Who do you picture in your mind when you think of “people in debt”?

Is it someone struggling to pay the bills, not sure where next month’s housing payment is going to come from or how to put gas in the car because the credit card is topped off?

Do you think of people with lots of expensive clothes, pricey cars, and lavish furnishings throughout their picturesque home, knowing full well they’re leveraged up to their kids’ eyeballs when she’s riding on daddy’s shoulders?

Or maybe you think of a new college graduate just finding out what all those years of schooling are really going to cost over the next decade as they begin to make their way in the world.

But how often do you think of someone who has their financial house in order, plenty of money to cover expenses, and a good balance between enjoying life now and delaying gratification for the future? Because maybe you should.

When mental shortcuts take us down the wrong path

I think most people would consider having debt to be a negative. After all, it typically means you owe someone money to buy something you didn’t have enough to pay for at the time you wanted it.

And there are many examples of that type of debt and the terrible consequences it has for vast swaths of humanity.

But not all debt is created equal.

As I’ve written before, my wife and I have paid off $94,000 in debt in the 12 years we’ve been together. That debt has been auto, home improvement and education related. For a long time, I never thought of the monthly payments we made for those as debt, because in my mind the only kind of debt was capital-D Debt. That’s the kind of debt that leaves you scrambling to make ends meet.

We didn’t have that, so we didn’t have debt. Or so I reasoned.

My thinking has evolved on this — and still is.

Debt is a tool that, when used properly, mitigates risk or amplifies results. When used poorly, it increases risk and reduces results. I am trying to reshape the stereotypes in my head about what it means to have debt. They are not helpful to understanding someone’s individual situation. Indeed, they are harmful to apply haphazardly.

The difference between having debt and being in debt

I now try to look at the effect of debt on an individual situation. Are they “in debt” or do they “have debt.”

The financial situation for someone who is “in debt” is defined by the debt. They are unable to make progress on other goals or struggle to live the lifestyle they want because their past spending is dictating their current spending.

These can be people with large credit card bills, massive auto loans or hefty personal loans that swallow a big chunk of their discretionary spending. Double-digit interest rates temper the effect their payments have on reducing the principal, and they are a couple of missed payments away from a cascade of consequences. It can also be someone who doesn’t have enormous debt but doesn’t have the income to deal with the debt they do have.

It’s hard “being in debt,” because the debt permeates everything. Financial stress has a massive effect on everything else in life: your relationships with your spouse, kids, and friends; your career and the options you have in and out of it; where you live; your self-confidence; your sense of security. When you are “in debt,” there is very little margin for error or choice.

However, the financial situation for someone who “has debt” is much different. They factor the payments into their overall financial lifestyle, and they have room to breathe when something unexpected pops up.

These people may have student loans, large mortgages or rental mortgages, or one-off project loans. They may or may not have had the full funding available to have paid for the purchase at the time, but they had more than enough to pay the required payment and then some. “Having debt” is a very different circumstance.

Moving along the spectrum

Think of debt as a seesaw. On one side, you have “being in debt,” that state where you’re heavy with payments you can’t afford or can’t do much else but afford. On the other side, you have debt freedom.

In the middle, the fulcrum, is “having debt.” That’s the point at which you’re able to balance your debt with your long-term goals. It’s the tipping point where you start to move toward debt freedom, and it makes the debt seem lighter and lighter.

If you are “in debt,” you shouldn’t be looking at debt freedom as your immediate goal. It is one goal, and there are many others beyond it. But your financial life doesn’t suck in the same way from the time you have debt to the time you don’t have debt.

Instead, you should be looking at how you can move yourself to that fulcrum, to go from being “in debt” to simply “having debt” and being able to make choices where your debt is just one consideration, not the primary consideration. That point is where you begin to build the strong financial habits that will serve you well when you do reach debt freedom.

Barring a windfall, everyone who escapes debt will do so by moving from being in debt to simply having debt.

What about good debt and bad debt?

You’ll notice I haven’t talked about “good debt” vs. “bad debt” so far.

Generally speaking, primary and investment mortgages are considered good debt, as are student loans that lead to significantly better earnings or opportunities. Yet many people with those debts are still living an “in debt” lifestyle.

“Good debt” can still put you in a bad place.

Even a “bad debt” source like a credit card could be considered a good use of debt if it’s targeted to create a positive effect. If you buy a $2,000 laptop and $1,500 of software on a credit card because you can’t afford it, but you turn that $3,500 into a graphic design business that pays $50,000 a year, that’s a wise choice. Even if it cost you $5,000 after interest, you’ve leveraged that money for the positive.

Whereas if you’ve spent six years and $120,000 at an institution of higher education and graduate with honors and a degree in a field whose average worker earns $34,000, it’s unlikely you’re going to consider that “good debt” while your student loan payments cripple your finances for decades.

Why I’m OK with debt

The most important thing when looking at debt, for me, isn’t whether you have it or you don’t. It’s why you have it and what you’re doing to manage it.

I was able to take my mini-retirement knowing I still had $5,400 of debt left to pay on a zero-interest credit card, and I wasn’t concerned because I had built that into my plan. I factored the cost of my previous purchase into my future spending.

I had debt (and made the last payment a few weeks ago!), but my decisions were not driven by that debt.

For those of you who might be clawing your way out of debt, or who don’t have debt now and are worried about taking it on in the future, don’t focus on the debt/no debt binary. Focus on whether you have the freedom of choice despite the debt. That’s still a good place to be.