"Debt Free" with a car loan

[Buttercup]

I have been reading the forum for a couple months now and I been a mustache enthusiast for about a year now. I haven't posted on the forum yet and I thought this would make a great start. I am just baffled when I see things like this.

I found this post on another financial blog.

"K Wrote: Would you use an extra $3000 to make a mortgage prepayment ($100 000 mortgage / 10 years left) at 3.9% or a $25 000 car loan at 2.9% (3 years left) or add it to my TFSA which isn't quite maxed. I am debt free, with a solid retirement plan and pension. I was recently given a $3000 gift and want your opinion of where it would do the most good."

What gets me is that she says she is debt free. You have a $25000 car loan!!!! You are not debt free. It's good you don't have any revolving consumer debt like on credit cards but this is still an emergency!

I also mention this to my coworker and he said "Well she is debt free really. That car loan isn't debt." WHAT?!?!

[Khao]

"Well she is debt free really. That car loan isn't debt."

People with poor math skills are what makes consumerism work!

You get a 25k loan for a car which is now worth only 18k since it's used, you're 7k in debt on that loan!

[Matt K]

I also mention this to my coworker and he said "Well she is debt free really. That car loan isn't debt." WHAT?!?!

I've met a lot of people (and used to be one) who figured that since you are 'always going to have car payments, whether it be paying for a new car, or paying for repairs' car loans aren't debt, they are an on-going expense.

On the local radio, a dealership keeps advertising 'the plan', "pay for half the car, drive it all! In the time it takes to pay off one car, you can own two new cars, and always be covered by full warranty. We save you money."
Never mind that with 'the plan' (aka short term lease) once the time is up, you still owe a bunch on your slightly-newer used car instead of owning your car outright.

As was said, people's math skills aren't all there.

[JanMN]

Yeah, that is a rather amazing thought process!

It reminds me a little of a car dealer commercial I saw recently...they were willing to pay off your credit card up to $5k if you came in and financed a new truck - essentially offloading some high interest rate debt in exchange for a lot more lower interest rate debt.   

Eeeeek.

[Jamesqf]

People with poor math skills are what makes consumerism work!

You get a 25k loan for a car which is now worth only 18k since it's used, you're 7k in debt on that loan!

Well, poor logic skills help too!  If you take out a $25K loan for a car, you are $25K in debt, regardless of what the car might be worth if you sold it. 

It's the same as if you go out and use your credit card to buy say a big-screen TV for $1000.  You are $1000 in debt, even if you sell the TV for $500 on Craigslist.

[simonsez]

Maybe K runs a bank and took out the car loan and mortgage from her own bank.  I could grant some leeway with the use of the word debt-free in that scenario..........  :)

[noob515]

I also mention this to my coworker and he said "Well she is debt free really. That car loan isn't debt." WHAT?!?!

How on earth do they figure? 

No math skills are required.  When you owe someone money, it is a debt.  Taking out a loan is taking on debt.  Theoretically the car company lent  her money, which she used to "buy" the car, and now she has to pay the money back.  Her debt is not repaid until she pays all the money back.  If I borrowed $2 from my coworker to buy a soda from the vending machine, that $2 is a debt I owe to my coworker.  I am indebted to him for that $2. 

Even if you operate under the assumption "I'll always have a car loan", I don't understand how you can think this is not debt.  It's an accepted debt.  But it's still debt. 

There may be smoke coming out of my ears, my brain is having such an issue comprehending why this would even need to be explained.

[Blackbomber]

And then there is the 10 years left on the house note....

[tooqk4u22]

Maybe there is more to the story that I could give some lattitude like if the car is legitmately worth (like firesale scenario) more than the loan - but with a $25k loan with three years left that is unlikely - sort of like how people say I am debt free other than my mortgage (of course the debt use is not comparable at all). 

The loan amount suggests she bought a $45k car. 

[NumberJohnny5]

Debt-free = no debt period.  No mortgage, no car loan, nothing.  The only leeway I'll give is if you have a credit card that you use, and pay off monthly.

If the only debt you have is $50k on a house worth $150k, and $5k on a car worth $15k, then congratulations!  You have a positive net-worth.  But you're not debt-free.

I guess it wouldn't bother me if it was said like "well, I'm debt-free except for the mortgage; I hope to be completely debt-free in the next five years."  I.e. it's not bragging, but pointing out that they still have a ways to go.

Ranting yes, but a similar thing that gets me are all these people proclaiming how they've "retired".  One's story interested me, I looked into it...and the guy is simply a stay-at-home dad now.  Good gosh man, if your wife is working to support the family and you're staying at home watching the kids, you're not "retired", you're a homemaker!  Or the person who thinks retirement means not having to be stuck at any particular job; no, if you require gainful employment to pay the bills, you're not retired.

Come on guys, this isn't Cougar Town, you can't just decide to change the meaning of words on a whim!

[c]

I'm debt free too, except of course for my debts, but otherwise? Totally debt free.

[Paul der Krake]

I'm debt free too, except of course for my debts, but otherwise? Totally debt free.

Haven't you heard? If it's not your fault, it's not debt. Those student loans? I blame the system!

[strider3700]

Come on guys, this isn't Cougar Town, you can't just decide to change the meaning of words on a whim!

The issue is it's not just the general public that does it.   It's not uncommon to see lots of economic reports that remove mortgage debt from the equation when trying to figure out how everyone is doing.    Around here mortgage debt is insane so removing it makes the numbers not look so bad.  Of course reality is you can't just ignore that mortgage  so people been crushed with mortgage debt have started slipping on other things and are now accumulating non mortgage debt which is starting to really mess up those once not so bad reports. 

 I'm sure soon the'll find a new way to report how everything is good because 95% of households have less then 1,000 in debt (excluding everything possible except for tom's cash chequing pay day loans)...

[twinge]

I'm sure soon the'll find a new way to report how everything is good because 95% of households have less then 1,000 in debt (excluding everything possible except for tom's cash chequing pay day loans)...

Does catsup still count as a vegetable in children's school lunches?  That was my first exposure to government's creative re-labeling via Reagan's administration when I was in 1st grade.
(Off-topic: I have a distinct memory of hearing a 5th grader saying "now eating french fries counts as TWO servings of vegetables" and another saying "Now that's irony" and I spent months wondering what ironing had to do with french fries and finally came up with the conclusion that maybe that's how they made them crispy.)

[lauren_knows]

I'm sure soon the'll find a new way to report how everything is good because 95% of households have less then 1,000 in debt (excluding everything possible except for tom's cash chequing pay day loans)...

Does catsup still count as a vegetable in children's school lunches? That was my first exposure to government's creative re-labeling via Reagan's administration when I was in 1st grade.
(Off-topic: I have a distinct memory of hearing a 5th grader saying "now eating french fries counts as TWO servings of vegetables" and another saying "Now that's irony" and I spent months wondering what ironing had to do with french fries and finally came up with the conclusion that maybe that's how they made them crispy.)

Haven't you heard? Pizza is the new vegetable. http://www.washingtonpost.com/blogs/wonkblog/post/did-congress-declare-pizza-as-a-vegetable-not-exactly/2011/11/20/gIQABXgmhN_blog.html

[strider3700]

still the best interpretation of healthy food

http://www.youtube.com/watch?v=zuamlBQ2aW4