Being debt-free means you don’t owe any outstanding debt. Nonetheless, it might make sense to only have a mortgage payment and a credit card that you pay off in full each month as debt.
For most people, living debt-free is a meaningful goal that represents a level of financial freedom. Student loans, car loans and credit card debt can feel overwhelming, but eliminating debt can relieve the stress.
However, what exactly does it mean to be debt-free? Some people define it as having no outstanding debt, while others define it as having only “good debt,” like a low-interest mortgage. Lets examine the different definitions of being debt-free along with useful practices to achieve a debt-free life.
Understanding Debt and Homeownership
There are nuances to the idea of being debt-free, particularly in the context of homeownership. Although a mortgage is considered debt in theory, it is frequently perceived differently than other forms of debt, such as credit card debt or personal loans. Let’s dive deeper into the intricacies of this topic.
The Technical Definition of Debt
In its strictest sense, debt refers to any outstanding financial obligation owed to another entity. This includes mortgages, car loans, student loans, credit card balances, and unpaid bills. As long as you haven’t fully settled these obligations, you are considered to be in debt.
Mortgages: A Special Case
A mortgage, however, occupies a unique space within the realm of debt. While it represents a financial obligation, it’s secured by an asset – your home. This means that the lender has the right to seize your property if you default on the loan.
The “Good Debt” vs. “Bad Debt” Distinction
Financial experts often categorize debt into two broad categories: “good debt” and “bad debt.” Good debt refers to debt that can potentially generate future financial benefits, such as a mortgage that allows you to build equity in your home. On the other hand, bad debt typically refers to high-interest debt that offers little to no long-term value, such as credit card debt or payday loans.
The Impact of Mortgages on Your Financial Picture
Mortgages can significantly impact your financial well-being, both positively and negatively. On the positive side, owning a home can provide stability, appreciation in value over time, and potential tax benefits. However, a mortgage also represents a significant financial obligation that can strain your monthly budget and limit your ability to save for other goals.
The Bottom Line: Are You Debt-Free with a Mortgage?
Ultimately, whether you consider yourself debt-free with a mortgage depends on your individual definition of “debt-free.” If you subscribe to the strictest definition, then having any outstanding financial obligation, including a mortgage, would disqualify you from being debt-free. However, if you adopt a more nuanced approach that considers the nature of the debt and its potential benefits, then owning a home with a mortgage might still align with your personal definition of being debt-free.
Additional Considerations
Here are some additional factors to consider when evaluating your debt-free status:
- The size of your mortgage: A smaller mortgage with a lower monthly payment will have less impact on your budget compared to a larger mortgage with a higher monthly payment.
- Your overall financial situation: If you have a healthy financial situation with a good income, manageable expenses, and a solid emergency fund, then a mortgage might not significantly hinder your ability to achieve other financial goals.
- Your personal values and goals: Your definition of “debt-free” should ultimately align with your personal values and financial goals. If homeownership is a top priority for you, then having a mortgage might be an acceptable trade-off in your pursuit of achieving that goal.
The question of whether you’re considered debt-free with a mortgage doesn’t have a simple yes or no answer. It depends on your individual definition of “debt-free,” your financial situation, and your personal values and goals. By carefully considering these factors, you can make an informed decision about whether owning a home with a mortgage aligns with your overall financial well-being.
What Does Being Debt-Free Mean?
As you become more knowledgeable about debt-free living, you’ll probably notice that the term “debt-free” has a few common definitions. The purist definition, which states that being debt-free means having no debt at all—from loans, credit cards, or other creditors—can be applied. As a result, you dont rely on credit cards or other forms of credit for everyday spending.
However, you may make exceptions to suit your needs if you would rather adhere to a more flexible definition of “debt-free,” which excludes payday loans and other types of “bad debt” that you carry from month to month. This definition might be helpful since it enables you to reach major objectives like home ownership without having high-interest debt interfere with your monthly budget.
Pros of Living Debt-Free
- Greater money in your pocket: Interest costs incurred by debtors deduct income. Thats not the case when you are debt-free. The amount you really pay for purchases is what you pay. You’ll have more money to put toward your travel plans, financial goals, and other objectives since you won’t have to waste it paying interest.
- Increased financial security: Paying off debt each month can reduce the amount of money you have available to invest, start a business, or save for an emergency fund. Your monthly budget will have more flexibility when you have extra money to strengthen your finances and seize new opportunities.
- Reduced tension and anxiety: Debt can cause stress, which can aggravate mental, emotional, and physical health conditions. In accordance with survey data from the Money and Mental Health Policy Institute, 20466% of debt holders report having mental health issues, and another 2086% report that their financial circumstances have made their mental health worse.
Dave Ramsey Explains Why He Is Okay With Mortgage Debt
FAQ
Does mortgage count as debt free?
Does having a mortgage count as being in debt?
Does a mortgage count as consumer debt?
How much debt can I have and still get a mortgage?
Is mortgage debt free?
Mortgage is a different type of debt. Renters can’t get off by saying that their debt free just because they are asset free. And if you live in a state with sizable property tax (>2% of the value annually), then you’re in decent debt if you’re not paying it monthly. In the end, debt-free is in the eye of the beholder.
Can You Live a debt-free life?
For many people, living a debt-free life is a goal that equates to financial freedom and thriving, not just surviving. All forms of debt, be it student loans, car loans, credit cards or medical debt, can be stressful, regardless of why you took on the debt in the first place. Not all debt is bad.
What does it mean to be debt free?
“Individuals that are completely debt free absolutely have a different mindset. There’s a greater sense of peace, freedom and opportunity that comes with being debt free,” says Falcone. “Not owing anyone anything or being beholden to anyone offers debt-free individuals more options and control over every dollar they own.
What counts as debt free?
In writing this column, one of the things that I see frequently in the comment trail is an argument about what counts as being debt free. Some people argue that debt free means freedom from consumer debt such as credit cards and car loans. Keeping a mortgage, whether for a personal home or a rental property is okay.