Sunday, October 12, 2008

Debt - The Definition

Merriam-Webster defines debt as something owed or a state of owing. I'm not sure about you but that definition does not really put a stinch on debt that would make me want to stay away from it. Not that it is inviting, the definition just does not ring the alarm.

If someone asked me to pen the new definition of debt I would simply say that debt is a silent thief. As strong as that may sound, here are a few things that debt steals:

  • Future Income and Time: Debt presumes unfairly on our future income. When we use credit to make purchases without the intent or ability to pay it off in full each month, we are essentially presuming that we will have the income to service that debt at a later time. We are also leveraging our future time. Let's say you make $10 an hour and you charge an item that costs $500. To keep the example simple, let's assume 0% interest (ha! I hope you are laughing too). By making the purchase on credit you have agreed to give the creditor 50 hours of your work time (50 hours * $10). Regardless of how much you make the principle works the same. Chances are if you make more money and use credit, you will charge more and leverage the same 50 hours;-).

  • Reality: Debt creates an illusion of wealth by allowing us to obtain things we would not have otherwise been able to attain. For purposes of this post, I am excluding reasonable mortgages although I am completely on board with having a home paid off (we'll chat about that later). Many people use debt to increase their lifestyle. Rather than living below or at their means, they spend over 100% of their income each month. We have all heard the expression "keeping up with the Jonese." By the way, has anyone every met them?

  • Creativity: Debt robs us of our creative ability by presenting a quick fix. I remember hearing something to the effect that we use less than 20% of our brain. I am not sure if this is true but I am certain of one thing, always running to credit cards, lines of credit and personal loans will surely rob you of the ability to creatively think of a smarter way to achieve the goal at hand.

  • Hopes, Dreams and Choices: Debt can rob us of our true purpose and calling. We can become so enslaved by debt that we stay in a job we really do not enjoy just because it pays enough to service our creditors. Are you doing what you love? If not, what is preventing you from pursuing your passion? If your answer is debt, the good news is that this could be a temporary situation. You can implement basic financial principles to pay off your debt and begin pursuing your dream.

I know there is supposed to be good debt and bad debt but for all intents and purposes, it is all debt to me....yes, some is better than others....gosh how I struggle with that concept. Basically I do not ever want to be comfortable with financing my life so I choose to see it all as debt, plain and simple. Currently I have no consumer debt, no car debt and no education debt but I do have mortgage debt. When I created my debt snowball I included mortgage in there as well and now it is the lone ranger on the list. My goal is to pay off the mortgage within the next 5 years or so. Yes it is a lofty goal but it's my goal and i'm sticking with it until that time comes. Can you imagine what your life would be like if you had no payments? One paid for house can change the course of your financial life forever, think about it....


Tam said...

Yeah...I've been thinking that very same thing that "one paid for house can change the course of your financial life..." That's definitely a goal I have, to truly own my sooner than later! And, it's oh so reassuring to know that someone else "gets it!" But I gotta admit, sometimes saying no to stuff, such nice stuff, takes guts!!

Ms. Money Chat said...

I love it when I find others who feel the same way I do about mortgages. Truly, we say we "own" our homes but until I have no mortgage, I see it as a long term rent to own purchase;-).