Debt-free at last! We are sure millions of Americans have dreamed of saying that and many have actually made it and currently live debt-free! But, is it really possible? Of course, it is! Is it easy? Of course not! The best things in life come with a cost and living free of debt does too. So how can we get there and what does it truly mean to be debt-free?

 

 

First, let’s talk about what debt truly is. Debt is any type of money you borrow for a period of time in order to supply a financial need. It can be the money you borrow in order to pay for a house (like a mortgage), the money you borrow in order to pay something that, at that moment, is too expensive for you (like credit card debt), etc.

 

Types of Debt

 

Now there are two types of consumer debt. There is secured and unsecured debt. Like all borrowed money, the lender wants to know that you will pay their money back. This is when secured debt comes in handy. If you can’t come up with the payments over time, the bank can legally repossess the collateral (or everything you bought with that money, like a house) to recover the debt. This is the safest type of debt for banks, as they have two opportunities to collect on their investment. Either you pay it back, or they pay it back.

So, what is unsecured debt? This debt contains no collateral and is given to a person based on their credit and/or buying history. This is considered high-risk debt, as the bank has no collateral to fall back on if, in any case, the person stops paying back.  Aside from secured and unsecured debt, there is also something called bad and good debt. And this is what we need to know in order to become debt-free.

Good debt is any type of money you borrowed that will eventually provide you with financial benefits. Like what? For example, a house. That house or property that you buy with a loan will ideally gain equity, and your initial debt will turn into profit! Another thing that is considered good debt is a business loan. With time, you will see your money back and sometimes, even doubled or tripled!

Now, let’s talk about bad debt. This type of debt is what usually makes it harder to become debt-free. Bad debt is any type of money that is borrowed with no intentions of providing us financial benefits in the future. For example, credit card debt is a really bad kind of debt! Why? With their high interest rates, fees, penalties, and no equity, this basically means you’ve gained nothing but a deferred payment that’s much higher than the original! And it’s this type of debt exactly that burdens millions of Americans and makes it so hard to become debt-free.

If you’re already in a financial pickle due to bad debts, it’s time to seek help. The truth is, once you’ve accumulated too much bad debt to keep up with, you’ll never be able to pay it off! Not even with minimum payments! So, say you seek help with a debt settlement program and become debt-free. What exactly does it mean to become debt-free?

The definition of “debt-free” isn’t set in stone and can be different for everybody. Some may still be paying off a mortgage and a credit card but consider themselves to be debt-free because they aren’t burdened by the amount of debt that they have. They can still control it and pay it off. One thing we must understand is that being debt-free doesn’t necessarily mean you have no debt. And this may sound counterintuitive given the phrase but, it’s all about the type, and amount of debt you have!

 

What Does It Mean To Be Debt-Free? Review

 

Whether you are still paying off your student loans or your mortgage, being debt-free can be a possibility and many even consider themselves there already! Being debt-free means having minimal to no bad debts and average good debts. If you feel that you can still live and breathe with the debt you have, then you may not be drowning in debt like many other families. You can still be debt-free with debt, as long as the debt is working for you and you are not working just for your debt!