13 Ways to keep debt from holding you back

I have tons of debt after launching four companies. There has never been a launch that didn’t mess up my personal finances. Most entrepreneurs have no credit – I am like that as well – so I have learned to live with debt and without credit. This is what has enabled me to take risks, set lofty goals, and go after dreams that lots of people tell themselves their debt precludes.

How do I do it? It’s all mental. Here are thirteen ways to think about debt to keep it from ruining your life.

1. Compartmentalize.
When you’re saving for a house you still buy food.  When you go on vacation you still expect to buy a car in the next ten years. That’s compartmentalization. We compartmentalize our financial requirements to enable us to have a long-term goal and fulfill short-term needs too.  Get a money-allocation system in place that will keep creditors from calling all the time, and then stop thinking about it. Do that system and any money left over put toward your bigger goals.

(For a visual explanation of compartmentalization, see the photo up top. Last year I set aside the fact that our house is missing siding and I used that money to build a new section in my garden so I wouldn’t miss spring planting.)

2. Make deals and stick to them.
You can negotiate with anyone. Most creditors are used to negotiating payback plans – it’s part of the business of lending money. So propose one you can manage without too much duress. If they say no, then tell them to take you to court. They rarely will. Instead they’ll likely just accept what you’re offering. Even if it’s the IRS, if you show that you are offering what you can pay without ruining your life, they’ll take the offer. Then stick to the agreement. Consider it a tax for living. And then you can go on with your life.

3. Give up the idea of retirement.
Retirement is an idea from the 1950s when people hated their work. Today you can find fulfilling, engaging work with no need ever to stop doing it. Most baby boomers could not retire, but it ends up that not retiring is a better way to live the end of your life – you remain engaged and relevant and involved. We do not need to aspire to having a pile of money at the end of life, so then continuing to pay back debt at the end is not that bad a situation.

4. Realize you can take back the debt’s power.
At big milestones like graduation, marriage, kids, we can choose to feel optimistic or we can choose to focus on our fears. When it comes to our outlook, 70% is driven by our genes. But you control the other 30%. Practice being optimistic and happy-go-lucky with your debt. When you practice optimism in one area it ripples into other areas in your life.

5. Don’t stop taking risks – the price is too high.
One of the most common regrets people have at the end of their life is that they didn’t take risks. They played it too safe. Most of your life will include some form of debt. If you put off doing what you want because of your debt you are way more likely to have regrets than if you pay your debt off really slowly, or if you never even get it paid off.

6. Talk to your friends.
When people started talking about what sex they were having, they understood both sex and themselves better. Lots of people try gay sex who aren’t gay. Lots of women ejaculate during orgasm. Lots of men can’t keep an erection. We didn’t know all that until we talked freely about it. Talking about something enables everyone to cope with their problems. It’s true with debt, too. Lots of people have personal loans, lots of people owe their friends money. If you find out what other people are doing and how they are feeling you can get better ideas for coping with your debt.

7. Forget about the dream of zero debt if you want kids.
I don’t know anyone in their 40s who has kids and no debt. Well, I know one person: she hired me to coach her because she is pathological about saving money and she never feels secure. Otherwise, people who have kids have debt because it’s human nature to want to give your kids what you can give them. And it’s human nature to be willing to go into debt to do that. Once you know that, you can free yourself from the need of being debt-free before you have kids, (or don’t have them).

8. Achieve financial security as a mental state.
Financial security is all mental. Science says it has to do with the people around you: do you have the same amount of money as the people around you? If you do, you feel okay. Which means a lot of financial management in life comes down to doing a good job of deciding where to live. If you live in NYC with college debt, you feel poor since the millionaires around you could pay cash to get rid of that debt. If you live in Appalachia with college debt you feel rich since you could leave and get a job, and your neighbors cannot. Put yourself somewhere so you can get to a good mental state.

9. Don’t use debt as an excuse.
A risk-taking mentality is not a result of good finances. Entrepreneurs take financial risks all the time, even after they have ruined their personal finances. Don’t tell yourself you’ll take risks after your debt is paid off. It’s simply not true. If you are not taking risks when you have tons of debt you are probably not a risk taker. For better or worse. Debt is not actually bad in itself, but entertaining false beliefs about yourself and debt is.

10. Stop putting so much money toward your debt.
Negotiate the minimum amount you can put toward the debt. It might feel like you’ll never pay it off, but it doesn’t matter. Paying it off does not actually change your life, and  financial stability comes from something deeper than paying off debt. So put the least amount of money possible toward the debt and then use your money to do something that will change the trajectory of your life. Good money research: if you put your money toward experiences, money can make you happy.

11. Just tell people you don’t have money.
Look, we don’t have debtors prison anymore. If you don’t make enough to pay your college loans, you can put them in forbearance. Forever. It’s not against the law to not have money to pay your taxes. It’s against the law to lie about it. You have to tell the government how much you owe, and you have to tell the government why you can’t pay. If you do that, the IRS is actually pretty nice about it. I know: I’ve done it. And credit card debt goes away after seven years (three years in Kansas!). So you might be able to wait it out. (I’ve done that, too.)

12. Declare bankruptcy.
You’d be surprised how many people declare bankruptcy. In fact, a very big group of people declaring bankruptcy are medical students who don’t want to be doctors. See? You’d never guess, right? There is a false belief that bankruptcy is somehow dishonest. It’s not. It’s admitting that you made bad financial decisions. People who gave you money expecting to get it back took a risk. They are professional risk takers. And they took into account everything they knew about you. So, they bet wrong: you couldn’t pay back the money. They are gamblers, and it’s part of their business to get stung by bankruptcy sometimes.

13. Wait out the terrible feelings instead of panicking.
Debt is like depression. It feels big or small at different times in your life. And sometimes if you wait, it will go away. College debt seems insurmountable in your 20s, but the average college debt is $26,000, and the earning power of someone in their 40s makes that debt seem manageable. Paying for two teenage kids to get all the way to college while you’re paying a mortgage and buying a car and paying for summer camp sounds impossible. But the kids will grow up and then your cash needs will decrease.

There is no point in being the most financially responsible person you know. You will not be rewarded. It’s like being the kid who gets a better score than everyone else on the test. Being that much better than everyone else serves no purpose but to skew the curve.