Debt Doesn’t Define You: Take Control of Your Finances

Transform your relationship with debt and take control of your financial future with actionable steps.

Debt is often classified into two types, but today, I want to challenge that by discussing why I believe debt is neither inherently good nor bad. It’s simply a number with a minus sign, tied to a past decision.

Let’s break this down further.

What Is Considered Good Debt vs. Bad Debt?

When talking about debt, most people divide it into two categories: good debt and bad debt. But these labels aren't based on the amount owed or any other specific detail about the debt itself. They’re more about why the debt was taken on in the first place.

Good debt is generally associated with borrowing for investments in your future. Examples include:

• Education: A solid education can lead to better job opportunities and higher earnings.

• Property: Owning a home or rental property can save you from paying rent and even generate additional income.

These are considered "good" because they’re tied to improving your financial situation in the long run.

Bad debt, on the other hand, includes:

• Credit card debt

• Overdrafts

• Car loans

• Other consumer debts

These debts typically result from buying things you couldn’t afford upfront, like luxury items or non-essential expenses. In the past, before credit cards and easy loans, you had to save for these purchases.

Now, it's far too easy to spend money you don’t have, leading to a cycle that’s hard to escape. These debts are seen as harmful because they don’t contribute to your financial future and can actually hold you back.

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The Trap of Debt

When you're caught in the cycle of "bad debt," it can feel impossible to break free. The problem is, you start relying on spending money you don't have. And because this kind of debt doesn’t help your future—or worse, harms it—it’s labeled "bad."

But here's the thing: Whether it’s good or bad debt, labeling it doesn’t help you. All debt creates stress, especially when you're eager to pay it off so you can start making decisions about your money again, without sending most of it straight to the bank.

The ultimate goal is financial freedom—being able to live life on your terms.

But no matter how you classify it, debt often feels like a burden. You worry about it, stress over it, and ultimately, you just want it gone. Whether it was “good” or “bad” doesn’t matter.

Why Debt Is Just Debt

That’s why I believe debt is neither good nor bad. It's simply a number with a minus sign in front of it, representing a decision you made in the past.

And here’s why thinking this way can actually help you feel less weighed down.

My Favorite Formula

If you've been following me for a while, you likely know my favorite formula. If not, get ready to learn it now!

1. Circumstances and facts are neutral.

2. Your thoughts cause your feelings.

3. Your feelings cause your actions.

4. Your actions cause your results.

Thoughts → Feelings → Actions → Results.

This formula applies to everything in life, including money. Remember, money is neutral. It’s simply a tool we humans created to facilitate trade.

Everyone has different thoughts about money, leading to a range of feelings. That’s it—simple, right?

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Now, Let’s Talk About Your Debt

If you view your debt as bad, you’ll consistently feel negative and uncomfortable, regardless of whether your debt is classified as good or bad. These negative feelings can affect your actions; you might avoid addressing your finances out of fear of the numbers, leading to an even worse situation.

However, if you shift your perspective and stop labeling your debt as positive or negative, seeing it instead as something neutral, your feelings will change accordingly.

Yes, being in debt can be intimidating, but it doesn’t mean you’re doomed.

It simply highlights the need for close attention to your finances—especially your spending—to pay off that debt as quickly as possible.

Moving Forward

This process may take time, but focusing on your intentions and priorities for the future will benefit you far more than obsessing over whether your debt is good or bad.

1. Remember, they are just numbers. You need to understand these numbers intimately to create an effective strategy for paying off your debt. But those numbers are neutral; they don’t define who you are.

2. Reflect on past decisions. The money choices that led to your debt were valid at the time. Today, you might view them differently, and that’s perfectly okay—our lives are constantly evolving.

The key is to reflect on those past decisions and make new choices that align with your current priorities, such as building a debt-free life and avoiding future debt.

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Your Steps in Financial Planning

Now that we've discussed debt, it’s important to note that simply neutralizing our thoughts about it isn’t enough.

While that’s a helpful first step, the next crucial move is to create a financial plan.

If you want to stop feeling stressed about your debt and instead cultivate clarity and calmness, let’s outline the next steps for creating your plan.

Here are the six steps of financial planning you can use to craft your own strategy:

1. Understand Your Financial Situation

Start by gathering all relevant information about your finances, not just your debt. To create a comprehensive financial plan, you’ll need to collect the following details:

• Income and tax information

• List of your financial assets: This includes savings accounts, emergency funds, retirement and investment accounts, real estate, etc.

• List of debts and amounts: Include your mortgage, car loan, student loans, credit card debt, and any other obligations.

• Insurance plans

Since this information can be extensive, staying organized will help you maintain a clear view of your financial landscape.

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2. Determine Your Goals

The next step is to set your financial goals, which is especially crucial if you have debt. Goals will provide you with direction, focus, and motivation.

Consider what you want your financial situation to look like in the future. One of your likely goals is to become debt-free.

Set goals on different timelines:

• Long-term goals (10-15 years)

• Medium-term goals (up to 5 years)

• Short-term goals (up to 1 year)

Make sure these goals align with your desired lifestyle.

Once you achieve debt freedom, you can focus on other long-term goals by asking yourself:

• At what age do I want to retire?

• How often do I want to travel?

• Do I want to get married?

• Do I want (more) children?

• Will I need to care for my parents?

• Do I want to start a business?

• How much risk am I comfortable taking?

These questions can serve as a starting point for defining your goals.

Some examples of financial goals might include:

• Paying off debt

• Creating an emergency fund

• Saving for retirement

• Purchasing property

• Starting your own business

In the subsequent steps, you’ll define a timeline and action points to achieve these goals.

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3. Analyze Your Information

With all the information about your financial life in hand, the first step is to analyze your data to gain clarity on what needs your attention. Consider answering the following questions:

• What is my net worth? Do I have a net worth statement?

• How am I managing my money? (e.g., budgeting, automated saving/investing, etc.)

• What do I have in cash, savings, financial resources, and investments?

• Do I have life insurance?

These questions are particularly crucial if you're in debt, as they will guide you in choosing the right strategy for paying it off. Depending on your answers, you’ll uncover various impacts on your financial situation.

Your responses will provide insight and direction regarding your finances and what you can currently do to achieve your goals. They will also highlight gaps that need to be addressed when creating your plan.

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4. Create a Plan

All your preparatory work leads to this critical step: creating a financial plan. Here, you'll outline exactly what you need to do to achieve the goals you set in Step 2.

To create your plan, you’ll need to make some assumptions. For instance, you’ll need to assume that your income will remain constant, which is vital for debt repayment. Similarly, you’ll need to make assumptions regarding expected returns on your investment goals.

While these assumptions are necessary for developing an initial plan, remember that you'll make adjustments over time as you gather more information.

Financial calculators are user-friendly tools that can help you break down your goals into manageable monthly or annual actions. You can use them to determine how much you should save each month to meet your debt repayment, savings, and retirement goals.

Keep your plan simple by outlining the actions you need to take weekly, monthly, and annually to reach your goals.

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5. Start Using Your Financial Plan

Before you begin taking action on your plan, ensure that it aligns with your financial goals. Implementing your plan is crucial, but it can also be one of the most challenging aspects. Successful implementation requires discipline and consistency.

This is where automating your finances can be incredibly beneficial. Set up automatic transfers to ensure you pay off your debts on time and above the minimum, save, and invest according to your plan. You can also automate your monthly bills to simplify your financial management.

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6. Review, Monitor, and Update Your Plan

A financial plan is not static; it needs to adapt to your evolving life circumstances. Therefore, it’s essential to consistently evaluate your progress and make adjustments based on changes in your life and priorities.

Life changes that may prompt a reevaluation of your financial goals include:

• Marriage

• Divorce

• Having children

• A career change

• A death in the family

Each of these events can serve as a reason to reassess your financial goals and refocus your strategy.

Tip: Regularly compare your progress and personal information against your goals on a monthly, quarterly, and annual basis. This way, you'll stay informed and can make real-time adjustments to keep your momentum going.

In Summary

Debt itself is neither good nor bad; it is neutral, and you have the power to decide what it means to you.

Be mindful of your thoughts, as they shape your feelings, which in turn drive your actions. The actions you take—or don’t take—based on your feelings ultimately create your results.