is king, therefore I’d rather keep a pile of cash that is greater than the amount I owe on my low interest student loan than to pay off the loan and be left with much less cash.

    I agree with your main point (you are not debt free if you have DEBT, obviously), but I do not think being debt free is my most important financial goal.

  16. I agree that debt is still debt, and you pay interest on it. That’s money you pay to use other people’s money. I would not qualify myself as debt free unless I don’t owe anyone anything, even at 0% or from the Bank of Mom and Dad. I don’t like debt, but will use it to my advantage. I will suggest that someone take a student loan to further themselves ONLY IF they are going to make something of themselves with that education and are responsible in every thing else they spend money on. I will get a mortgage for an investment property that will generate some income.

    Unfortunately, we think that debt is normal to a point where frivolous spending is ok. I posted about a situation here. But using debt responsibly and irresponsibly is different than qualifying the debt as good or bad. A mortgage is “bad” if you are buying a bigger house than you can afford because you want to keep up with the Joneses. A student loan is “bad” if you are in undergrad for 5 years and still cannot decide what you want to major in.

  17. Well debt can be good. My car loan is at 2%. The money that I would have used to pay for the car makes 10%. That’s a net 8% into my pocket every year.

    • I wouldn’t call it debt JJ. You obviously have the cash to pay off your car, but you chose to invest it and make profit. So in all actuality you are gaining and not losing.

  18. If I had to be black-and-white about it, I’d have to say that “No, there’s no good debt.” While it’s not generally practical to say that one could live without any debt throughout his entire life, you still have to admit that the borrower is enslaved to the lender in whatever capacity. Even if it’s a $2000 mattress or a $200,000 home, it’s not quite “yours” until you pay it off.

  19. Everybody gets through life with their own definitions. For you, it sounds like all debt is to be shunned if at all possible. Others might feel student loans or a mortgage are worth the cost. Still others may not even care and spend like there is no tomorrow only to declare bankruptcy. It is what it is.

    Personally, I have what I would consider good debt which has been managed well and has been a valuable investment. Other debt is bad and stupid and represents major learning opportunities. It is what it is. Today is a new day, and I plan on not making the same mistakes.

  20. i was reading all the comments here, thinking i agree with most of you. But then i thought wait most of the fun adventures and experiences in my like have come as a result of incuring debt. Student loans for a college education resulted in friends for a lifetime, countless memories and increased earning potential. Credit card debt has allowed me to trave to europe (twice) and all over the U.S., car loans have let me drive the vehicles i want when i want to drive them. and some day a mortgage will let me purchase a home where i plan to have many more good time and countless memories. I agree debt is bad and i hate mine, but if paying a little extra to go to europe because i charged it instead of saving to pay in full with cash is a bad idea then i embrace bad ideas. Perspective is key, you only live once, and you cant take money to your grave

  21. Yes, there is definitely good debt – any debt that you should not pay more than the minimum. My student loan, for example, has an interest rate of 3.25%. I pay exactly the minimum on this every month, even though I can afford to pay it off in full. The interest rate on that loan is far less than the returns I get on my investment accounts, so every month I don’t use my savings to pay it back, I make a profit!

  22. Sometimes keeping debt is advantageous, like comments #26 and 21. I made it my personal mission to be completely debt free so that’s what makes me comfortable. I own my own condo and car, no student loans, no HELOCs, or revolving credit card debt (I charge everything I can and pay it off every month). We even paid off a 0% financed AC unit in January because I was tired of seeing an entry on the liability side of my net worth sheet! Now we just have assets…it looks better!

  23. I believe that people can classify their debt as good and bad, if they so choose. What ever floats your boat right? I myself see my education and car debt as good debt. In a way im almost proud of it i guess you could say. Without it I would not have my current job. I needed to borrow money for school which was well worth it in the end obviously. However, I have a hard time believing that there is ever any bad debt. People aren’t stupid, therefore they know the consequences of their actions. To label it bad makes it seem like they made a mistake or regret it.
    I simple label my debt for what it is, school (OSAP), car, money I owe to my parents, and so forth. Regardless or it being good or bad it’s still debt.

  24. Yo Ninja. I’m debt-free too, which is good cause I’ve been income-free since I lost my job over a year ago. Anyway, when you said:

    “…I believe “good” debt is a term we use to feel better about ourselves and our financial situation (It’s like being called festively plump instead of fat). … How about we change your perspective though and admit that “good debt” is really just another way of saying “not-as-horrible-but-still-pretty-sucky debt” (has a nice ring to it doesn’t it).

    Agreed. Its’s like how people will say they have “negative equity” in a car. Why not just say you went into debt over the car???

    It’s fooling yourself to feel better about having debt just because you classify it as one type of debt versus another type of debt. Obviously the benefits of purchasing a home via a mortgage are smarter than going 30k in the hole for shopping and consumption, but debt is debt. People convince themselves that cars are good debt specifically because they are either too undisciplined or don’t want to wait to buy a car in cash, and calling it good debt makes them feel better about it or just avoid admitting they are in debt for it.

    • i think classifying people as undisciplined is a little much and un justified patty. Debt and its burden is subjective and is only important to the person involved

  25. There is no good debt. It’s just another payment that restricts the financial choices we make. Unfortunately debts like mortgages, student and car loans have become nearly necessary even for the financially responsible to afford shelter, an education to obtain a good job, and a vehicle to go to said job. These commodities, shelter, education and vehicles, have become outrageously inflated in cost in the last two decades these debts are just something thrown in our face that we have to deal with, like the Kardashians.

  26. This idea of how different ideas are accepted as common sense by the majority of people is something I’ve been thinking about. I wonder how future societies will view the common, current practice in America of taking on 30 years of debt to pay for a house. I wonder if it will seem as bizarre as the treating of sickness by applying leeches or the testing of nuclear weaponry in American deserts (with the years of radiation poisoning that followed).

  27. I think having a mortgage payment and student loans are fine, because taking out the loan helps enable you to move further in life and in your career. Not sure if I would count a car loan in that though. Do you really need a brand new car?

  28. You know what? I’ll give it to this guy. It’s misleading for him to say he’s debt-free, but if he says he’s “debt-free, except for his mortgage,” I think that’s fine. Not at all like saying something about how he’s “totally healthy, except for the five cheeseburgers he eats every week.” There’s definitely some wiggle room for things like mortgages and student loans, mostly because they’re such a huge part of life. I mean, really, who is actually able to purchase a house in cash? Not many people. If someone is totally debt-free except for their mortgage payment, I’d think they’re doing pretty OK.

    Besides, you have to live somewhere, right. So is it better to spend $1000 on rent, and get no where financially, or $1000 on a mortgage payment, and at the end of the term, you have a house? Should you go with renting just because all debt is bad?

    And yes, I totally do agree there’s a difference between bad debt and good debt. Debt that enriches your life and helps you get ahead professionally (as in student loans) or financially (as in mortgages) is good debt. I’m sort of iffy on where a car loan would fall.

  29. I think some of these posts are funny. “I don’t think there’s good debt, but I do think there is reasonable debt.” Good, reasonable… put all the chocolate syrup, whip cream and sprinkles on top and debt is still just that…debt. Paying non deductible interest is never good. However, if you are paying 6% interest on something you make 20% on is not debt, it is an investment. Because in actuality, you are making 14% income. However, this is not the case with credit cards, student loans and such. The biggest argument I get into is the student loan…good debt/bad debt debate. Honestly, how many of these people could have went to school cheaper than they did or practically free. How many worked full time in the summer to pay for the next semester. How much student loan money was spent living off campus playing beer pong? I know many people that have degrees and the field of their employment do not even require a degree. However, they still have large amounts of student loan debt. Interest is a killer. I know, I was one of those idiots that think there was a such thing as good debt. Now I don’t want any. There is no such thing as good debt. I write about this in my pf blog

    To your financial health — Martilyo!

  30. Debt is an awesome tool in real estate investing. You can put money down and get a loan, buy a distressed asset, rehabilitate your asset, re-finance and get your down payment back. Your renters pay your mortgage off over 30 years and your initial cash output has been put into another property. After 30 years, you own the asset outright (because your tenants paid off your loan) and rents have climbed significantly. This is good debt 🙂

    • disappointed in you pdent. If real estate investing is as easy as you say, everyone would be rich. But unfortunately, sometimes people buy a “flipper” only to realize it a) cost more to rehab than expected or b) can’t sell for what they wanted. There is definitely a risk to the real estate game and that risk is a direct result of debt.

      • You make it sound too easy. There are management headaches to deal with as well as maintenance costs when renting. I have a rental and I know first hand. Some tenants you keep for years, others your lucky to keep 3 months. Just with any “investment” there are risks. Just depends on your tolerance.


      • I’m not talking about flippers Ninja. Talking about long term cash flow properties. I didn’t say it was easy, but that doesn’t mean the concept is particularly complicated. Sure, it’s not for everyone, but the principals are pretty sound in my opinion.

  31. Debt is debt, it is an expense. Some are better than others. I will pay off y mortgage in less than 6 years. Just in time for retirement.

    • Debt is debt, not an expense. At least in my opinion. Food, water and electricity are expenses, not debt. Credit cards, student loans and mortgage interest are debt. My opinion anyway.


  32. You can’t look at “Good” debt in a vacuum. It’s all about your other options.

    For example, everyone needs a place to live, right? When your options are:

    1. Buying a home you really like, in an up and coming neighborhood, with 20+% down, at historically low interest rates, after several years of watching the real estate market tumble, AND knowing you’re planning to live there for 10+ years.

    2. Renting.

    3. Living at home.

    It’s hard to argue that taking on that huge amount of debt is a bad idea.

    Car debt is much more difficult to justify. Though with interest rates currently so low, the cost of borrowing is marginal. If you’ve saved $17000 to get a new Kia or Jetta or whatever and you can borrow $17000 (get into debt) at 0% (or 0.9%, you get the idea) interest, it’s clearly in your interest to get the loan and put your $17000 into something stable that’ll earn you interest and just make the payments from that account.

    Debt isn’t bad. BAD debt is bad.

    Rich people get rich by taking on smart debt. Poor people stay poor by taking on bad debt.

    • LOL you can’t look at any debt in a vacuum…. You are correct that people need a place to live, however, there are advantages of renting vs buying real estate. There are many homes I “really like.” As far as “up and coming neighborhood” goes, that is an assumption or an appearance. It is a gamble what a neighborhood will do based upon the people living there. I would say that homes in much more expensive areas are “up and coming.” Lower income areas are always a gamble. As a plan to live there for 10 years, is just a plan and can change at anytime. Remember, when you buy you can’t choose your neighbors. Again, pros and cons. Anytime you borrow money that you don’t have, you agree to assume risk.

      As far as your explanation goes with buying a new car at 0% and taking the money you already have investing it, I like the idea and I would agree with you 100% if the car was worth that kind of investment. How about buying a low mileage 2-3 year old, used car, with cash, and investing the difference? A new car, on average, will drop between 40-60% in the 1st 4 years of ownership. Even if you got a brand new car for $17,000 at 0%, you would waste your time investing the $17,000 you have in cash if your brand new car is depreciating at such a fast rate. Cars are not good investments.

      Again, there is nothing good about owing someone money.

      Rich people stay rich on investments and not having debt. Go read Dr. Thomas Stanley’s book, The Millionaire next door, The Millionaire Mindset and Stop Acting Rich. Good reads. You should be able to read them for free at your local library.

      To your financial health — Martilyo!
      angrymillionaire dot com

      • Personally, I’ve made my mistakes in buying many cars. In fact, chapter 10 in my book, How We Prevent Wealth, is titled “we change cars too often.”

        I guess we can argue that we shouldn’t give a care if the car depreciates 100% after 1 month IF the thought is to buy the car and keep it for 10 years. You sound like you caught the Dave Ramsey bug. Invest the difference where? I don’t have a car payment because frankly, I don’t want one. I choose to drive a car that’s 15 years old. But, at my earnings, and with my well-managed mortgage debts relative to my earnings, I can certainly “afford” a $30,000, 48 month car loan.

        Personal finance is based on people’s own unique situations. If you make $25,000 annually, you may not want a $30k car loan. But if you make $100K, why the hell not? I just wouldn’t do it.

        • I used to change cars too often as well. It was a vicious money losing cycle. The purpose of a car is transportation unless you use it for a business such as a tow truck. You should care how much a vehicle depreciates regardless of how long you keep it. It is an investment. I too drive a vehicle that is over 10 years old and I can “afford” a $30k car loan. Why would I want to pay interest on something that depreciates? Dave Ramsey really has nothing to do with the fact that you are paying for something that depreciates and then you pay interest on top of that. Investing 101. Never invest money in something that loses value. You are correct, personal finance is based upon a person’s situation. Why would you state that “if you made $100k a year then why the hell not?” Why wouldn’t you do it?

        • Hmm. You’re right, let me clarify. Why the hell not, if that’s what someone wanted to do. I just wouldn’t do it.

          • And I wouldn’t do it because I like freeing up my cash to purchase other things. A $500 payment on a car, even if it’s at 0% is $500 that I wouldn’t have to put extra on a mortgage. 🙂

  33. Way to stir the pot, Ninja! I’m lovin’ it. I know you’ve already seen (and commented on–gracias!) my post on my blog where I piggy-backed on your thoughts here, so thanks for the inspiration!

  34. Interesting topic. You are right – you can’t say you are debt free if you have any debt, regardless of the type or whether it can be classified as “good” or “bad”. In my opinion, I think there is such a thing as good debt – the kind that has the potential to make you more money down the road such as for a business, a career, or an investment like a home. However, to me, a car loan is a very bad idea. If you can’t pay cash for something that will depreciate such as a car, then just don’t buy it.

  35. People make their own choices about debt, whether it is good, bad or indifferent. For me, debt is just a big complication to life. I like things to be simple. If I need something I save money and buy it. Simple. I save money in case I have an emergency expense. Simple. I don’t get credit card bills, worry about car payments, interest rates, reward points, blah blah blah. The money I have is the money I have. Simple. I don’t have debt because I don’t want it or need it, not because it’s good or bad, but because it’s just a complication I would rather do without!

  36. […] this: You’re not debt free if you have debt (so simple, so obvious…at least you’d think so). Ninja demolishes the notion of good […]

  37. My point of view has always been that a well-managed debt, whether it be for a car, house, or education, is okay. A debt that results from irresponsibility, such as many credit card debts, is not okay. Houses cost money, and if you choose to take on a mortgage rather than rent, you can get your money back when you sell the house, provided that you know that your job is steady and that you tend to live below your means and save money every month. If you rent, some say that it’s like throwing a large chunk of your income down into nothing every month. But are you debt free? Like you said, absolutely not. You should have punched him in the face for forgetting that a mortgage and car loan are debt, but not for being fiscally irresponsible.

    • Well managed debt? Those words should never be combined like that. I don’t understand why people are so brain-washed into thinking that owing money is okay, acceptable or even a good idea? You do not have to have debt to own a car, a house or education. A car is nothing more than something that takes you from point A to point B and back again. Does it have to cost you $20k or more to do it? Definitely not. There is nothing wrong with buying a car with cash and forgoing the interest cost of a car loan. Obviously owning a house outright is a little more daunting of a task than a car, but it is obtainable. Most people obtain mortgages and right now the interest rates have never been lower. Would you consider mortgage interest good debt or acceptable? No, it is the cost of having owing something you do not have the money to buy with cash. The only bright side is that it will more than likely appreciate over time. As far as getting your money back if you sell your home, that is dependent on many variables and with the current economy we are in, it is not likely. Having a steady job, living below your means and saving every month has nothing to do with getting your money back when you sell. I kinda missed your point there. The mortgage and real estate industries, over time, have us thinking that renting is next to sinning. There are many advantages of renting over owning. It is dependent on a each individual person’s situation. Renting is not a debt. You are paying for a service which, in my opinion, is required. No different as food, water and electric. It is an expense. You can decide to not to rent anymore. You cannot decide to not to owe on your mortgage. Student loans? I won’t even get into that argument. They are the next generation’s credit card. I do agree with you that he should have been punched in the face for making an untrue statement like that. Well managed debt? Sounds like a nice way of saying that one cannot manage their money.

      • Martilyo,

        In the grand scheme of things, there are no absolutes in personal finance, only decisions that are smarter than others. You write with such much conviction that’s it’s hard to believe that you never took on a debt.

        Debt is bad, no matter what? Nope.

        There is a such thing as well-managed debt, and it’s the basis for obtaining loans, specifically a mortgage loan. If people over-extend themselves; hence not managing their debts well, they wouldn’t be able to obtain a loan.

        We can preach the whole, save-up-and-pay-cash-for-a-house talk until we’re blue in the face, but there is an opportunity cost involved in such as decision. The most obvious one, for example, is the fact that renting somewhere paying $750 a month while saving $1000 a month for a $120,000 home will be a $750 per month x 120 month loss. Yep, a loss. Why pay $750 for a “rental service” if the mortgage for the house next door, using a well-manageable 15 year mortgage at only 3% is only $900? That’s a $850 monthly savings! Better yet, the $850 can be applied to your mortgage payment such that it’s paid off even faster. If this occurs, then what would be your gripe, Angry Millionaire?

        So there you have it, a well-managed mortgage debt can save you money and ultimately provide a lifetime savings from “rental services” once the home is paid off in less than 8 years.

        Student loans…those can be managed also. They are not well managed if someone has a $100,000 loan but aiming for a career that will only pay $25,000 for a yearly salary. That’s just, well, unmanageable, but a $15,000 loan to get a $25,000 salary may be.

        In any case, yes, mortgages and student loans are debt no matter what, but don’t be so quick to hate all debt.

        • You go on with your bad self Mr. Author, and you say I write with conviction… Debt isn’t bad? I beg to differ. I say this because I have a lot of it. No more. Please explain to me how owing someone extra money past what you purchased is a good idea? You kill me with this “well-manageable mortgage” statement. Please explain how you manage a mortgage? You obtain a mortgage and you pay it. Is there something I missed? I stated above “Would you consider mortgage interest good debt or acceptable? No it is not good. It is simply the cost of having owing something you do not have the money to buy with cash.” I also went on and stated that home usually appreciate over time. That would be considered an investment. I am fine with that. Is the interest I pay on the mortgage good? No, I don’t consider it good. Just a cost associated with owning a home. What I didn’t say is that someone should rent and save for the complete purchase of a home. Renting isn’t for everyone and neither is owing a home. There are times where it is better to rent.

          Same question, how do you “manage” a student loan? You obtain it and you pay it. I think you are using the term “manage” but you are referring to it as “investment.” Am I correct? A college education is an investment. The student loan is not. There are ways to go to college and obtain an education without going into debt to do it. It is not easy, but doable. I would also agree that paying for $100,000 degree that earns you a $25,000 a year is not a wise investment.

          As far as hating debt goes, why should anyone like it? It needs to be mitigated, reduced down to its most efficient usage. I stand by my opinion that there is no such thing as good debt. There is nothing “good” about owing someone money. I write with conviction because I was ignorant and got into a lot of debt. I don’t see anything good about it. Check out my blog, angrymillionaire dot com if you really want to know more about me and my personal situation. I would like to read your book, is it available at the book store or only online?

          • I use the term “manage” in the sense that one should not use debt beyond their means or to a point where there is never a reasonable long term plan to reduce it. Debt can be a financial tool or a hindrance. Quite often, it becomes the latter. This is why I believe you say that it is bad.

            But let’s put this further into perspective…Everything has a cost. Managers of 401(k)s have been ripping people off since their inception. Not debt, but is it a good investment?

            What about mutual funds with a fee of over 2% that people pay, no matter what, even though their funds may yield less than 10% in a given bearish year? Would you consider that a good investment? I mean, people actually pay other people to lose (or hopefully increase) their money.

            What’s the correlation? Debt can be used to make more money (called leveraging), just as paying someone a fee (essentially debt) to manage an investment can make more money.

            Debt, itself, is not bad! People who use debt to purchase things way beyond their means like $300,000 homes or $60,000 cars when they only make $50,000 a year, just because they stretch their loan payments out to 40 or 8 years, respectively, are bad (or merely ignorant).

            People who take out $200,000 student loans for an B.S. in education at a private school, as opposed to a $20,000 student loan at a state school, are bad (assuming they knew both their options).

            Now, that being said, yes, my book is only available online. It’s target audience are 18-30 year old professionals. It does a great job of comparing both renting and buying. So, yes, I also agree that owning is not for everyone, especially when their using a wealth preventing, 30 year mortgage with no plan (or income) to pay it down quicker.

  38. He may believe he is financially responsible because he is able to pay his mortgage and amortization in time, but I still would not agree that he is debt-free. How can he say he is debt-free if he is paying a loan and a mortgage? Somebody should remind him what “free” means.

  39. […] it Wisely – Planting a Seed of Savings Punch Debt in the Face – You’re not Debt Free if you Have Debt Beating Broke – Taking Financial […]

  40. I’m a little late to the party here, so no one will probably read this but hey, it’s always fun to shout into an empty room, right? 🙂

    There is definetly “Good” debt and “Bad” debt. Debt or Loans can be financially beneficial for you in the long run if you use them appropriately. Classifying all debt as bad is just a naive excuse to generalize and over-simplify long term financial planning.

    The fact is, anytime you can borrow money at a lower rate then the savings rate it is benefical for you. 0% APR (after fees), or even up to 2-3% would be a GOOD financial decision if the money you would of spent on the asset is instead saving at a 4% rate in a rewards checking account.

    Now, this comes with all the “gotchas” that you would expect:

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