Social taboos have dropped left and right since I was a young man raising a family, but one is unlikely to disappear any time soon: holding too much personal debt. But debt need not be a personal tragedy nor a badge of shame. For some, it is simply a practical problem with practical solutions. For others, however, it isn't even the real problem.

In the last year I've watched two friends handle debt quite differently, and those differences illustrate the real taboo about debt that we seem to ignore. I have changed names and tweaked a few details to keep peace in the world, but what follows are essentially two true stories: those of Joe Able and Tom Baker.

Both Joe and Tom are early baby boomers. During their careers, both had the external trappings of success: nice homes, luxury cars, and a good amount of other cool stuff. They made good incomes and paid a lot in taxes along the way. They moved into their peak earning years during the Internet boom, and both of their companies flourished.

Many people are driven by the dream of being so wealthy they can buy anything they want, anytime they want it. Both of these men appeared to be close to living that dream.

In reality, they were ahead of themselves. While they both made a good income, they had not accumulated much wealth. Instead, they financed signs of wealth. Their justification: they made enough money to easily afford the payments.

Instead of creating wealth, they were spending to create the illusion of wealth. Neither Joe nor Tom had a problem with this approach.

Now, I recall conversations with both men about when people started calling them Mr. Able and Mr. Baker, as opposed to Joe and Tom. While neither knows the other, Joe and Tom both said it began, not because of age or gray hair, but because of people's perception of their economic status. When you drive up to the country club in your new Mercedes so the attendant can park your car, you are Mr. So-and-so, regardless of your age.

Both enjoyed playing the role of big shot.

Well, the economy turned and their incomes were cut. It took Joe a few years, but he eventually concluded that his lifestyle was unsustainable. He realized he would never be able to retire because he had accumulated, well, basically nothing. This must have been terribly difficult for him.

Joe had to fess up to his spouse and family that he may have been “rich dad” for a decade or so, but things were going to have to change radically. Otherwise, he would become “poor dad.”

Joe's wife had become quite comfortable with her life of luxury, so together they sought professional advice from his accountant and a qualified financial planner. Together they built a plan to get out of debt and accumulate some real capital. This was the only way they could ever enjoy retirement. Perhaps it would be more modest than they'd once envisioned, but that was OK.

To borrow Joe's words, “I decided to stop the world. I wanted to get off!” He described it as a never-ending treadmill: work hard; make a lot of money; pay off bills; buy more cool and expensive stuff; repeat, repeat, repeat. So they built a plan and refocused. Joe and his wife worked together and are quite happy today.

Tom took a different road. He, too, realized his lifestyle was unsustainable. It was like a reality show where the family performs an intervention. Family and professionals convened in an effort to help Tom see reality. They encouraged him to change his behavior. Tom discussed his mounting debts and reduction in income very rationally, but he was unable to change his behavior.

As I looked at these two men, I noticed differences. Joe lived in a large city. Tom lived in the small town where he grew up. Joe was the proverbial little fish in a big pond; Tom was the big fish in a small pond. Everyone in town knew Tom as the kid who grew up and obviously really made something of himself. He had three luxury cars, a boat worth several hundred thousand dollars, two nice homes, and several closets full of very expensive, designer clothing.

What the public did not see was this. Tom's business had a line of credit with the bank and was a good business. Unfortunately Tom continued to spend and maxed out his company's line of credit and used the money for personal spending to keep up his image. The particular business is capital intensive and his company began to suffer. Now he had to make huge payments to the bank for fear his company would shut down.

The banks that were hit in the 2008 crisis began breathing down his neck and demanding more collateral as each note became due and was renewed. Tom had no leverage and gave the bank whatever they needed to keep the line of credit. A common friend says it got to the point where Tom owned nothing and the creditors owned most everything he had.

Sad to say, his friend told me he became very depressed. They called him the poster child for depression spending. He had several credit cards and bought designer clothes and new toys to make himself feel good. His children said their dad had a spending addiction.

Addiction is defined as: “The state of being enslaved to a habit or practice or to something that is psychologically or physically habit-forming … to such an extent that its cessation causes severe trauma.” That sums it up pretty well. The addiction can be to drugs, gambling, spending, or many types of behavior, which, when carried to extremes, can be very dangerous.

About a year ago, Tom filed for personal bankruptcy. Of course, that notification hit the local paper in the little town he lived in. Everything he owned was mortgaged to the maximum; his debts were far in excess of his assets. We have spoken briefly twice since that happened and carefully avoided the subject, preferring to talk about sports or other common interests.

Tom wanted to retire and had turned over the day-to-day operation of his business to his son, which only amplified the situation. They were struggling to pay the bills and keep the company afloat.

While his personal bankruptcy took care of much of his debt, the corporation had to survive. The company had no real net worth, but the livelihood of his children and grandchildren depended on it remaining solvent. The only way to save the company was to stop paying Tom and hopefully, over time, the business will earn enough to pay off the huge line of credit Tom had accumulated and spent. Tom was smart enough to get good legal advice, and the company will likely survive and provide for the next generation.

Six months after filing for personal bankruptcy, Tom had a heart attack and died in his sleep. He was not yet 65, and appeared to be in good physical health.

While in our 50s, a common phrase used by my generation was “racing to beat the heart attack.” It was around the time we realized we had accumulated debt and would have to put in a lot of time and emotion to turn things around. As I look back, I realize just how true those words became. The stress of too much debt can literally kill you.

For many, debt is not the real problem, but rather a symptom of a much larger problem: an addiction to a self-image and a way of life. Until you address the real problem, you cannot solve the symptom—debt.

While I am not a psychiatrist, I can pick out common traits from among those who walked the walk—retired friends who have accumulated wealth and enjoy retirement on their own terms. Perhaps it is not as lavish as they once hoped, but they enjoy the absolute freedom of being debt- and stress-free. Here are some tips I have learned along the way.

  • Start with a financial checkup. I have written many times about the epiphany many of us experienced when we first sat down with a financial advisor to look at our fuzzy retirement goals. It can be just the dose of reality needed to change our behavior.
  • Set real, measurable financial goals. As we get closer to retirement, it is no longer some vague event that we hope will happen in a decade or so. The investment world has changed radically since 2008 and we need to know the real numbers. Set firm, measurable short- and long-term financial goals.
  • Build a workable plan. Achieving those milestones along the way is exhilarating—almost like a preview of what being debt-free is all about. If you just keep doing what you are doing and stick to your plan, you will make it.
  • Both spouses have to be totally committed. This was another major difference I saw between Joe and Tom. Joe's wife was a country girl whose real values in life are family and friends. While she enjoyed Joe's success, when the ladies at the country club would talk about their designer clothes and laugh when she told them she just bought her new blouse on sale at Target or Walmart, she felt sorry for them.

    Tom did not have that kind of support. He had remarried a younger woman who thought she was marrying a big shot. I guess she just married him “for better” because, when it became evident their lifestyle was an illusion, she left him.

  • Realize you are not alone. As a member of Lending Club, every day I see hundreds of loan applications from people with great incomes who want to consolidate and get out of debt. It sounds funny borrowing money to get out of debt, but they want to consolidate and reduce their interest rates, which is part of the process. Many of these people are doctors and lawyers making huge amounts of money. Not only do they need to make the payments to reduce their debt; they also have to curtail their spending at the same time, something Tom was emotionally unable to do.

    Since 2008, when the interest rates on CDs and fixed income securities dropped to the point of not keeping up with true inflation, even folks who have managed to accumulate some wealth have had to make some tough choices when it comes to priorities. We have many friends who have owned a lot of luxury cars who are quite proud to drive up in their new Toyota and discuss how much they saved along the way.

  • There is no shame in adjusting your lifestyle to the current environment.Simply put, you have to do what you have to do! While it may have been nice to feel rich during the boom times, adjusting your lifestyle and spending patterns to avoid being poor is not shameful; quite the contrary, it is prudent. Many couples tell us how they worked together and the process made their marriage even stronger. Shame? No way! Pride is much more accurate.

The solution to too much debt is twofold: first, make a true commitment to get out of debt; and, second, learn the skills to do so. Many folks have never learned to save. Once your goal is true, stress-free financial independence, it is worth giving up a lot of stuff.

Unfortunately for Tom, he was such an addict he could never make the transition, and the stress took its toll. Joe and his wife are happy, surrounded by loving family, and enjoy seeing their next generation grow and mature.

Being debt-free is a major step. You are halfway home. The next step is accumulating wealth. Instead of making payments to creditors, now you can start making those payments to yourself and prepare for the future.

On the Lighter Side

One of the most common questions I hear once folks get out of debt and begin to accumulate capital is, “Where, and how, do I start investing for retirement?” Top-rated corporate bonds, Treasuries and CDs are surefire losers at today's rates. If you didn't catch A Second Look at Bonds in last Friday's Casey Daily Dispatch, I recommend taking a look. It's the sister article to our most recent special report, Bond Basics, our need-to-know guide to investing in bonds in today's environment. I urge anyone holding or thinking of buying bonds or CDs to take a gander at both.

Last Sunday was the National Football League conference championship games, and Denver and Seattle are headed to the Super Bowl. The game will be played in February, outdoors, in New Jersey. Generally they are played indoors or in warm weather climates. I wonder how much the weather will impact the game.

Maybe it's just me, but I am turned off by all the mini-celebrations players do trying to attract attention—just play the game! I remember reading an interview with the late Walter Payton about end zone celebrations. He responded with something like, “Act like you have been there before.”

And finally…

“Thank you” to my friend Bob L. for sharing some more of Murphy's less famous quotes:

  • He who laughs last, thinks slowest.
  • A day without sunshine is like, well, night.
  • Change is inevitable, except from a vending machine.
  • Nothing is foolproof to a sufficiently talented fool.
  • The things that come to those who wait may be the things left by those who got there first.
  • God gave you toes as a device for finding furniture in the dark.

I suspect the last one was thought up by people who sell night-lights. Gazing into an open refrigerator in the middle of the night sure hampers your night vision—not that I'd know anything about that.

Until next week…