The Very First Step: Recognizing You are in Debt
August 23rd, 2007 by Ana
Browsing around this morning I found a blog post I really wish I had written, Do You Realize That You Are In Debt? Seriously, this one is good! It also triggered the forehead slap on this end, because DUH this really is the very first step. You can’t address a problem until you acknowledge the problem. At least that is what each and every 12 step program says.
So, I have to ask: do YOU realize you are in debt? I have heard many say they aren’t in debt, then list things like a student loan, a mortgage, or even (gasp!) a car lease or payment. If you don’t count these as debts, then just how can you work up a decent debt reduction plan?
Another one I tend to hear is people say they don’t have debt because they pay off their credit cards every month in full. This one puzzles me, because when I start asking why they use a credit card to begin with, they claim it’s for a “free” 30 day loan. Ummm, loans are debts…no matter how short or long they last. Debt is debt is debt. And debt is one place I don’t want to be in anymore!
What I really like about Lynnae’s post at Being Frugal is she tackles it from a personal integrity point of view. Simply paraphrased, if you are in debt you are under obligation and the question becomes “Am I good for my word?” because debt is actually a promise. I think that is an excellent way of looking at it.
Posted in Uncategorized |
August 23rd, 2007 at 9:19 pm
Thanks for the mention! Getting out of debt really does begin with acknowledging that you owe someone else. You’re doing great on your progress! I’ve only just begun.
August 23rd, 2007 at 10:51 pm
Lynnae, just keep at it
In no time you’ll be making real progress of your own (and feeling like you’ve made progress!) I only just started back in January.
August 27th, 2007 at 1:03 am
[…] DebtFREE-Revolution accomplishes the debt reduction process in the well-known 12-step process, the first of which is to recognize that you have a debt problem. […]
August 27th, 2007 at 4:38 pm
[…] you Prepay Your Mortgage or Invest Instead? - Zen and the Art of Personal Finance in 4 Steps - The Very First Step: Recognizing You Are in Debt Go to: Home page Add to: del.icio.us Netscape reddit StumbleUpon Filed under: Carnivals. […]
August 31st, 2007 at 6:51 am
I disagree. You might say that I am in debt because I have a student loan and a mortgage. However, I have a positive net worth - if life was like monopoly and I had to cash it all up, I’d be left with more than £0.
I also pay my credit cards off every month. I mostly use them for work expenses which I then claim back. I don’t consider this debt. Although I owe the credit card company the money, my employer owes me money so at the end of the day I am not in debt. Using a credit card like this avoids serious cash flow issues - I do not exist to provide credit to my employer if I can avoid it.
August 31st, 2007 at 11:29 am
plonkee, we will have to agree to disagree then, because I DO say that you are in debt with a student LOAN, a mortgage, and CREDIT cards. A positive net worth just means you have more equity/assets than you have liabilities/debts. It does not make you debt-free. Debt does not automatically equal a negative net worth…it just means you owe someone. For the record, I too have a positive net worth, but I still have debt.
August 31st, 2007 at 11:53 am
Plonkee (and anyone else), being “in debt” simply means you are “indebted to someone”. It doesn’t matter whether it’s a mortgage for $500,000 or a loan for $25 for a pack of gum. It’s debt.
I could have a million dollars in the bank, but owe $1,000,001 to someone. I have both a negative net worth and I am in debt. But pay that person $2 and that doesn’t mean the debt has gone away, even if you now have a positive net worth. You’re still indebted to that person.
Lastly, your employer is indebted to you until they pay you for the work you have done for them. It’s all debt whether it’s material (money) or immaterial (time) as well.
February 26th, 2008 at 9:47 am
If I have received goods or services from anyone and haven’t paid them yet, I am in debt. Period. Even if the dental work is half done and I will pay after the insurance goes through and I’m billed, I am in debt to my dentist because I have received a product/service for which I have not yet paid. It’s a liability in the accounting sense of the word.
Yes, mortgages, student loans, car loans, etc. are debts. Don’t be afraid to say it.
And yes, net worth is very important; my net worth has always been positive even though I’ve been in debt the entire time too. My net worth and my debt started about the same time. LOL However, one must analyze risk as a part of the picture; having a bunch of credit card debt is very risky even if you have big investments in your retirement plan, because you’re having to risk raiding your retirement plan to tide you through if there’s a hiccup in your life. You need to clear out expensive debt and accumulate some nonretirement savings and assets for the megamurphies of life, to protect the retirement assets. If you don’t want to be debt free, at least aim to get rid of the stupid debts and keep only the cheap and manageable ones, and have enough liquid assets + income insurance to live on for a good long stretch. I had to go 14 months between professional jobs once and that was rough! Severance and unemployment didn’t last that long, and I wasn’t disabled so disability insurance didn’t cover it. It was all work (underemployment) and savings drain. Yikes.
March 4th, 2008 at 10:03 am
Yes, debts are definitely liabilities. I use GnuCash to track my finances and I have a great big balance in the Liabilities column, and a slightly smaller big red number in the Equity column. It’s depressing, unless you’re Jason, in which case I suppose I should throw a party.