Just How Much is None?

The other night, I had dinner with a close friend. One of our conversation topics was debt consolidation and finances (yes, this friend is close enough that we can talk about such things and still leave friends). We have previously discussed my desire to become debt-free, and the small steps that I am taking to make that happen. His life is different than mine -- wife, kids, big house, car payments, better paying job, etc. I don't really know who is "winning" or even if we are keeping score, but he is happy, as am I -- and we are living our lives very, very differently.

I mentioned in the course of conversation that I have applied some of the principles I have learned from a personal finance radio program, The Dave Ramsey Show. I like Dave Ramsey -- well, I started to like Dave Ramsey a little more once I figured out that I had to weed out all of the God-related stuff. I believe that the personal finance ideals are good enough without the aspect of formal religion that I am willing to overlook that aspect of the show. Most days, he does not shove religion down your throat -- other days, it seems like I am listening to Rev. Jerry Falwell. Anyway, Ramsey preaches that debt-free means no outstanding debt except for a personal mortgage (15-year, fixed rate). When I told my friend this, he looked dumbfounded. He asked what are you supposed to drive? When I answered "a car that you can afford," he looked a little dumbfounded again.

He told me that he is resolved to having a mortgage (30-year, fixed) and at least one car payment -- maybe two. He looked at me like I had six heads when I said that I would never have a car payment again. Mind you, I am fortunate. I "inherited" an almost new vehicle last year -- no payments, and very reliable. If I am not able to save for a new car when I am ready to purchase one by the time this one needs to be replaced, I am doing something very wrong. He admitted that this was a sound plan, but he was skeptical that I would have the means, the fortitude or the stamina to make this plan work. I don't know how it will work out -- but, in a few years, one of us is going to be right.

I still need to pay off my outstanding student loans and a couple of hundred dollars in 0% credit card debt. When that is done, all that will remain is a relatively small mortgage. Frankly, I don't know when all this debt will paid off, but I know that I am on the right track.

On the other hand, I worry about my buddy. I tried to share what I am doing without preaching or telling him what to do. I know that not everyone makes the same decisions, but I have tried to outline for him all the questions he should ask before moving forward. Here is a guy who makes significantly more money than I do, and owes even more -- without the student loans. He borrowed money from his 401k plan to finance the closing costs on his recent home purchase. He told me at the time that he planned to repay the 401k loan with the proceeds from the sale of his previous home. To date, the old home has been sold, but the 401k loan is still outstanding. He argues that he is paying himself the interest on the loan balance -- and could pay off the remaining balance if he needed to change jobs or the loan was called due for some other reason. He cleared a substantial profit on his old home, and told me that he was planning on paying down his new mortgage with the proceeds from the sale. That never happened. He still has this money - and I think he is waiting for some Ralph Kramden-like scheme to parlay that money into something bigger -- but, the outstanding debt that he needs to deal with would just scare me to death.

We ended our conversation with him telling me about his plan to purchase a recreational boat. I know that it makes more sense to me to want to pay off the outstanding 401k loan, pay down the mortgage, save for the kids college education, pay off one of the cars, etc. than to buy a boat, but I hate to think of myself as judging someone else. Just doesn't seem like the way I would handle the situation myself. But, he does believe that because he doesn't have any credit card debt, that he is debt-free.

I know that there is a reason that I am single. Finding someone else who could think like I do about relationships is one thing - but, realizing that many people my age are still in full on accumulation mode and have different financial goals than I do, makes the thought of finding "that perfect someone" even more remote.

So, the question remains, how much money do you figure one can owe, and still consider themselves debt-free?