How Has Debt Changed You?

How Has Debt Changed You?

The word "debt" has a lot of negative connotations and I have even said it is a form of slavery because it can be used and is being used to control us, so it is something to break free of, but breaking free of debt doesn't mean the lack of use of debt, to the contrary.  Use debt if it makes you money as it's money that gives you financial freedom.  

Is Debt-Free the Way to Go?

I hear people on podcast expressing that they feel they have financial freedom because they've paid off their house, car, credit cards, and loans, but now they use cash to pay for everything and are averse to debt, and being that they have no quote/unquote debt, they feel they are financially free, but are they?  I would say not all the way because life, our life, still requires money even beyond debts, so financial freedom isn't achieved by doing that alone.  As we go through life, we will all have experiences with debt, but our reactions to those experiences will change us, some for the good and some for the bad.

What is Debt?

I assume that we know that debt is owing someone back for something we have borrowed and they (the other party) have agreed to lend to us, generally with interest.  We generally, consider to borrow when we don't have the money to pay for that "something" today that we want or need.  If it is something we feel is necessary today and that we cannot do without until some later time when we have the money, we might obligate ourselves to taking on debt(s) in order to obtain ownership of that something today with the promise to pay it back in full, with interest, at some point in the future.  That is essentially what the concept of debt is in a nutshell.  However, not everyone borrows from the position of having no money to pay for that something.  Some borrow from the position of having money and then using that money as leverage.

The Dirty Four Letter Word

Debt has become a dirty four letter word to some.  Debt has changed peoples lives, some for the good and some for the not so good.  While writing this, I don't know where you are, as of reading this, in your relationship with debt and money, but surely, having the right relationship can mean the difference between you getting ahead or falling behind in this game of money.  In particular, while on this journey, you might want to be extremely careful who's advice you let shape your thoughts on debt.  Speaking from the point of once being burdened by debt to now not having debt be a burden, luckily, I hadn't come across some of the people I'll mention below because they may have changed the trajectory which I am on currently. 

Pundits Talk

I have heard people go to an extreme, in my opinion, in the other direction on how they were going to handle debt going forward after finding themselves once or currently swamped in debt.  Our mindsets then potentially get shaped by people like Dave Ramsey or Suze Orman to get out of debt and/or have no debt.  I personally hate that this is the information that gets disseminated to us in the middle class.  But what good does this do?  Are you out of the rat race because you paid off your house or your car or your student loan debts, or you cut up your credit cards?  No, because you still largely have to trade your time for money.  The thought process seems to be that you should be content with the fact that you have learned how to not owe people, but I contend with the idea if that is considered financial freedom, being debt free because the homeless man on the street is debt free.  To perhaps get you on a track to get out of debt, other than your house, those pundits may be the people to listen to and guide you, but when and if you are back to even, you should, in my opinion, disregard what they have to say in a large degree as their advice can hinder you if wealth and financial freedom is the goal for you and your family.

Leveraging Debt With Money

The rich know what the benefits of debt are, especially if you have money, and how to use it and that is partly why they are and stay rich.  They surely don't get counsel from Suze Orman on finance.  The pundits seem to say stay out of debt, but how many of us could have a house or a car today if it were not for debt.  Not a lot.  Don't look past the fact that there is a need for debt, and question whether we would be better off without debt.  We should consider if debt can help us.  Take for example, I am a proponent of award travel, and it requires use of debt product; namely, a credit card.

Leveraging Credit Card

Currently, I put pretty much all my monthly expenses on a credit card, preferably ones with large signup bonuses which I am constantly turning over, and by the due date I pay it off entirely with the money I have or earned that month.  This affords me the ability to earn additional perks in the form of loyalty points/miles which I can use to pay for travel and experiences.  What did it cost me?  Nothing.  Why nothing, because I have the money to cover the debt.  The lender, in this case the bank, provided me access to their money for 30 days interest free; thus, allowing 30 days that I could go use my money for more productive purposes, i.e wealth building or just as leverage.  

 

Dave Disciples

Now take these staunch Dave Ramsey disciples that follow the pay with cash for everything, I get the same services as them, but because they are told not to use credit cards, etc. they give up an opportunity for their money to do more for them.  In addition, when they start thinking to take vacation, they are thinking in terms of cash to pay for a vacation or possibly foregoing a vacation because it may set them back or they have to save up the money while I'll be thinking in terms of using this derivative of money called points/miles to pay for travel all while I continue to leverage my money for wealth building instead of giving it up.

Debt Or Money Issue?

In this economic system, you don't get paid  a lifetime worth of human capital upfront, you must continue to provide economic value in order to be compensated small lumps sums each month called a paycheck.  And you won't become wealthy, or stay wealthy for that matter, when you continually relinquish those assets which can offer you leverage.  I hope you can see a difference I am attempting to articulate here in the mindset you should have once back to even as far as getting into debt goes and going forward.  Don't think that debt alone is "the" problem, because money solves a debt problem.  Some people think that "debt" is the reason for their problem when they become loaded with debt when in fact really is it's a money, or lack thereof, at the root of the problem.  Posed a different way, is "debt" a problem if you have the money to pay it?  The answer is no.  Debt is of no consequence if you have money.  So the issues of debt become magnified when there are money or cashflow issues.  

Focus On Upping and Keeping Money Flow

Being debt free does not and I repeat does not fix money issues.  So our focus should be on how to keep money coming in whether you have debt or not and retaining it some that it can be leveraged for greater.  I want you to get out of consumer debt, but once you do, focus on having money source(s) and on making selections that you chose to go into debt for be more for assets (things that put money in your pocket) and less for liabilities (things that take money out of your pocket). It is this path in my opinion that gets you out of the rat race and on path to true financial freedom.

In Closing

So, how has debt changed you?  Are you now adverse to it thinking it's the source of your pain or can you take a broader view and seeing the money part of this equation which is the biggest factor.  I'm not a proponent of the Dave Ramsey and Suze Orman philosophy on debt and I've discussed above considerations for use of debt where you can use leverage of your asset(s).  Being debt free doesn't free us from our bondage, but having continuous cash flow does, so if financial freedom is your goal and you don't have a continuous flow of money, then we my friend still have work to do!