When people think that debt isn't debt.

getmore4less

when you analyse the Zero sum game of life you can look at all your future needs as a debt.

You need to provide yourself with shelter and food till you die they need paying for

until you have created/saved enough assets to cover those costs you are in debt to your own future life.

one way to look at it is anything that requires you to work to pay for it is a debt.

as the saying goes "spending more than you earn now is borrowing from your future self"

every £1 you over spend regularly needs a £2+ cut back for the same period 20 pay it back.

When you do forward looking(to the day you die) cash flow analysis to become life debt free the asset pot you need can be quite a surprise for some people.

if you want to live on £20k a year for ever, you need a pot of £500k-£600k so get saving. 30year(say 50-80) you still need £350-£400k.

if you don't want to be paying rent from that you also need to have bought a house.

The more you spend now the longer it will take to become self sufficient.

Xbigman

I have always thought that the modern usage of the work debt is incorrect. A debt should be a commitment you can't pay. Therefore you might have £30k on credit cards but if you make the minimum payments you are not strictly in debt. If you have £30k on credit cards and can't make a £300 payment then you are in reality £300 in debt at that point in time.

It is keeping your future commitments as low as possible compared to your income that is the route to financial happiness. If your commitments are high compared to you income then that is usually bad. In those circumstances the word debt has such a negative ambiance about it that those unhappy with the amount of money they owe/interest they pay can be significantly motivated by viewing the amount they owe as 'debt' that they need to get rid of. Although I argue above that it isn't, I think the usage of 'debt' in those circumstances is quite acceptable.



Darren

northerner999

CalumHeath wrote: »

I've seen this topic be brought up a few times on these forums during the last two years. You will find that a lot of people like to define the word 'debt' to suit their own situation.

Here are some examples:
- Some people don't consider a mortgage a debt (it is).
- Some people don't consider a mortgage a debt if there's equity in the property (it is).
- Some people don't consider something a debt if you're making the minimum repayments (it is).
- Some people don't consider a debt a debt if they have the means to pay it off (it is).

The list goes. I've just accepted that people like to make themselves feel better by insisting that they in fact know the true meaning of the word and other people (including dictionary definitions) are wrong - it doesn't change the fact that a debt is a debt though. It's all just the psychology of how we in this country deal with money, credit and debt, I suppose.

The fact is a debt is any sum of money that is owed. I'm in debt to one credit card company. It doesn't matter that it's 0% or that I have the money to pay it off when the 0% ends - I am in debt and there's no other way of describing it, but I don't mind admitting it because if I tried to insist it wasn't a debt I'd just be a liar.

I lease my car and I consider it a 3-year debt. I don't just get to choose to stop paying it and it goes away. I have to pay it for 3 years through hell or high-water. I signed a contract for 3 years: the lease company won't be interested if I try to give it back after 18 months; they won't call it quits. And nor should they - I knowingly entered into a contract with them. It's a debt.

Exactly this. I find it amazing how people on here in the past have argued a mortgage isn't a debt! It may not need to be paid off to be what many consider "debt free", but people tend to overlook it.

Last year I decided to delay c-card payments to use the money on reducing my mortgage and getting a better rate. That's not for everyone, but I think you have to include the mortgage in the bigger picture and even consider it more important than some other debt.

enthusiasticsaver

I would consider a car lease agreement to be a debt, as is a secured or unsecured loan, mortgage, overdraft, credit card etc etc. My signature says debt free but as a technicality it is not quite true as I spend the bulk of my monthly income on credit cards for the cashback, rewards and pay it back at the end of the month so I always have a credit card balance. I have more than enough savings to cover it but it is still a debt. So is electricity and gas bills, phone etc etc. Living without debt entirely is an impossibility.


I would consider your colleague to be a bit of a hypocrite as she can justify her debt by saying it is a lease or there is value in her property to cover the home improvement loan but regardless it is still debt as is her mortgage.

redux

Xbigman wrote: »

I have always thought that the modern usage of the work debt is incorrect. A debt should be a commitment you can't pay. Therefore you might have £30k on credit cards but if you make the minimum payments you are not strictly in debt. If you have £30k on credit cards and can't make a £300 payment then you are in reality £300 in debt at that point in time.

Surely this is partly self-contradictory.

How is a £30,000 commitment not a debt, but just a £300 share of it might be? The test of it being a commitment you can't pay would also be true for the full sum of £30,000.

I agree with the post immediately above mine. Next month's credit card statement contains car insurance renewal and supermarket shopping, but it's still a debt just for the time being even though the money needed is in the bank and I could have used a debit card instead.

Sanctioned_Parts_List

takman wrote: »

I don't fully agree with that because when you rent a house you are just paying to stay there. They arnt giving you the house, its just like when you stay in a hotel.

If you rent a house you can't choose who lives there, it has to be people named on the contract. So this just shows you have no control over the asset at all. Then when you consider you pay in advance of the period your staying it would be very difficult to class it as a debt.

While you're right, you're also wrong

When you rent, you don't own the asset but you do take possession of it and you do have a fair degree of control over it. You're responsible for looking after it and keeping it water-tight and secure. The landlord cannot enter without your permission, nor can he throw you out unless either you breach the contract or your term ends, and even then he must give notice. In short, the landlord lets you hold his asset and you owe it him back at the end.

Yes, with tenancy, there are contractual terms (who can stay there, and restrictions on pets, smoking etc.) but the same is true of buying. By-laws and covenants do much the same thing.

With the hotel, your status is that of a lodger. The hotelier can throw you out at any time, change the locks, enter your rooms, change your payments, whatever they so wish. Their asset, such as it is, is the use of a room, and as these days we tend to settle upfront, the hotelier is actually indebted to you to provide the use of that room.

getmore4less

Sanctioned_Parts_List wrote: »

nor can he throw you out unless either you breach the contract or your term ends, and even then he must give notice[/B]. In short, the landlord lets you hold his asset and you owe it him back at the end.
.

With an AST he can't chuck you out, only a court can,
He can give notice he will take you to court but that's all.

Check out the property renting board this comes up a lot.

Sanctioned_Parts_List

Thanks gm4l - ultimately I'm glad my former tenant did a midnight bunk instead of waiting out the contract. Never had to find out for real...

Kinda reinforces the point, though, that the landlord owns the asset, but the tenant controls it

freshcotton

Definition of debt in English:

noun

1A sum of money that is owed or due:


Its hardly a debatable topic as to whether a sum of money is debt?


A car lease may not be a debt (apart from the current months payment) but once the contractual default penalty kicks in - that amount becomes a debt as it is a sum of money owed.


The only issue debatable is - what is sensible debt? Am I financially secure? etc etc

DigForVictory

thegrind wrote: »

I think your friend probably doesn't know how much it costs to borrow money from her future self.

Now that is a definition of debt even my teens will understand. Thank you!