146 | What to Do When You Have Bad Debt

“Debt is dumb.”

“Student loans are good debt.”

“Oh my gosh, I can’t believe anyone has THAT MUCH debt!”

Lawyers generally are no strangers to debt. Many have six-figure student loans alone, not to mention any other kinds of debt.

We get so many messages about how we should view debt. But internalizing these messages leads many to feel bad about their debt and avoid it altogether.

In this episode, let’s explore some common definitions of good debt and bad debt and talk about what to do when you have bad debt.

• definitions of good debt and bad debt
• how categorizations of debt as good and bad color our experiences of our debt
• statistics on lawyers’ student loans
• why I don’t believe in good debt and bad debt
• what debt actually means vs. what we make it mean
• an example of how our thoughts about debt impacts our experience of it
• what to do when you have bad debt
• how to view past decisions you wouldn’t make again
• the positive side of debt
• the importance of making a plan for your debt

n/a

If you’re ready to learn the mindset and strategies to master your money, let’s schedule a call.

You’re listening to Wealthyesque. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about what to do when you have bad debt. There is so much talk in the personal finance world about bad debt. This kind of debt is bad, you shouldn’t have that kind of debt. You should get rid of this as quickly as possible. All of that kind of stuff. And so we are going to talk about it today. Before we get into the conversation though, I want to get some definitions of good debt and bad debt because I think it will be helpful as we are discussing. So according to one site, some examples of good debt are mortgages and student loans. And then for bad debt. It has high interest rates, car purchases, and it says too much debt concern good debt into bad debt. Another site says good debt is a mortgage, school loan, real estate loan or business loan and bad debt is a credit card, a store credit card or an auto loan. And similar to the last site, this site talks about how good debt is not without risk if you overdo it. Alright, and we can get one more definition here. So another site says good debt typically refers to debt that helps you reach your financial goals, like owning a home paying for school or starting a business. And then it gives some examples of good debt mortgages, student loans, small business loans, personal loans and credit cards. Because they help you build your credit score. And then the examples they give for bad debt are that you can’t afford payday loans and debt that negatively affects your credit score. So I think these three examples give us a good snapshot of how the media and the personal finance industry categorize different kinds of debt. And it’s important because these categorizations color the way that we look at debt and the way that we think about our own debt, we often internalize those types of definitions and they inform the way we think about our debt. And that leads us to feel bad when we have debt that is typically considered, quote bad. If we look just at lawyer student loans, according to a survey conducted by the ABA 95% of law students have student loans and 75% of them have $100,000 or more of student loan debt when they graduate. And I will say I typically see student loan debt more in the 150,000 to $200,000 range. So when we consider these figures against the definitions that we just looked at student loans are quote, good, right. But then we also have the sites that talked about how good debt can become bad debt when you have too much of it or that high interest debt is bad. And I know some lawyers have student loans with high interest rates, so there can be some conflict there. I personally don’t believe in the categorization of debt as good or bad. It’s not useful. People take those definitions on, they internalize them and they make their debt mean all these negative things, which is why so many lawyers feel ashamed about their debt or feel overwhelmed by the amount of debt they have, or feel like they’re bad for having debt. Debt is neither good nor bad. It literally means nothing, but we give it meaning by the way we think about it which as we just discussed, is colored by the types of definitions that we were just looking at. Those types of definitions are pervasive in our society, but there is no objective fact that this type of debt is good, and this type of debt is bad. Or if you have more than x amount, then that’s bad. That is all somebody’s opinion that was made up somewhere along the line, and then we decided to adopt it as our own and take it on as truth. That is not good or bad regardless. of whether it’s a student loan or a payday loan, or a mortgage loan or a credit card or whatever it is. There are the facts about your debt, the balance, the interest, rate, the payment, and then there’s how we interpret those facts. And the way we decide to interpret those facts, the opinions we have about them the meaning we give them dictates our experience of our debt. One of the examples that I often give here is about student loans. So as I mentioned earlier, I often see lawyers with 150,000 or $200,000 of student loans, and many believe that that’s just so much debt, and they often feel overwhelmed by it and they feel hopeless, they feel there’s nothing they can do to get out of it, all of those kinds of things. But if you know my story, you know that my husband and I had over $670,000 of debt, and almost $500,000 of it were student loans. So when we got to the point that we were at 150 or 200, we were like, we’re almost done. Like it’s amazing, right? The facts are the same. It’s still 150,000 or $200,000 of debt, but we had a different view of that fact that many of my clients do. So getting into the main topic of our conversation. What do you do when you have bad debt? The answer is you think about it differently. You shift the way you look at your debt, you decide that your debt isn’t good or bad. You decide that you’re going to accept the amount of debt that you have and make a plan to get out of it. All of the extra beating yourself up and telling yourself you shouldn’t have gotten into this mess and I can’t believe I’m here and I’m bad for having debt. All of that is optional. You have to do any of that. When you think negatively about your debt and you think it’s bad and all that it only causes you to have a negative experience of it. It doesn’t change the amount of debt you have. It doesn’t magically make you have none because you’re telling yourself that you’re bad for having it. It just makes you feel bad, which often leads to you avoiding the debt altogether, rather than taking steps to pay it off. So instead, give yourself grace. I tell people all the time, whether you’re thinking about debt or any other decision that you wish you had done differently, it’s not fair for you now, with the benefit of full hindsight and knowing how everything turned out, it’s not fair for you to judge that previous version of yourself who made the best decisions you could with information you had at the time Yes, maybe if you had known back then what you know now you would have done some things differently, but you didn’t know. And so now you’re here, you’re in this position, you can’t go back in time and change it. All you can do is move forward. And you don’t have to beat yourself up while you do that. You don’t have to think about your debt in the way that mainstream society tells us that we should think about it. That is completely optional. You can choose to think about it differently. We focus so much on the negative side of debt, but what about the positive things that can come from it? When I think about my debt, it allowed me to go to school when I didn’t have the money to go to school. It allowed me to pay for a car when I didn’t have the money for a car. It allowed me to buy a house when I didn’t have all the money to pay for our house and even beyond this so called good debt. I remember the very first time I carry credit card debt. It was because I hit a deer when I was in law school and I didn’t have the money to pay for the repairs so I put it on my credit card. I needed a car to be able to get around. I was like three, four hours away from home and I didn’t have the money to repair my car. So I put it on the credit card. I have put things for my business on my credit card and paid them off over time. But I don’t make any of that mean anything bad about me. It doesn’t have to be quote bad debt because some random person decided that credit card debt is bad debt. It can just be I borrow this money because I want it to pay for this thing that I didn’t have the money for at the time. And now I’m going to make a plan to pay it off. I think that’s the key with all of it. Like many people get into sticky situations with debt because they ignore it and they don’t create a plan for paying it off. Just because I’m saying that isn’t good or bad does not mean I’m saying it doesn’t matter and you can just ignore it. Don’t ignore your debt regardless of whether it’s student loans or a credit card or personal loan or whatever. Make sure that you create a plan for how you’re going to manage it and then execute that plan. But you can do that without beating yourself up and telling yourself that you’re stupid for having the debt in the first place and feeling ashamed or regretting the decisions and all of that kind of stuff. All of that is optional. You get to choose how you experience having debt. It can be heavy and full of regret and shame and overwhelm. And trust me I have been there I get it. That was me when we first started our money journey. And it was not fun. But you can either have that experience or you can make your plan and move forward working that plan knowing that you can still live your life. You can still do the things that you enjoy things that are important to you while you pay this debt off. It doesn’t have to be such a negative, heavy experience. Like did you know you’re allowed to still enjoy your life even if you have debt? Did you know you can still have fun? It doesn’t have to be all or nothing where either I’m having fun or I’m paying off my debt like it can be both. I know debt is a big issue for many lawyers. So please replay this episode as often as you need to as you think about how to handle your quote bad debt. Use this episode to help you reframe the way you think about it. Let’s stop thinking about it as bad debt. Give yourself some grace. Make a plan for how you’re gonna pay it off and execute that plan. That’s it. It truly is that simple. And if it feels harder than that it feels more complicated than that. Come work with me. I will show you how to feel better about your debt and your money in general. This is the work I do. And it’s so important to me that lawyers release the shame and overwhelm that so many of us feel around money so that you can use your money as a tool to create the life you want. I have been on both sides and I can say without a doubt that life is way more fun on the side. I want you to experience that too. So head to rho thomas.com/call to set up a consultation and let’s get started working on that for you. All right, that is it for this week’s episode. come connect with me over on social media. you can find me most often on LinkedIn rho Thomas, and Instagram, I am rho Thomas. subscribe to the show and leave a review both of which I want people to find it and take a second think of a friend or two that use this information and share the episode with them. As we close out friend, I pray that you take information you learn here, apply it in your life, and open up to the realization that wealth is available to you as you do that consistently, week after week, you’ll continue to take steps to regain control of your time, build wealth and live a life of freedom of choice, you deserve. Talk to you later.