For a long time now, I’ve been free from all non-mortgage debt. As I quickly pay off my mortgage, I can already imagine the day when it too will be gone. While some people claim to be debt free in my current situation, nearly everyone would agree that I’ll be debt free once I finally pay off my mortgage. Looking at the meaning of debt, I am forced to ask whether anyone can ever be debt free.

The most basic monetary definition of debt is: Money owed to another party. Using that definition, I will forever be in the debt of the government as well as many service providers.

He are a few things I always expect to have to pay for:
Taxes - Property, Sales, Excise, Income, etc
Services - Water, Gas, Sewer, Electric, Trash, etc

I may be able to reduce or eliminate some of these (going off the grid, using a well vs city water, etc) but I cannot get rid of them all. If we use the definition of debt from above, then everyone is in debt because of the money they owe to the listed parties. Signing a lease for an appartment or cell phone obligates you in a similar manner.

Searching for a better definition of debt led me down a few other paths:

Ability to Pay Outright
Should obligations count towards debt if they can be paid outright? If you don’t expect to borrow money to satisfy any of the above obligations, should they not be counted as debt? Looking at the cell phone example, if I could pay $600 right now (if that were permitted) instead of $50 a month for the next 12 months, would it change whether or not I would consider it debt. In a sense, paying over 12 months is like an interest free loan from the cell phone company.

Paying Interest
Part of me wants to say that debt should only be thought of in terms of cases where you are paying interest, but even that has its limitations. If you borrow money from a friend, you’d clearly be in debt until you paid the money back, even if they weren’t charging you interest.

Using Available Credit
Perhaps debt free living really means that you are no longer using any of your available credit. That begs the question of whether you want to be debt free. Using a credit card and paying off the balance each month is using a portion of your credit, but doesn’t seem to really constitute debt. Not using any of your available credit will also hurt your credit score because you won’t have recent payment history.

What should I do once my “good debt” is gone?
Mortgage debt isn’t considered debt by some because it traditionally falls into the good debt category. This is generally only true in cases like mine where I can easily afford my monthly payment and the value of my house is increasing. It is “good debt” because the long term gains I expect to realize will exceed the cost associated with the loan. Once I pay off my mortgage, what should be my next step? Should I then finance more education, buy a second house, or simply maintain my credit by using my credit card and paying off the balance each month? In other words, if some debt is good is more of that type better?

I have concluded that in certain situations, just about every angle covered here can be a way to define debt. In my situation, I will say I’m debt free once my mortgage is completely paid off. Obligations to the government and service providers are largely unavoidable and well within my means. I will continue to use available credit to keep my payment history current and my credit score high, but will do so without incurring any finance charges. As I reduce my debt I have also been increasing my savings and investing to a level where I may never need debt again, even if I purchase a more expensive house in the future. I find myself in an ever improving situation and am pleased with my progress. Whether to call my current or future situation debt free is largely semantics, and though its interesting to think about, the words themselves don’t define the status of my finances.