Choose to Be Debt Free

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Many people do not know what it is like to be debt-free. Many young adults start out their independence by attending college and taking out student loans to finance their education. They may, additionally, take advantage of the numerous credit cards offered to college students and may graduate with thousands of dollars in credit card debt. Once they graduate, they may move on to car loans and then mortgages, never stopping to think about becoming debt-free. Payments are just a way of life.

As of December 31, 2020, consumer debt in the United States was at $14.56 trillion, with Americans carrying an average personal debt of $140,420 as noted in the 2019 Survey of Consumer Finances.

Think About What You Could Do Without Debt Payments

Consider the amount that you pay each month in consumer debt, and what you could do with it if you were not applying it to debt payments each month. If you have $5,000 in credit card debt, a student loan payment, and a car payment you may be paying between $300 and $700 in debt payments each month. If you had that much extra money to put toward savings or investing, your wealth could begin to grow. Paying interest on debt each month is just one of the habits of broke people.

Consider Your Freedom from Debt

Being debt-free also means freedom. You may be more likely to be able to quit your job if you are not happy, without the worry about whether you will be able to keep your home or be able to make your payments. Debt is a big worry that is always there in the back of your mind, even if you are pretty good at ignoring it. Paying it off means that you can make your money work for you, and that you can begin to build wealth.

Change the Way You Think About Debt

People often mistakenly look at credit as an easy way to get the things that they want now. They fail to look at the long-term consequences and costs that debt brings. Living debt-free allows people to live the kind of life that they want to live. It means that they do not have to worry quite as much about payments or what would happen if they were to lose their job suddenly. 

It can be revolutionary to think about living debt-free. A life without payments is very different from one with payments. Debt-free living means the possibility of saving up for things. It means making sacrifices and resisting impulse purchases. It means limiting the amount of money you waste each month. It means planning for the bigger purchases and making sure that you are using your money for the things that matter most to you.

Put a Plan in Place

To become debt-free, you need to create a debt payment plan. First, you should list your debts according to their interest rates. Then you need to find the money to apply to your debt each month. It may mean cutting back on your expenses or taking on a second job. Then you apply all of the extra money to the first debt on your list. Once you have paid it off, you move on to the next debt, applying the allocated money as well as the payment amount from the first debt. You continue to do that until you have paid off all of your debts.

This system is also called a "snowball plan," because as the payments become bigger as each debt is paid off, you can pay off the remaining debts much more quickly. Depending on the amount of debt that you have, you may need to focus for a year or two to pay off what you owe. If you have a large amount of debt, it helps to break down the plan so that you will have milestones that you can meet along the way. 

Commit to Staying Debt-Free

Once you have become debt-free, you will need to commit to not going into debt again. It means planning and saving money for bigger purchases. It also means sticking to a budget, but all of these things are worth being debt-free. It is important to remember the freedom that comes with living debt-free. Do not let all of the work that it took to get there go to waste by taking on additional debt. An emergency fund can help you stay out of debt, but your budget is your best tool to stay out of debt. 

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Board of Governors of the Federal Reserve System. "Survey of Consumer Finances, 1989 - 2019," Select household financial component: "Debt;" Distribute by: "All families;" Units: "Mean." Accessed May 4, 2021.

  2. Federal Reserve Bank of New York. "Household Debt and Credit Report Q4 2020."

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