Do You Consider Yourself Debt Free If You Can Pay Off Your House But Don't?

[hodedofome]

If this market stays on a tear this year my taxable trading account will be high enough to pay off my house. It's the only debt I have. I don't really want to pay off my house as my interest rate is 4% and I'm pretty confident I can do much better than that by investing the money. I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

In any case, would you tell people you are completely debt free if you have the means to pay off your house but choose not to?

[Sibley]

No. It's not a factual statement. You still would have debt. But you would have a positive net worth.

[Here4theGB]

I tend to keep such matters to myself.  What would I gain by letting people know my current debt load, even if it is zero?

[lollylegs]

no. if a person has a debt then they are not 'debt free'.  its pretty straightforward. You either have a debt or you don't.

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

[I'm a red panda]

To be fair, "debt free" is meaningless virtue signaling.  I don't tell people I'm debt free, because my financials are none of their business. If I were having a background check done, certainly my mortgage would be disclosed, if it were part of it.



If you order a meal at a sit down restaurant, they serve it, and you eat it before you pay, you're in debt until the check is cleared.   Yep, you can cover it. But you haven't yet. Same with a mortgage.

[erutio]

Agree with others that who care's about these arbitrary labels about "debt-free".

But I wanted to give you some unsolicited advice regarding the quoted section below:

I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

Stop.
If you had invested in broad market index funds, you would have at least tripled your money since 2011.
Your skills didn't magically come around for you to finally break even.  What has happened is that the market is performing so strongly that it finally overcame your incompetence as a stock/commodities picker. 

[ontheway2]

no. if a person has a debt then they are not 'debt free'.  its pretty straightforward. You either have a debt or you don't.

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

I hear this also and wonder if it is because of his baby steps. Debt free except mortgage puts you at a different step than one still paying down debts and one that has paid off the mortgage. It seems a lot of people that do DR have a fair amount of consumer debt, and paying it off is a big deal

I agree though that "debt free" means no debt. Not except for this, or I COULD do that...

[John Galt incarnate!]

In any case, would you tell people you are completely debt free if you have the means to pay off your house but choose not to?

Since I am a literalist  I would not.

[nereo]

I posted a similar question several years ago. 
The basic consensus was that I was not ‘debt free’, even though I might be Financially Independent (FI) and almost certainly Net Worth Positive.

Others pointed out that being ‘debt free’ wasn’t something one even needed to strive for per se, especially when you start getting into the weeds/philosophical and consider that most every transaction includes a debt to/from someone for some length of time.

[wellactually]

I Have always watched a lot of home search and buying shows. I remember a bunch in 06-08 where the buyers were financing with two loans, one for 80% and one for 20% or 90-10. Or with a balloon mortgage where they also borrowed a 3% down payment from family. At the end of the episode, they would always say something like, “we’re homeowners!” Yeah, not even at all! You don’t own none of that place.

I think of consumer and unsecured debt differently than mortgages of course. But in my thinking, we had student loans, then we were debt-free, now our only debt is our mortgage. But that’s just for my personal monitoring and figuring.

What you are describing is double dipping. It sounds like you’re doing well and executing your plan effectively.

[StashingAway]

Agree with others that who care's about these arbitrary labels about "debt-free".

But I wanted to give you some unsolicited advice regarding the quoted section below:

I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

Stop.
If you had invested in broad market index funds, you would have at least tripled your money since 2011.
Your skills didn't magically come around for you to finally break even.  What has happened is that the market is performing so strongly that it finally overcame your incompetence as a stock/commodities picker.

+1

[ChickenStash]

No. A mortgage is debt so if I have one then I am not debt-free.

Discussions of net worth or the wisdom of having a mortgage would be separate discussions.

[Gronnie]

I owe $X on my car at 0.9% and it's my only debt besides the mortgage. I have $X+some small amount in an online savings account that is set aside solely to pay the car using autopay and pays > 0.9%. The only reason I haven't paid off the car is the arbitrage (guaranteed mind you so zero risk) on the interest.

I consider myself debt free but the house.

[utaca]

Agree with others that who care's about these arbitrary labels about "debt-free".

But I wanted to give you some unsolicited advice regarding the quoted section below:

I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

Stop.
If you had invested in broad market index funds, you would have at least tripled your money since 2011.
Your skills didn't magically come around for you to finally break even.  What has happened is that the market is performing so strongly that it finally overcame your incompetence as a stock/commodities picker.

+1

This stuck out to me as well.

+2

[dd564]

To be fair, "debt free" is meaningless virtue signaling.  I don't tell people I'm debt free, because my financials are none of their business. If I were having a background check done, certainly my mortgage would be disclosed, if it were part of it.



If you order a meal at a sit down restaurant, they serve it, and you eat it before you pay, you're in debt until the check is cleared.   Yep, you can cover it. But you haven't yet. Same with a mortgage.

"Debt free" is almost next to meaningless.  It's popular with Dave Ramsey and popular on some forums, but it's 2020 and majority of purchases. Those who are debt free can feel good about it if that's what they are comfortable with, but it's hardly the wisest way to grow your net worth.  Some people don't care about net worth, but I would say the more financially sound people do.

[SwordGuy]

Agree with others that who care's about these arbitrary labels about "debt-free".

But I wanted to give you some unsolicited advice regarding the quoted section below:

I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

Stop.
If you had invested in broad market index funds, you would have at least tripled your money since 2011.
Your skills didn't magically come around for you to finally break even.  What has happened is that the market is performing so strongly that it finally overcame your incompetence as a stock/commodities picker.

I was going to say the same thing.   Seriously, get into low fee, broad-brush index funds.

[hodedofome]

Agree with others that who care's about these arbitrary labels about "debt-free".

But I wanted to give you some unsolicited advice regarding the quoted section below:

I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

Stop.
If you had invested in broad market index funds, you would have at least tripled your money since 2011.
Your skills didn't magically come around for you to finally break even.  What has happened is that the market is performing so strongly that it finally overcame your incompetence as a stock/commodities picker.

This is true. I guess I’m too much like my grandpa. He’s over 90 now, was nothing more than an accountant, lived somewhat frugally and invested and traded aggressively (he still does today, even at his age). He’s worth probably $10 million+.

If I had just invested in VTI, I would have almost the same amount of money that I have now. But I wouldn’t have learned all the things I did by reading close to 100 trading/investing books, learning to think in terms of probabilities, learning to think like an investor, becoming objective, controlling my emotions, etc etc. It was an experience I wouldn’t trade for anything, and I’m so grateful I pursued it despite the discouragement from most of my friends, family and websites like this. Even if I never made a nickel from it, the experience and transformation of my mind has been worth it.

That being said, I was up over 100% in 2017, over 80% in 2019, and so far I’m up 33% YTD.

[ixtap]

No one told me I couldn't read if I invest in index funds!

But then, no one told me I could just not count my debts when I was choosing not to put resources to paying them down, either.

[ditheca]

I consider myself debt-free because I have the ability to pay off my small mortgage.

I would not tell anyone that I am debt-free, because it isn't true.

[fell-like-rain]

If I had just invested in VTI, I would have almost the same amount of money that I have now. But I wouldn’t have learned all the things I did by reading close to 100 trading/investing books, learning to think in terms of probabilities, learning to think like an investor, becoming objective, controlling my emotions, etc etc. It was an experience I wouldn’t trade for anything, and I’m so grateful I pursued it despite the discouragement from most of my friends, family and websites like this. Even if I never made a nickel from it, the experience and transformation of my mind has been worth it..

If someone asked me “would you rather have a 77% return on your money over 6 years, or 0% but you get to read some books,” I think it’s pretty clear what I’d choose.

Also, you say you learned to “think in terms of probabilities”, yet you attribute the two years in which you beat the market to skill, not luck- despite the overwhelming evidence that no individual investor can consistently outperform the market. Maybe a bit more reading is in order.

[American GenX]

Definitely NOT debt-free if you have debt.

Good luck getting there, though.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payoff-club!!/

[HPstache]

no. if a person has a debt then they are not 'debt free'.  its pretty straightforward. You either have a debt or you don't.

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

I hear this also and wonder if it is because of his baby steps. Debt free except mortgage puts you at a different step than one still paying down debts and one that has paid off the mortgage. It seems a lot of people that do DR have a fair amount of consumer debt, and paying it off is a big deal

I agree though that "debt free" means no debt. Not except for this, or I COULD do that...

Yes, Debt free besides mortgage is Baby Step 2 and Paid off Home/Completely Debt free is Baby Step 6, that is why Dave Ramsey followers say that.

Regarding the OP: Definitely NOT completely Debt Free.  I do think this statement is funny though.  What about someone who has no debts but has a cell phone payment plan?  What about someone who is toward the end of their CC billing cycle and has a few thousand ready to be auto paid?

[nereo]

no. if a person has a debt then they are not 'debt free'.  its pretty straightforward. You either have a debt or you don't.

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

I hear this also and wonder if it is because of his baby steps. Debt free except mortgage puts you at a different step than one still paying down debts and one that has paid off the mortgage. It seems a lot of people that do DR have a fair amount of consumer debt, and paying it off is a big deal

I agree though that "debt free" means no debt. Not except for this, or I COULD do that...

Yes, Debt free besides mortgage is Baby Step 2 and Paid off Home/Completely Debt free is Baby Step 6, that is why Dave Ramsey followers say that.

Regarding the OP: Definitely NOT completely Debt Free.  I do think this statement is funny though.  What about someone who has no debts but has a cell phone payment plan?  What about someone who is toward the end of their CC billing cycle and has a few thousand ready to be auto paid?

In brief, that’s why being “debt free” is a largely meaningless construct in a modern society such as ours.  Your employer owes you a debt for hours worked until your next paycheck.  Credit cards are debt, regardless of whether it takes you a month or a year to pay off (though the interest accrued certainly changes).  Even the cash in your wallet is a form of debt - a promise which can be exchanged for goods or services.

It also shouldn’t be desirable to remove oneself from this system.  Limit interest and fees paid? Absolutely. But debt makes the whole economy work.  Every single transaction involves the transferring of debt from one party to another, and back again.

[Morning Glory]

I put all our monthly expenses on credit cards then pay them off in full when I get the statement. Dave Ramsey would say I have credit card debt, even though I have never paid a penny of interest. DH and I made about $2500 in cc bonuses last year just from organic spend.

I will celebrate the milestone when I have enough in taxable to pay off the mortgage, but definitely won't go bragging about it ( except maybe here, anonymously).

[Car Jack]

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

Weeeeee!  I'm completely debt free. *


* except for $1.2MM in student loans.

These statements kill me.  If you own a $500M mansion free and clear and owe Master Card $123, you are not debt free.  Sorry.

[American GenX]

hen I have enough in taxable to pay off the mortgage, but definitely won't go bragging about it ( except maybe here, anonymously).

I couldn't help but brag a little when I paid off my house 16 years ago.  I've had only short-term debt since, and usually carry no more than $500 statement balance on my CCs, which I pay the full amount every month and have to pay zero interest.

[HPstache]

I put all our monthly expenses on credit cards then pay them off in full when I get the statement. Dave Ramsey would say I have credit card debt, even though I have never paid a penny of interest. DH and I made about $2500 in cc bonuses last year just from organic spend.

I will celebrate the milestone when I have enough in taxable to pay off the mortgage, but definitely won't go bragging about it ( except maybe here, anonymously).

To be fair... so would your credit report.

[HPstache]

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

Weeeeee!  I'm completely debt free. *


* except for $1.2MM in student loans.

These statements kill me.  If you own a $500M mansion free and clear and owe Master Card $123, you are not debt free.  Sorry.

Nobody has ever said they are sent free with $1.2M$ in SL debt...

[DadJokes]

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

Weeeeee!  I'm completely debt free. *


* except for $1.2MM in student loans.

These statements kill me.  If you own a $500M mansion free and clear and owe Master Card $123, you are not debt free.  Sorry.

Nobody has ever said they are sent free with $1.2M$ in SL debt...

If you've listened to the DR Show long enough, you'll find that a lot of people are "debt free" until later realizing that "such and such" counts. Maybe not $1.2 million, but a lot of people seem to only think that credit card debt counts.

[wenchsenior]

Agree with others that who care's about these arbitrary labels about "debt-free".

But I wanted to give you some unsolicited advice regarding the quoted section below:

I've been trading/investing in individual stocks/bonds/commodities/currencies since 2011, but basically just broke even until 2017 when my skills finally came around.

Stop.
If you had invested in broad market index funds, you would have at least tripled your money since 2011.
Your skills didn't magically come around for you to finally break even.  What has happened is that the market is performing so strongly that it finally overcame your incompetence as a stock/commodities picker.

I was going to say the same thing.   Seriously, get into low fee, broad-brush index funds.

Agree 100%. 

Also agree that you would not be technically debt-free.  But I'm not sure that matters, depending on your goals. I have no plans to ever be debt free...we could pay our mortgages off today if we wanted, but I suspect we will always carry a mortgage (maybe not the very last few years prior to death) and that's fine.  It's positive net worth in liquid assets that concerns me.

[HPstache]

I have noticed a lot of Dave Ramsay followers will say they are debt free, then add 'except for the mortgage' - so they are not debt free at all.  It makes no sense.

Weeeeee!  I'm completely debt free. *


* except for $1.2MM in student loans.

These statements kill me.  If you own a $500M mansion free and clear and owe Master Card $123, you are not debt free.  Sorry.

Nobody has ever said they are sent free with $1.2M$ in SL debt...

If you've listened to the DR Show long enough, you'll find that a lot of people are "debt free" until later realizing that "such and such" counts. Maybe not $1.2 million, but a lot of people seem to only think that credit card debt counts.

I do listen to the DR show a lot.  I am actually coordinator for his course because I believe that even though it is not perfect, and I don't necessarily agree with even  detail, it's the perfect finance lesson for most Americans these days and I have personally seen it change so many people. 

Anyway, the statement I made is just pointing out that no one who is actually following the DR plan believes that SL debt (no matter the number) is not a debt.  This is harped on so many times by DR in his course and on his radio show.  This is DR's stance, and anyone who thinks their "1.2M$ SL debt" is not a debt has zero association with DR.  Obviously there was some sarcasm in the 1.2M$ statement, so I was trying to be equally snarky to point out that this statement is so preposterous in the world of DR finance.

[hodedofome]

If I had just invested in VTI, I would have almost the same amount of money that I have now. But I wouldn’t have learned all the things I did by reading close to 100 trading/investing books, learning to think in terms of probabilities, learning to think like an investor, becoming objective, controlling my emotions, etc etc. It was an experience I wouldn’t trade for anything, and I’m so grateful I pursued it despite the discouragement from most of my friends, family and websites like this. Even if I never made a nickel from it, the experience and transformation of my mind has been worth it..

If someone asked me “would you rather have a 77% return on your money over 6 years, or 0% but you get to read some books,” I think it’s pretty clear what I’d choose.

Also, you say you learned to “think in terms of probabilities”, yet you attribute the two years in which you beat the market to skill, not luck- despite the overwhelming evidence that no individual investor can consistently outperform the market. Maybe a bit more reading is in order.

I am well aware the odds of success are not in my favor. It doesn't mean it's impossible though. I know plenty who have done it.

[nereo]

If I had just invested in VTI, I would have almost the same amount of money that I have now. But I wouldn’t have learned all the things I did by reading close to 100 trading/investing books, learning to think in terms of probabilities, learning to think like an investor, becoming objective, controlling my emotions, etc etc. It was an experience I wouldn’t trade for anything, and I’m so grateful I pursued it despite the discouragement from most of my friends, family and websites like this. Even if I never made a nickel from it, the experience and transformation of my mind has been worth it..

If someone asked me “would you rather have a 77% return on your money over 6 years, or 0% but you get to read some books,” I think it’s pretty clear what I’d choose.

Also, you say you learned to “think in terms of probabilities”, yet you attribute the two years in which you beat the market to skill, not luck- despite the overwhelming evidence that no individual investor can consistently outperform the market. Maybe a bit more reading is in order.

I am well aware the odds of success are not in my favor. It doesn't mean it's impossible though. I know plenty who have done it.

Plenty who claim to have done it.