Misconceptions About Debt, IMHO

In the last 100 years, the concept of buying on credit has become ingrained in the collective mind of our society. Most people can't fathom a world in which they save money to make purchases, or at least to make larger purchases. A year ago, I never would have dreamed it was possible to buy a car with cash or completely pay off a house (and we've done one of those in the last 3 months). An entire faction of our economy is based on the myth that it isn't possible to do so. I'm now prepared to challenge some of the misconceptions surrounding debt. 

***Disclaimer: I am not qualified to professionally advise anyone on their finances. These opinions are from my experience only.

"There is such a thing as 'good' debt."

This is based on the myth that you need "good credit" to succeed. The way I see it, the only benefit to maintaining good credit through debt is being able to acquire more debt. That doesn't sound "good" to me.

Imagine living off the credit bureaus' grid (no one can, but go with it). Nobody cares if you pay your bills on time, if you've ever defaulted on a loan, or if you have a college education that isn't paid for. Why? Because you walk in to make your purchase, and you have cash, so you own your thing that very day.

You can do this.

"...well, that's what credit cards are for." (referring to emergencies)

I overheard a woman on a cell phone say this in Target, and it made me cringe. Having a significant amount of money in a savings account, a tin can in your back yard, under your mattress, anywhere, will reduce or eliminate the need for using a credit card for emergencies. Each individual or family should have a savings of several months of expenses for WHEN you or your spouse gets pregnant unexpectedly (September 2013), your water heater goes out (last week), you have a car accident, or a myriad of other situations. Don't let an unexpected event put you into debt. Be your own credit card company. 

How? Create a zero-based budget and CRUNCH DOWN on your spending until the money has been saved. Or follow Dave Ramsey's Seven Baby Steps. Whatev. 

"But what if you're in Target and there's something on sale for $8.99, and it's usually $40 and it will look so cute in your house? Then what?"

This has been the hardest transition for me. I love a sweet deal on house junk probably more than the next person. It's in my job description to make my home comfortable, beautiful, and functional (see what I did there?). A bargain on something I needed or something I thought would solve a household problem was a major budget buster for me before I got serious about my finances. 

My sweet friend, who shares the same love for bargains on house junk, asked me this question, and it has been the hardest piece of advice I've had to give in my debt free journey so far:

You shouldn't buy it. 

If it's not in your budget--as in "there is no amount of dollars designated on your written budget for that month with 'on sale house junk at Target' beside it"--you cannot purchase the item. And if you are going hard after being debt free/saving for emergencies, there probably isn't. 

Nine dollars does not seem like a lot in the grand scheme of budgets and debt, but $9 every Target trip would ruin me. What's more important is the discipline it creates; learning to say no to yourself and those ugly impulses stabs a basilisk fang into the heart of our society with its "instant gratification" mentality. (Sorry for the nerd moment.) We are not children who need it now. We can wait.

"I bought it because I could afford it."

This is going to be hard and ugly, but I'm just going to say it: if you owe money to a creditor, then you can't afford it. You have already promised future money earned to the entity you borrowed money from. Until that debt is paid, you cannot "afford" (in the true sense of the word) anything. You're in the red. (Note: As a mortgage holder, this is my current state. We have an active and aggressive plan to get into the black as soon as possible.)

If you're a Christian, the scriptures (Proverbs 22:7, Romans 13:8, et al.) on debt should resonate with you, as I've mentioned in a previous post. Debt is not a new concept, although I would say it's more widespread than ever. It's also not an open handed issue if the Bible is your authority.  

Having the money in your hand and being able to "afford" something are very different things. The only person who knows exactly what she can afford is someone with a zero based budget. She knows exactly how much is coming in, all of her necessary expenses have been accounted for, and she has put money aside for the unexpected. 

When the money is in your hand and you do not have a zero based budget, dollars will slip through the cracks and necessary expenses will not even enter your mind when you grab that energy drink at the gas station for the 4th time this week or cruise through the drive thru because you need dinner. Plan ahead. 

I've personally had each of these mindsets (except for the credit card; we didn't even have that when emergencies came!). There was a season of getting ready for a new baby, wading through a sea of medical bills, paying a truck loan, and living paycheck to paycheck on two non-profit worker's salaries that still makes me want to curl up into a corner when I think back. But at least I had my $9 Target treat to keep me happy...

I learned that it doesn't have to be that way. You don't have to agree with me, but you should know that adopting this mentality about debt has changed everything about our family's finances, and many things about our marriage, for the better. And we are never going back.