What is 'debt free'?

Stewart_78

Lots of people on here achieving this lately and that's excellent but I've been looking at my own situation and if you count my mortgage in, I'll never make it. So, does a mortgage count as a debt in the context of 'debt free'?

My mortgage is probably about 40% of the value of my house so loads of equity (but no way to release it other than sell). But it's still a big whack of cash.

All I seem to focus on is the the unsecured CC and loan debts from when it all went wrong. Is getting rid of them but still having an £80k mortgage 'debt free'? It's a funny thing really. State of mind I suppose.

Lots of people say they want to get debt free and clear their file so they can get a mortgage! Or is it that a mortgage is 'socially acceptable' but a whack of CC debt clearly means you have a problem?

mummybearx

Of course a mortgage is an 'acceptable' debt, it's one many people can't help but have!

I'm just about to pay off the last of my 'bad' debt, my CC and store cards that I ran up buying things cos I wanted them/'needed them'/just bought because I could.

My mortgage debt I see as a good debt (if there is such a thing). It's my positive step in the right direction.

It means I will never go back to the mess I was in, I have something to lose now.

But as soon as I'm able to make overpayments, I will be trying my hardest to get rid of the mortgage as well :rotfl:

joedenise

Agree with Zepsgal that mortgage is a "good debt". I've considered myself "debt free" for quite some considerable time, even though I still use CCs every month, the difference being I now pay them off at the end of the month EVERY month and don't have the debt hanging around and costing me money.

Denise

Stewart_78

OK, so you spend all your cash making over payments. Great idea and commendable. But what if you then need to move to a more expensive house? You need to take on a bigger mortgage. I get the feeling you could just spend your life overpaying debts where you might be better off taking it easy and letting inflation do the work for you?

For example, I owe about £80k against my house. I could spend every spare penny for 10 years to pay it off which would mean we would be skint for 10 years, but have no mortgage payment at the end of it. Or I could pay it off at the slowest rate possible and watch inflation at say 3% effectively diminish the debt by 2-3k a year anyway. In 10 years time, 80k is not going to be the same amount of money as 80k is today.

Trajal

This is a terrific question and well put across.

I think you're right when you suggest that much of it is a state of mind as many will have a mortgage but no CC debts etc.

Being one of those who wants to one day get a mortgage I have thought of it in terms of net assets and monies owed.

If you have a mortgage but the equity value of the property exceeds the level of the loan then even though you will owe money on the remainder of the property I will still class myself as debt-free overall. I could realise my investment and pay off my mortgage without requiring additional monies from elsewhere.

In the meantime of course I am genuinely debt free while I save up for that thumping great deposit. The problem that many face is that the amount that house prices rise is faster than the amount that their savings rise so they need to get onto the property ladder sooner before the prices go out of their reach.

In my current job I save between 500-1000 a month towards the mortgage and get a £15k (gross) bonus each august anyway, so that's not an issue for me.

The final piece of this is the state of mind argument. Being debt free is the best, but having manageable levels of debt is perfectly acceptable. However when some of us have had our lives driven by being in debt, we are suddenly even more allergic to any debt at all and therefore prefer to keep completely clear of it. Whereas others will look at a mortgage as a managed debt of investment (which actually I think I agree with on balance) and treat that money spent on the mortgage as being a cheaper alternative to renting.

Perhaps treating a mortgage as a 30 year (or whatever) rental contract where at the end of it they give you the deeds to the property is the best way to look at things rather than classify it as debt. We all have to live somewhere afterall and better to own it than pay someone else!

beth3735

I class debt free as being cleared of all my unsecured debts. I also class my mortgage as 'good debt'. At the end of our mortgage we will hopefully be able to live a comfier life style and will hopefully have something valuable to leave our children.

vacheron

Stewart_78 wrote: »

OK, so you spend all your cash making over payments. Great idea and commendable. But what if you then need to move to a more expensive house? You need to take on a bigger mortgage. I get the feeling you could just spend your life overpaying debts where you might be better off taking it easy and letting inflation do the work for you?

For example, I owe about £80k against my house. I could spend every spare penny for 10 years to pay it off which would mean we would be skint for 10 years, but have no mortgage payment at the end of it. Or I could pay it off at the slowest rate possible and watch inflation at say 3% effectively diminish the debt by 2-3k a year anyway. In 10 years time, 80k is not going to be the same amount of money as 80k is today.

True to some degree providing positive inflation continues, but don't forget to factor in the £28,000 interest you would have to pay over those 10 years if you were able to go effectively interest only (assuming a 3.5% mortgage rate).

Tixy

When my unsecured debts are paid off I'll consider myself "debt free" as usually referred to on here. I'd like to do that as soon as possible.

And then my focus will be to become mortgage free, and whilst I still want to do that in a much quicker time than the mortgage term I won't be using every spare penny to it, I'll likely set myself a more generous budget to live on but still make sure I am making overpayments - my plan is to be mortgage free before 40.

So if say at the moment I was paying unsecured debt payments of £600 a month, maybe I'd only decide to overpay the mortgage by £400 a month.

datlex

I think debt free and mortgage free are two different things. There are two different forums on here for it. To my mind a mortgage and rent are similar as far as out goings are concerned. Both enable you to have a roof over your head. The difference with a mortgage is that it is likely at the end of the day the property will be yours.

downnotout

I would class a mortgage as a living cost, you have to live somewhere right?

matttye

Whilst a mortgage is a debt, I too wouldn't include it when considering whether someone is 'debt free' or not.

I would define someone as being in debt when they're not able to clear their unsecured debts every month. For example, if someone borrows money on a credit card but repays in full every month, I wouldn't class that as being in debt, as said person could just use their debit card instead. There are benefits to using credit in such a way.