How being completely debt free can affect your life

Select’s editorial team works independently to review financial products and write articles that we think our readers will find useful. We receive a commission from affiliate partners for many offers, but not all offers on Select come from affiliate partners.

Americans are no stranger to debt, so much so that for many it has simply become a way of life. According to Experian data for 2021, the average total debt balance of all consumer goods was $96,371, up 3.9% year-on-year.

While overall debt has increased in recent years, there are still many Americans who are aggressively working to pay off their debts. For some, being debt free has completely changed the way they look at personal finance.

Select spoke to several Americans who are currently living debt-free and how you can do the same.

Subscribe to the Select newsletter!

Our best picks in your inbox. Weekly delivered shopping recommendations that improve your life. Sign up here.

The case for complete debt freedom

For many, living debt-free is a dream that unfortunately feels far from reality. Whether it’s strategic debt, such as a low-rate mortgage or student loan, or high-interest consumer debt stemming from a credit card, many Americans are used to living in the red.

For some, however, the mere thought of owing someone money creates a feeling of fear and a heavy burden on their shoulders. This feeling alone is reason enough for many to put debt repayment in the foreground.

Tara Falcone, Chartered Financial Analyst, Certified Financial Planner and Founder of the app Reason, explains how paying off debt can fundamentally change your life and give you a sense of freedom.

“People who are completely debt free have an absolutely different mindset. There’s a greater sense of peace, freedom, and opportunity when you’re debt-free,” Falcone says. “Owing no one or being indebted to anyone gives debt-free people more options and control over every dollar they have. When you’re out of debt, you have 100% freedom to choose how and when you spend your money.”

While Jasmin Beltran, communications and PR manager at Albert, is now at the top of the debt-free mountain, her journey to get there was not easy. After graduating from college, Beltran racked up both student debt and credit card debt—between her modest starting salary and the cost of living in New York City, she made little headway to repay it.

At the beginning of the pandemic, Beltran, like many young professionals, moved home to Arizona and took the opportunity to pay off all her debts. After six months of saving and paying, she was finally debt free.

Beltran says she’s now experienced the same kind of euphoria Falcone described. “The biggest change for me has been a change in the way I think about debt and money in general,” she says. “I’m definitely more cautious about getting into debt now that I know how quickly toxic debt like credit cards can grow.”

When it comes to debt, however, she remains pragmatic: “I’ve learned that not all debt is irrecoverable,” says Beltran. “Things like student loans add value to your life and help you take advantage of more opportunities. It’s all about finding the right mix of finances for your situation.”

Debt-free living has also given Beltran a newfound sense of freedom — she’s now living in New York City again — this time without roommates — and focused on investing for the future.

How to become debt free

dr Alex Melkumian, Founder of Financial Psychology Center in Los Angeles says freedom from debt is linked to understanding what’s important in your life. Being debt-free requires managing your expectations and emotions, says Melkumian, because some won’t be able to afford to buy a house or a new car immediately after paying off their debts. He adds that while no strategy is perfect, striving for perfectionism is not the best approach. It’s better to just start than to think about which strategy works best for you.

Here are a few tips to keep in mind as you develop your own debt reduction strategy.

Do you know how much debt you owe?

Once you’ve made the decision to pay off your debt, the first step is to figure out exactly where you stand and what you’re dealing with, which can indeed be the most excruciating part of your journey.

“Check in with all yours [financial] accounts,” says Falcone. “Open any unopened credit card or student loan bills you received. Then make an inventory of all the debt you have. Make a note of the balance, the interest rate and the minimum payment. Finally, add up all the balances to know exactly how much debt you have to pay off.”

Choose a debt settlement strategy

Here are some well-known methods to help you pay off your debt:

  • Debt Snowball: When you roll a snowball downhill, it gains momentum and size. This strategy suggests that you eliminate the smallest debt first and work your way up to the largest. While this ignores the math of interest rates and other factors, it mainly focuses on the psychology of momentum. Getting out of the small debts first allows you to mentally tackle your larger debt balances.
  • debt avalanche: This system is best suited for those who enjoy working with numbers and reducing their overall debt. This system suggests eliminating your highest-interest debt first while making minimum payments on the others. This is how you save the most interest.
  • Debt Consolidation: Instead of tackling five or six debts, it can help to consolidate everything into one place through debt consolidation. For example, I recently consolidated my car loan and student loans into a personal line of credit, which has saved me money on interest and lowered my stress levels when it comes to chasing numerous debts. If you need to withdraw multiple credit card balances, consider grouping them.
  • Debt advice: If you’re facing significant debt that has limited repayments, consider getting credit counseling so professionals can help you pay off your debt and get you started on a repayment plan.

You can use a 0% APR credit card to perform a fund transfer and save on interest charges to pay off high-interest credit card debt. The US Bank Visa® Platinum Card offers one of the best overall APR induction periods: 0% for the first 20 billing cycles on balance transfers and purchases (15.99% – 25.99% variable APR thereafter; cardholders must complete balance transfers within 60 days complete account opening).

US Bank Visa® Platinum card

On the safe side of the US bank

  • Reward

  • welcome bonus

  • Annual fee

  • Introduction APR

    0% for the first 20 billing cycles on balance transfers and purchases

  • Regular APR

    15.99% – 25.99% (variable)

  • transfer fee

    Either 3% of the amount of each transfer or a minimum of $5, whichever is greater

  • foreign transaction fee

  • credit required

Marcus of Goldman Sachs personal loans

  • Annual Percentage Rate (APR)

    6.99% to 19.99% APR when you sign up for Autopay

  • loan purpose

    Debt Consolidation, Home Improvement, Wedding, Moving and Moving or Vacation

  • loan amounts

  • conditions

  • credit required

  • incorporation fee

  • Penalty for Early Payout

  • late fee

advantages

  • No incorporation fees, no early withdrawal fees, no late payment fees
  • Sends direct payments to up to 10 creditors (for debt consolidation)
  • Monthly VantageScore updates
  • Earn a month’s payment holiday (interest-free) after making 12 consecutive on-time payments
  • Ability to choose your due date when accepting the loan (and up to two more times thereafter)

Disadvantages

  • Does not accept joint applications and/or co-signers
  • Not the fastest financing (may take a week or 10 business days)
  • Slightly stricter approval requirements (especially for larger loans/lower interest rates)

Whatever plan you choose, try to stick to it. This will be your foundation to get out of debt.

Create a budget and eliminate discretionary spending

Creating a budget may sound boring, but it’s one of the most important parts of creating a debt settlement plan. This way you can find out an almost exact date when you will be officially debt free.

When creating a budget, do your best to trim discretionary spending, as budgets in this particular spending category can be dragged down significantly. Whether it’s regular visits to your local coffee shop or shopping sprees at Amazon, reducing non-essential expenses allows you to redirect cash towards your debt.

Consider using a free budgeting tool offered by Mint or Personal Capital to help you create a budget and track your spending.

Once you’re out of debt, stick to a plan to stay out of debt

Whether your debt payoff date is in a few months or years away, enjoy the moment when it finally comes — but make sure you have a plan to stay debt-free.

“Be open to potential financial strategies and options available,” says Falcone. “For example, people with credit card debt are tricked into thinking that credit cards are evil and that they should pay for everything in cash. However, once you’re debt-free, it’s possible to use credit cards as a cash alternative to earn rewards for regular spending, as long as you pay off your card in full each month. As with any tool, it’s about how and why you use it.

bottom line

While personal finance can be about crunching numbers to see what makes the most sense for your financial goals, this simplification misses the point – personal finance is personally.

There’s nothing wrong with not aggressively paying off low-interest debt, as long as you take care of your emergency fund, set aside money for retirement, and meet other personal financial goals.

For some like Beltran, however, finding a new sense of peace through debt freedom simply replaces the math. If you are striving to stay debt free, there are a few steps to help you – calculate your debt, choose a payoff strategy, create and stick to a budget, and formulate a plan to stay debt free, once you achieve that goal, debt free dreams will become a reality in no time.

Check out Select’s in-depth coverage of personal finance, technology and tools, wellbeing and more, and keep following us Facebook, Instagram and Twitter to stay up to date.

Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editors and has not been reviewed, approved, or otherwise endorsed by any third party.

Comments are closed.