Changing the Way I See Debt

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Over the years, the way I see debt has changed. Growing up, I “knew” that having a good credit score was something to be proud of. Of course, the only way to have a really good credit score is to borrow money regularly, have different types of loans, and consistently repay them all on time and as agreed. I thought that I was doing a smart thing by taking out a car loan that was “only” for four years, and by getting a very small credit card.

What I was really doing was buying into normal.

Then I continued that normal trend by taking out a credit card that was “just for emergencies”. But you know what? It’s not a safety net. It’s a trap. MONEY and insurance are what you need for emergencies, not the ability to borrow money on a moment’s notice.

Gradual changes

After having a ton of “emergencies” that ranged from needing to attend a funeral to needing a pizza, I realized that I was sick of owing money. My now ex-husband and I would get paid, and not only would all of our money be GONE right away to pay what we owed, but we didn’t even have enough left to make any real progress on repaying what we owed. Finally, after years of struggle that involved trying to consolidate debt, we signed up for Consumer Credit Counseling Arizona and got on a plan to pay off our credit cards.

Looking back, we were really lucky that we actually chose a place that didn’t charge us and wasn’t a scam. Many places that offer to help folks get out of debt do NOT actually do so. Knowing what I know now, I’ll also add that CCCS didn’t do anything for us that we couldn’t have done ourselves if we’d only known how and both been on the same page and completely committed. (Three things that are often hard to find at the same time.)

At any rate, we got on the right track and eventually got our credit cards paid off. (We also got divorced along the way, which was not related to our efforts.)

Becoming debt free more than once

Becoming debt free was so awesome. I loved it! When my (now) husband moved in with me, I encouraged him to pay off his credit cards too. And he did. We were in great shape. Except, you know, he had a car loan and I had a student loan. And we’d gotten a mortgage together too. But hey, we were debt free!

This is seriously the way many people think. A few years back, I put out a call to try to interview people who had gotten out of debt, and I got quite a few responses back from people who had “paid off” something by borrowing $20,000 from their dad, or by taking out a HELOC to “pay off” their credit cards, or by putting all of their loans on a credit card that was at 0% for one year.

People, you are not debt free. Not any more than I was with my student loan hanging around my neck, or my husband was with his car loan. If you’ve paid off anything at all, you ARE making progress — and that’s truly awesome. But debt is so normal that we literally fail to even see it. And borrowing money to repay what we owe is not getting out of debt. It’s rearranging it.

Debt as leverage

The other common way of thinking is to knowingly take on debt with the idea of using it as leverage. And that can work really well, if — and it’s a big if – things go perfectly. If you never lose your job, the economy never goes south, you never change your mind about anything, you never need to move, you never want to chuck it all and become a SAHM or self-employed, etc. Do you know anyone whose life has gone perfectly as planned 100% of the time with no deviations or changes whatsoever? I sure don’t.

But, we bought into that too. After I became debt free for the second time (by paying off my student loan) and my husband did too (by paying off his car), we decided to borrow $10,000 at 0% interest in order to remodel our bathroom. We thought this was fine, because we had $10,000 sitting in our bank account, earning interest. (Back when people actually made a little bit of interest.)

Things could have gone horribly wrong with that (and in fact, during the remodel process we found out that we actually needed to remodel both bathrooms instead of just one), but we did manage to repay the money without getting any additional interest. Was it worth it for the less than $400 we made? No. I stressed out every month about making the payment on time, and it weighed on me. That was the first time that I realized that I still really wasn’t debt free. Not only did we owe $10K to Home Depot, but we owed money on our house. So we decided we weren’t doing that again, and that we would pay off the house.

What debt free really means

Not to knock anyone who has paid off any sort or amount of debt at all — because that is completely awesome — but being debt free really means that you do not owe any money, to anyone, anywhere.

And that’s our goal. That’s why we’re paying off our house. That’s why we are never borrowing again if there’s any way at all we can possibly help it. It took years, but my definition of being out of debt has finally evolved to mean not owing any money. And we will get there. You can, too.

P.S. Thanks to Start Talking Cents for including my Want to Get Out of Debt? Don’t Forget the Most Important Step post in this week’s Carnival of Personal Finance.