I used to have a higher threshold when it came to how much debt I could tolerate. According to financial author and expert Suze Orman, everyone has a debt set point. In her book, "The Courage to be Rich," Orman says everyone's debt set point is different. "I believe that each of us has within us a point at which anxiety over our debt turns into panic, and it is at that point that we are finally moved to take action," Orman writes. She has observed that the lower a person's self-esteem, the higher their set point or tolerance for debt. I remember also hearing Orman notice a correlation between piling on weight and piling on debt.
Getting out of debt at 30
I definitely reached my debt set point in my mid-20s. I made a command decision to get out of debt by age 30 no matter what. I had more than $50,000 worth of debt including credit card and student loan debt. I also owed money to my grandmother for a car loan, after successive car accidents including a run-in with an alligator.
Facing my debt
One of the keys to getting out of debt was following Orman's advice to face my debt by telling other people about it. I told my best friend and family members about my plan to get out of debt. My best friend, who is now worth more than $1 million, helped me come up with a plan to double my income so I could quickly pay down my debt. I wrote down what I had to do each day in order to earn enough money for the month to be out of debt by age 30.
Making a financial vow
After reaching my debt set point, I was able to become intense about paying off my credit cards and other debt. I made a vow to never get into debt again. I wasn't going to let myself slip up by buying things I didn't need or using shopping as a form of retail therapy. When I decided to get married after turning 30, I made sure I talked to my husband about debt. We agreed to stay out of bad debt, which we defined as anything other than our house.
Getting rid of financial clutter
After getting married, we worked together to get rid of all the financial clutter including old bills and taxes that were more than 7 years old. We started organizing all of our financial records so that we would never be late about paying bills. My husband and I set up online banking as well as automatic deductions from our paychecks into our retirement accounts. I think having so much clutter in the past made it easier to fall into debt because we were in denial.
Now the only debt we have is the so-called "good debt" of owning a home. I've discovered that I have a debt set point even when it comes to my mortgage debt. I don't feel comfortable owing more on my home than I have in savings. We have about $100,000 of mortgage debt, but only a small amount in our emergency savings. Instead of paying credit card and student loan debt, we pay ourselves by diverting our extra money into savings.
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