Debt Free, Virtuously

B.L.A.C. Reader: I hear a lot of discussions, even in my church, about never borrowing and being debt-free. How is this noble aim achieved when one rarely has cash to pay for their home or car? What are some tips for an average person to reduce a 30-year mortgage into a 15-year mortgage? Is that possible?

Bridgforth: Discussions about never borrowing money and being debt-free must be kept in the proper prospective, even if it comes from your church. I know it sounds strange, but becoming debt-free is a great objective to strive for AFTER you have been in debt. Why? Because having no credit can be as detrimental as having too much.

If you never borrow money from a traditional lender, you never establish a credit history with major credit bureaus like, TransUnion, Experian and Equifax. So you have no evidence of taking on financial obligations and no record of on-time payments until the balance is satisfied. Unfortunately, you have no proof of being financially responsible or financially irresponsible.

The term debt-free is relative. Literally, debt is defined as an amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other statement of repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.

So, logically, debt-free would mean you have no mortgage, car note, installment, personal or student loans, and no on-going credit card debt. But of course it wouldn’t mean you’d have no bills. You would still have monthly expenses for food, gasoline, telephone, utilities, life and health care insurance, and possibly disability and long-term care insurance.


In the past, my perspective on the definition of being debt-free was that the only outstanding debt is a mortgage and car note. I now feel that a prudent-minded individual is able to save enough money to purchase a vehicle outright-a used car is just fine.

Those who are financially diligent and prepare for the unexpected are in a good position to take advantage of current low real estate prices and buy properties free and clear. One retired individual I know saved and invested consistently over a 30-year career and purchased a $250,000 home with cash.

In addition to the term “debt-free,” you might also frequently hear the phrase “good debt versus bad debt.” Bad debt is generally thought to be credit card debt, consumer loans or car loans. In a short time after making a purchase or acquiring a consumer loan, items bought depreciate in value. This applies particularly to cars because they decrease in value as soon as they are driven off the dealership lot.

Good debt is typically considered mortgages and student loans. This debt acquires assets that appreciate or increase in value over time such as real estate. In the case of student loans, it is debt that can increase your earning potential. However, I am a fervent believer that any debt can be bad debt if it stretches you too thin and affects your ability to pay all of your bills on time.

Many first-time home buyers get over-extended quickly by buying as much house as they can qualify for instead of purchasing a modest starter home. Later, when student loans, credit cards and regular home maintenance expenses kick in, they find themselves in a deep financial ditch.

Having some debt is not a bad thing. You need to maintain a fresh credit report and improve your credit score by having some activity on a monthly basis. To make this “debt-free” idea a less daunting concept, let’s focus on being debt-free, with the exception of your mortgage.

I do recommend paying down a mortgage as quickly as possible because it builds equity and increases your net worth. One way to do that is to obtain a 15-year mortgage as opposed to a 30-year mortgage.

Another strategy is to obtain a 30-year mortgage and make one extra payment per year. The result would enable you to pay off a 30-year loan in fewer years. For example, I ran a calculation on for a $150,000 mortgage at 5 percent interest and it paid off five years early. The number of years shaved off your loan would depend on the loan amount and interest rate. Visit to calculate the numbers for your mortgage. Wouldn’t squeezing out that extra payment annually be worth the effort in order to arrive at your destination of debt-free living sooner rather than later?


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