When do you consider a credit card charge to be debt?

[bjl584]

Not true.
Borrow money from your rich uncle with no discussion of any type of interest or charges and it's still DEBT / Money owed to him. Same deal, doesn't matter if you turned a profit with it.

Citi bank isn't my rich uncle. This is a business transaction.
I suppose it's debt in the most purest form, but it's on things that I would have bought anyway via cash or debit.

Debt is a car payment or a student loan payment. If I am using leverage as an investment vehicle to turn a profit that is almost 100% guaranteed with no chance of default, then I don't consider that debt.

[MonkeyMama]

I am with Fishindude. Debt is debt. Whether I pay it off or not, it's being reported as a debt to the credit bureaus.

I've borrowed tens of thousands of dollars (credit cards) for the 0% interest, and just put the balance in an FDIC-insured bank account (back when interest rates were decent). I mean, by bjl's definition that's not debt. I would personally call it an investment AND a debt. But you can't ignore the $10,000 debt balance that would be on my balance sheet. It wouldn't make any sense to not call it a debt. Debt might be smart debt, or inconsequential debt, but it's still debt.

For purposes of this forum, I kind of feel, "Who cares?" But I think I've had a few too many conversations with people who justify carrying a balance and pretending like they are not in debt. So I am replying, because I don't think it helps to share in their delusion.

P.S. For financial balance sheet purposes, we don't care if the debt is paid off after the date of the balance sheet. From an accounting standpoint, we always record the debt owed at the date of the balance sheet. This may be another reason I am confused with the "it isn't debt" conversation. If you applied for a loan, it would be considered a debt on the loan application.

[MonkeyMama]

I suppose that technically, it is debt because it is money that you owe, but I don't think most people count it as such when talking about how much debt they have.

Exactly.

I think this sums it up pretty well.

My last post was more technical, but if we are just saying we aren't counting "credit card debt that is literally paid off monthly" when discussing in the forums, I can agree with that. I certainly wouldn't say that I have credit card debt in everyday conversation or when discussing debt in the forums. It's just if anyone pointed it out to me and said I had debt, I'd *shrug* and agree. But, we all know no one is counting that in conversations. Just to say I understand that part.

[disneysteve]

Exactly.

I think this sums it up pretty well.

My last post was more technical, but if we are just saying we aren't counting "credit card debt that is literally paid off monthly" when discussing in the forums, I can agree with that. I certainly wouldn't say that I have credit card debt in everyday conversation or when discussing debt in the forums. It's just if anyone pointed it out to me and said I had debt, I'd *shrug* and agree. But, we all know no one is counting that in conversations. Just to say I understand that part.

I agree. That's how I think of it. If I sat down right now and made a list of our current debts, I would not include charges that have been made to our credit cards since the last statement that will be paid in full when the next bill comes.

[MooseBucks]

Yes it is debt until you pay it off. I get not considering yourself in debt because you PIF but it is still debt.


debt
noun: debt; plural noun: debts

something, typically money, that is owed or due.

[disneysteve]

typically money, that is owed or due.

So really, by that definition, none of us is ever debt-free because there is always money owed or due. Utility bills, cable, internet, property taxes, auto registration, insurance premiums, etc. We always have something outstanding. It isn't possible to ever be totally paid up on absolutely everything.

Right now, there is an auto insurance bill sitting on my desk waiting to be paid, so I suppose technically we are currently in debt to Allstate. We are current on our policy but we do owe them that money.

[~bs]

it's debt as soon as incurred. the debt incurs interest if you don't pay it off early enough. regardless of the timing, it's still debt. from an accounting double entry perspective:

debit $100 for item bought
credit $100 for amount payable

If the purchase wasn't considered to be a form of debt, you'd have

debit $100 for item bought
credit $100 to net worth

which would basically be like getting the item for free which is not correct.

[~bs]

So really, by that definition, none of us is ever debt-free because there is always money owed or due. Utility bills, cable, internet, property taxes, auto registration, insurance premiums, etc. We always have something outstanding. It isn't possible to ever be totally paid up on absolutely everything.

Right now, there is an auto insurance bill sitting on my desk waiting to be paid, so I suppose technically we are currently in debt to Allstate. We are current on our policy but we do owe them that money.

That is correct from a technical, nit picky point of view. the issue arises from laymen using technical terms in imprecise ways, especially since the technical term is a generalized one. as a doctor, I'd guess you'd see stuff like that a lot related to medical terms. If your intention is to tell people you don't have a mortgage or auto loans, you could tell them that you don't have any long term liabilities. If you consider "debt" to include carrying over credit card balances, you could say that you don't carry a credit card balance month to month.

So if you told someone that you don't have long term liabilities, and don't carry over short term debt from month to month, they should know what you mean, as opposed to "I don't have debt", which is pretty open to interpretation and imagination.

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technically, the auto insurance bill represents the next year of coverage. when you make payment on that, it's regarded as a prepaid asset, and amortized and reduced in amount over the next year. If you were to cancel your policy half way through, the insurance company would refund you 1/2 the premium paid.


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I don't know if you have your own business or not, many doctors do, but the easiest way to consider these types of personal financial questions are to simply consider them in terms of how it would be handled in your business.

[disneysteve]

That is correct from a technical, nit picky point of view.

technically, the auto insurance bill represents the next year of coverage.

That's true about the auto insurance. A better example would be the utility bill. We don't pay for gas, electric, and water until AFTER we've used them, which is the only way they know how much to charge us. The same for the phone bill. You pay after the fact. So at any given time, we owe money to those places, among others. Technically debt but I don't think any of us count it as such when talking about how much debt we have.

[~bs]

That's true about the auto insurance. A better example would be the utility bill. We don't pay for gas, electric, and water until AFTER we've used them, which is the only way they know how much to charge us. The same for the phone bill. You pay after the fact. So at any given time, we owe money to those places, among others. Technically debt but I don't think any of us count it as such when talking about how much debt we have.

that is correct.

if you use more precise wording, it would eliminate confusion. Of course it's easiest just to say debt free, and leave the interpretation up to the other party. I'm sure that some people even exclude their mortgage cost or rent cost when telling other people they're debt free (because they're only considering carrying credit card balances as debt)

[AJ444]

that is correct.

if you use more precise wording, it would eliminate confusion. Of course it's easiest just to say debt free, and leave the interpretation up to the other party. I'm sure that some people even exclude their mortgage cost or rent cost when telling other people they're debt free (because they're only considering carrying credit card balances as debt)

I consider myself debt free and I currently rent, it is prepaid each month.

I also considered myself debt free when I had a paid off mortgage, even though I had about $500 in property tax/association dues each month, the property tax by strict definition was a debt in this state because you pay for the prior year.

I didn't consider myself debt free when I had a mortgage along with the property tax/association dues.

[Singuy]

Calling yourself "Debt free" is just someone who is no longer "in debt". The person may still carry a debt to any entity that have provided a service that is yet to be paid(like an utility bill).

So...answer this.

Let say I have a house, bought 10 years ago for 300k(mortgage of 200k today). House is worth 500k today. Total liquid asset is 50k. Is this person in debt or debt free?

[MooseBucks]

So...answer this.

Let say I have a house, bought 10 years ago for 300k(mortgage of 200k today). House is worth 500k today. Total liquid asset is 50k. Is this person in debt or debt free?

You're in debt. No question about it.

[PeggyHefferon]

Calling yourself "Debt free" is just someone who is no longer "in debt". The person may still carry a debt to any entity that have provided a service that is yet to be paid(like an utility bill).

So...answer this.

Let say I have a house, bought 10 years ago for 300k(mortgage of 200k today). House is worth 500k today. Total liquid asset is 50k. Is this person in debt or debt free?

I don't think there is/was any question or confusion about a mortgage. It is clearly debt regardless of what someone believes the house to be worth.

Aren't you teaching finance courses?

[disneysteve]

Let say I have a house, bought 10 years ago for 300k(mortgage of 200k today).
Is this person in debt or debt free?

A mortgage is a debt. I don't think there's any debate about that point. It doesn't matter how much the home is worth. You don't own it outright.