"If you had a friend who you know had lots of debt not long ago," he said, "and now all of a sudden he's telling everyone he's debt-free, what would you think?"
The question gave me pause. In situations like this, my skeptical side kicks in almost instantly. I've seen human nature in all its glory too many times — people will do and say pretty much anything to forward whatever motives they may have at the time. Half-truths and outright fibs often take center stage when there's a social position to uphold. Or gain.
Here's the situation: My coworker's friend is looking to gain converts to a new undertaking. He's working for Primerica financial services, and as is typical with most multilevel marketing setups, he needs to get people "under him" to make all the money that he can. In order to tote his friends and family along for the Primerica ride, he has to make it sound as if his new biz is the best thing that's ever happened to him. That's the only way they'll get interested, and perhaps want to join in.
(If you're new to the Primerica story, just Google that term — or try "Primerica experience." You'll find lots and lots of first- and third-hand accounts of the business. Expect fervent opinions from both sides of the story.)
Primerica may indeed be the best thing to ever happen to Debt-Free Friend. Honestly, I haven't seen the guy's balance sheet, so all I can go on is whatever evidence my coworker gives me. Which, of course, might as well be categorized as heresay.
I told my coworker that "debt free" isn't necessarily a cut-and-dried term. It can mean different things to different people. It can be twisted around like Play-Doh.
For instance, suppose a family has $20k in credit-card debt and $15k in auto loans. They have some equity in their home, though, so they refinance their home to get cash out. They then use that cash to pay off their credit cards and auto loans. Are they now "debt-free except for their mortgage?" Technically, sure. But their net worth is still the same as it was before the refinance. They didn't pay off that debt.
"It's still there," as Dave Ramsey would say. "They just moved it."
Or take that same family. Suppose the refi didn't happen. But what did happen was that rich Uncle Bill passed away. And in his will, Bill left the family $40,000 as a final "See ya!" They used this cash to pay off their credit cards and car loans. Good for them, right? Again, they're now "debt-free except for their mortgage." Undoubtedly, their net worth has improved. But what got them there? Hard work? Or pure unadulterated luck?
I strongly believe that there is a difference, particularly in matters of money.
Why? Because neither of these two methods of attaining debt-freedom do anything to combat the original cause of the debt: Our family spends more than it makes. Cash-out refis, last-testament gifts from rich uncles, and even moderate pay raises only serve as Band-Aids on a small-scale family's large-scale financial illness. Folks consider these things "cures" for their money woes, but in reality they're treating only the symptoms. The actual "money disease" of overspending is left unchecked. And we know how that usually ends up.
Contrast this with someone who racks up decent debt, then at some point figures out "how the world works" and sees the error in his ways. He takes serious stock of his finances, and begins planning his income and outgo to take as much advantage of his money as he can. He takes steps to educate himself about finances. He figures out his money weaknesses, and he works to eliminate (or at least minimize) them. Most importantly, he works hard, over time, to reduce his debt and stress, and he genuinely improves his financial picture — to a marked degree — entirely through his own efforts.
Chances are that this person will remember where he came from. His mindset and his actions will likely dictate that he'll not be in that place again.
Until this past December, when I talked about being "debt-free except for my house," it was genuine. The debt I had, I paid off. It took years. It took work. Heck, it even took building a website, right?
And I didn't roll any other debt into my mortgage along the way. I didn't win any Family Tree Lottery and use the proceeds to erase past transgressions. I immensely valued that debt freedom, and I'm impatient as heck to get back there; i.e., I can't wait to get my new car paid off. (It's a sweet ride, for sure. But when I see it, about all I can think of is "payment.")
In the end, the point I tried to get across to my young coworker was that the term "debt free, except for ..." is as open to ambiguity as anything else. And since most folks won't whip out their Quicken or Money desktops to show you where they really stand, it's all mostly a judgement call. You play the story against the evidence, and see who wins out.
But that's how it is with money and motives. Let's face it: There are a lot of Networth IQ profiles that I just don't trust.
Labels: Dave Ramsey