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Senior Correspondent

Living debt-free is old fashioned, some say. And they’re probably right.

So I guess I’m old fashioned.

But I only got old fashioned after I had hit the wall financially, some ten years ago, and realized that the lifestyle I was leading had nothing to do with my financial reality. It was based on the common expectations of the American Dream.

I didn’t buy into the American Dream until I moved back to the U.S. at age 40. And by age 53, I had blown that dream out of the water. By then, I had bought multiple properties with mortgages, refinanced to pull money out of the built-up equity, and racked up car debt, personal credit card debt and business credit-line debt. I was “full in.”

Until I was out. And lost everything.

Today, as I work with women on them reaching that wondrous place called “financial peace of mind,” the first thing that has to be addressed is debt levels … and the kinds of debt they are carrying.

Not that there’s really “good debt” and “bad debt” as there used to be. However, there may be some “necessary debt,” such as a mortgage with a favorable interest rate or a college loan to round out college expenses (versus carrying the entire cost of college).

To see where you might stand compared to others in the country, here are some nationwide income and debt figures:

  • • According to the Census Bureau, in 2011 the median family household income (meaning half were higher and half were lower) was $62,273.
  • The average American household holds $15,956 in credit card debt, according to Creditcards.com, one of the websites that track the credit card industry.

  • Sixty percent of Americans own their homes and most still hold mortgages with banks. In 2011, the national average for a new home loan was $222,261 with a $1,061 average monthly payment for a 30-year mortgage at 4 percent, according to LendingTree.
  • Most Americans borrow money to buy a car or lease one over time. According to the Federal Reserve, the average amount financed for a new car was $26,673. Edmunds.com, the auto website, says that in 2010, 21.8 percent of Americans who bought a new car still had an average of $3,789 in negative equity on their trade-in.
  • The Project on Student Debt says the average graduate of a four-year nonprofit university carries more than $25,000 in loans at the time of graduation.

All told, the majority of Americans are in one type of debt or another. In fact, one source claims that around 80 percent Americans carry debt if we count secured debts like homes and cars. Without homes and cars, that number drops to about 50 percent of the adult population.

However you define “debt-free,” how do those people get to that state of grace? Well, here’s what I learned … and what I teach and follow today.

  • Being debt-free is not related to income. Instead, it’s related to hard work and making sensible decisions.
  • It requires making a conscious decision to be debt free, and sticking to it.
  • It calls for a spending plan (call it a budget, if you like) and things not on that plan are simply not purchased. No excuses. But that doesn’t mean “fun” isn’t budgeted for …

  • Budgets have to include some room for the unexpected, because no one can foresee everything that can happen.
  • Home equity is not touched. It’s sacred. It’s not a “what if” bank account.

  • Everything’s game when it comes to earning some extra money or saving some money: that means being creative about odd jobs and extra jobs, as well as cutting spending in unusual (even quirky) ways.
  • Cars are kept longer and may even be bought when they’re a year or two old (and have already taken the first hit of depreciation).

  • Forget about what “they” might think; “they” are not going to pay your mortgage or your medical bills when you get old.


Most of all, “personal responsibility” is the mantra of the debt free: we’re all where we are because of the decisions we’ve made up until now. Those who are debt free do not live in rarefied air somewhere. We all live under the same government and in the same lousy economy. (As Seth Godin says, quoting is friend Melissa, “Just because the tide is out, doesn’t mean there is less water in the ocean.”)

The difference is having real clear priorities when it comes to making decisions on how to spend, often giving preference to long-term security over instant gratification. (Just remember, instant gratification doesn’t last long …)

As for whether or not you can still get debt-free, Ayn Rand probably said it best: “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”

So, is it time to get in the driver’s seat yet?

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