Advertiser Disclosure

4 Steps to Living Debt Free

Home > Debt Help Advice > 4 Steps to Living Debt Free

Living debt free seems like wishful thinking at best for many Americans, but that need not be the case, even in inflationary times.

“The definition of a debt-free lifestyle simply means not going into debt to buy more stuff than you can actually afford and unloading the debt you may already have,” said JL Collins, author of “The Simple Path To Wealth” and  “PATHFINDERS.”

Carrying some debt is often inevitable for those whose American dream includes home ownership (with or without the white picket fence.)

Even a cursory look at statistics about debt shows that carrying too much debt, beyond a mortgage, is far more often the case for Americans than carrying zero debt.

Nearly 50% of us live paycheck to paycheck, according to a 2023 Webster Bank Financial Empowerment Study, with 54% of respondents saying they spend equal to or more than they earn each month.

The study found that six in 10 people could not cover three-plus months of expenses. Thirty-one percent said they had no emergency fund.

It’s no wonder just 23% of Americans say they live debt free, according to the Federal Reserve.

What’s clearer than the exact percentage of Americans who carry zero debt, mortgage included, is that debt and mental health are intertwined.

Living free of debt stress should be the goal. With proper planning and discipline, it’s more practical than you might think and carries benefits beyond financial solvency.

“Debt can feel as though we are consistently carrying a boulder on our shoulders and can limit our life choices,” Kahlil Dumas, CEO at UNSTUCKKD, said. “When I was able to pay off my debt, I quickly realized how much stress I was subconsciously bearing. I felt like I had more career options and could actually enjoy vacations without feeling guilty.”

Is It Possible to Live Fully Debt Free?

Living free of debt can be more difficult (but possible) when your dollar isn’t going as far as expected, due to inflation. The squeeze could mean the difference between using cash or putting a purchase on a credit card that you struggle to pay off in full at month’s end.

Author Andrea Woroch, a consumer finance and budgeting expert and regular on-air contributor for Good Morning America and Today, believes cash is king when trying to live a debt-free lifestyle.

“Countless studies show that people spend less and are more likely to dodge impulse purchases when they pay with cash,” she said.  “Carrying large bills can also deter unnecessary purchases because you won’t want to break these big bills. Plus, you perceive these large bills as harder to come by, so you won’t want to part with them.”

Living debt free can present a challenge based on these factors:

  • Cost of living in your city
  • Amount of debt you already have taken on
  • How much you’ve saved for an emergency fund
  • Your job prospects
  • Whether you have a support system

If living fully debt free is beyond reach, as it is for many people, focus on minimizing credit card debt, the high-interest penalties that go with it and late fees.

“Credit cards are like chainsaws,” Collins said. “Incredibly useful if you know how to use them. Incredibly dangerous if you don’t.

“Knowing how to use them means never carrying a balance. Never charge anything you don’t have the money to pay for. Pay your cards off in full each month and feel free to enjoy the benefits of rewards and convenience they offer. If you can’t pay them off in full each month, no amount of rewards or convenience is worth the cost.”

Benefits of Debt Free Living

Having a payment history is a major plus for your credit score but only if it’s a history of on-time payments. If that’s not your track record – and, unfortunately it isn’t for many individuals in debt – it’s possible to build your credit without a credit card if you’re disciplined.

Debt doesn’t inherently ransack good credit scores. But that danger certainly looms if you let debt have the run of the house once its foot is in the door.

What’s required, along with disciplined budgeting, is recognizing that there are different kinds of debt and that while not all debt is bad the other end of the spectrum (high interest credit cards and payday loans) can be financially devastating.

Being debt free has obvious advantages:

  • Financial flexibility: Many people trick themselves into thinking as long as they’re making monthly payments on credit cards or other loans that they’re making progress toward paying off their debt. That’s only true when you pay off the balance owed every month. The interest you save being debt free month to month can allow you to deal with emergency costs, or to plan a vacation, or simply treat yourself to dinner out with friends. Paying cash, of course.
  • Financial growth: For many people, it’s difficult to imagine growing their money while they’re paying off debt. It’s like trying to imagine swimming the length of a pool when all you can do is tread water. The perspective changes when the millstone of debt is no longer weighing you down. “This is critical to building wealth,” Collins said. “When the debt is gone, you need only start putting that money into investments and watch your fiscal muscles grow.”
  • Less stress: A survey by the Money and Mental Health Policy Institute revealed 46% of debt holders said they are dealing with mental health problems. Nearly three-quarters of respondents to Money and Mental Health’s survey said mental health problems made their financial situation worse, leading Chair and Founder Martin Lewis to say money and mental health “can be a marriage made in hell.” Collins, whose “Pathfinders” recounts the stories of people who’ve put their debt issues behind them, says, “It’s hard to imagine the stress of not only living paycheck to paycheck, but borrowing still more to maintain some lifestyle you’ve been trapped into believing you must have.”

Life presents twists and turns, sometimes into brick walls. Not carrying any debt far outweighs making monthly interest rates but there could be disadvantages to living totally debt free in certain circumstances.

Disadvantages of being debt free:

  • Credit issues: What if you do need credit in an emergency situation? Not having any payment history (or a poor payment history you’re trying to leave behind) could affect your credit score and the interest rate you might qualify for in taking out a loan.
  • Bypassing opportunities to grow wealth: Mortgage equity can help you build wealth. Paying rent instead might be debt-free living but offers no long-term financial growth. Similar financial benefits could come from taking out a student loan for a degree that could boost your earning power in the long-term.

Steps to Becoming Debt Free

Becoming debt-free doesn’t happen overnight.  A plan is typically required to pay down existing debt, a broad plan that should entail tracking expenses, creating a budget, reducing expenses where possible, giving your income a boost, monitoring your credit score, and building an emergency fund.

“It’s one thing to set a budget but it doesn’t matter much if you aren’t actually watching where your money goes,” Woroch said. “Paying attention to your saving and spending habits is crucial to stick to your plan.”

1. Calculate Your Current Debt

Calculating your current debt is a great place to start on the path to paying it down. It’s also not as simple as that sounds, and not only because many Americans are carrying a lot of debt.

It’s important to understand how the biggest sources of debt are impacting your life and, for the purpose of paying it off in the most efficient manner, to prioritize reducing the debt that is most problematic.

For instance, a real estate friend mentioned young couples who are carrying significant credit card debt but tell him their plan is to make extra mortgage payments to build equity more quickly. He advises them that paying off credit cards is by far the better strategy.

Calculating your debt-to-income ratio (DTI) – the same formula lenders use to determine if you are carrying too much debt to qualify for a loan – is a good starting place. DTI is your recurring monthly debt divided by your gross monthly income.

Calculate it with your mortgage included if you have one.  If lenders like to see a DTI of 35% or lower before they consider you a good risk, maybe you should, too. If your self-audit is higher, see where you can reduce your monthly debt.

2. Make a Plan to Pay off Your Debt

There are myriad strategies to pay off debt. It can be confusing.

So if your debt is out of control and you aren’t sure where to start, consulting with a nonprofit credit counseling agency could provide the direction you need in choosing which of the following methods is right for you:

Dumas suggests organizing your debt based on the interest rate you’re paying. The highest interest rate is most likely credit cards, the lowest a home mortgage or car loan.

He says he has had success using the debt avalanche method, but no matter which method you use he believes having support is important.

“Find an accountability buddy to pay off debt with,” he said. “Having a friend or family member to hold you accountable during your debt payoff journey ensures you have support throughout this challenging process.”

3. Make a Budget That You Can Stick to

Once you calculate your debt and monthly expenses and choose a method for the ultimate goal of becoming debt free, the next step is to create a manageable budget.

Cutting expenses can seem rather daunting in the abstract but making a detailed list can help you prioritize.

“Think about which expenses make you happy and spend more on those but cut back on everything else,” Woroch said. “(And) make sure you build financial goals into your overall budget.”

A good budget should account for putting money away in an emergency fund so the next time you are faced with expensive car repairs or medical bills, for instance, you can manage the unexpected without putting a big charge on a high-interest credit card, or, worse, taking out a payday loan.

“When budgeting, make sure to account for inflationary pressures, especially when long-term planning,” Henry Bolland, Director of Mill Wood Finance, said. “Too often, long-term budget planning will fall down because certain costs are assumed to be fixed, such as phone contracts and utilities. “

4. Find Ways to Make More Money and Save Money

If you’re lucky enough to be in line for annual raises or bonuses, put the extra money (or a portion of it) toward paying down your debt, especially credit card debt.

Boosting your income can make a big difference, too, if you use that money to target your debt or build an emergency fund. Overtime hours at work, or a side job such as DoorDash or Instacart – everything helps.

Woroch points to several options for extra income, not all of which require special skills: pet sitting through, virtual tutoring via, renting a spare room or your house on Airbnb, VRBO or PeerSpace, or even your car on

“There are plenty of flexible options out there,” she said.

Explore these opportunities for how they fit your lifestyle. You might find that paying down debt isn’t all about painful sacrifices and may even offer benefits you didn’t consider.

“The silver lining,” Collins said, “is that once you have organized your life in such a way as to pay off your debt, you have created the wonderful habit of living on less than you earn.”

Collins recommends a monthly spreadsheet for tracking expenses, saying that seeing the numbers makes it “easy to decide” what to cut. But the state of debt in America says it’s anything but easy for many people to manage debt or live within their means.

It’s a challenging journey that requires reflection, discipline and, often, a helping hand. Millions of people from all occupations have taken advantage of nonprofit credit counseling services because they’ve lacked the tools and roadmap to control debt on their own.

So if you’re feeling overwhelmed by debt, call for a free consultation with a  credit counselor or get started online with a free analysis of your financial situation.

Debt-free living – or at least not carrying high interest balances month to month – should be financial goal No. 1 for anyone who wants to reduce stress and enjoy the financial and lifestyle benefits that come with successful debt management.

About The Author

Robert Shaw

Robert Shaw writes about finding ways to solve financial problems like keeping up with mortgage payments, paying off credit card debt and avoiding bankruptcy for During his 45-year career in journalism, Robert was a columnist for the Cleveland Plain Dealer before transitioning to television sports commentary at WKYC.


  1. Joy, B. (2023, June 23) Before Paying Off All Your Debt, Consider The Downsides. Retrieved from: