Illustration by the Southern European Observatory

Ever heard of the "Goldilocks Zone"? It's the area of space (in our solar system as well as other systems) where the conditions are "just right" for life to exist. Scientists look at factors such as distance from the sun, the mass of the system's star, the presence of water and oxygen and other conditions to calculate the area where living things have the best chance for survival.

Within the Personal Finance Universe, there are a plethora of differing opinions about debt. You can read a few examples here, here, here, here and here. Some people think any debt is evil. Others think certain kinds of debt are okay. A few think debt is a tool to grow your wealth. Others think debt is irrelevant because your income is more important.

My question- is there a "Debt Goldilocks Zone"?

Lenders look at debt to income ratios, credit utilization rates and other factors to determine whether they'll take the risk of loaning you money or offering you credit. The "Goldilocks Zone" for these are *usually* around 30% or so.

But these numbers don't tell the whole story, do they? Does a quick snapshot of the last 30, 90 or even 365 days of your financial life accurately predict what will happen in the future? It only tells you what already happened. It doesn't really consider your assets either.

I know many people who think a 5% debt to income ratio is too high. These people have little tolerance for the risk of an unknown and potentially catastrophic future. I also know many more people who care less if they reach 75% or more because they want to live their life to the fullest now, regardless of what effects this spending has on their future.

Personally, I think it depends. I don't think there is a standard "Goldilocks Zone" for debt. I think everyone has their own comfort zone and that, most of the time, this zone is not static. It moves around as you reach different stages of your life. What does that mean? It means that there is no "right" or "wrong" level- only opinion and personal preference.

Even the story of Goldilocks never made much sense to me. I'm happy that the girl (who was actually an old woman in the original version of the story) found the baby bear's bed, chair & food to be the best match for her. But the papa bear and mama bear liked their food and beds a certain way. Why is the opinion of one rude little girl (who should be charged with breaking and entering and theft) so important? Maybe I like my bed hard. Maybe I enjoy sitting in my big, giant chair when I come home from work. Maybe I like my porridge really hot. Don't I have that right? 

My threshold for debt has changed from my late teens, twenties and now into my thirties. In my late teens I was carefree and not worried about debt- which came back to bite me on the ass. In my twenties I was almost completely intolerant of any kind of debt because of my mistakes. Now, in my thirties, I find my tolerance for debt is higher than it was in my twenties, but not close to what it was in my late teens.

In my late teens I had a lot of personal debt, credit card debt, student debt, business debt, two car loans and other financial obligations. In my twenties (and during our bankruptcy) we still had a little debt, but through our Chapter 13 plan we eliminated most of our debt (excluding student loans) and avoided incurring any new debt like the plague. In my thirties, we still have student loan debt and we added a mortgage and a small used car payment.

Even though the amount of our debt now is, technically, more than it was when we filed bankruptcy, our income is roughly five times what it was then. Our debt to income ratio is much lower now than when we were having our financial problems. I am content knowing, even if a job is lost or other money disaster strikes, we'll be okay. So we're happily within our "Debt Goldilocks Zone" for the moment.

Are you currently within your personal "Debt Goldilocks Zone" or outside of it? Leave your comments and stories below!

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