We’ve all been there — you want to take a trip or buy yourself something you’ve had your eye on. The logical side of your brain intervenes. It asks, “Can we really afford this?” You hold back — maybe in a few months, you tell yourself. You just can’t take on any more debt.

The good news? You’re not alone. Did you know that over 64 million Americans are currently living in debt as of 2022, paying a grand total of $120 billion in interest? That works out to roughly $1,000 per household! 

It’s a common problem that many people face, but with a few tips, tricks, and mindful personal finance decisions, you can move toward the freedom of a debt-free life. 

Were you looking for a tool to help you get debt free? Read Budgeting Tools to Help You Get out of Debt.

What does it really mean to live a debt-free life?

Since debt includes any amount of money you’ve borrowed, living a debt-free life means you don’t owe anybody anything — no banks, credit cards, lenders, or interest rates.

For a lot of us, that’s an attractive idea. Paying off your debt feels like freedom, especially if you’ve been living under the stress of student loans, car loans, and other debt that can feel overwhelming.

Becoming debt free will also raise your credit score, which lowers your interest rates in case you ever decide to take on new debt for something important.

Should everyone live a debt-free life?

It’s an achievable goal, but is it right for you? That depends. The financial freedom of a debt-free life has its perks:

  • Not having to manage debt and repayment plans
  • Saving money every month by avoiding interest rates
  • Even alleviating mental health worries and stresses associated with debt

But debt-free living isn’t always practical. Let’s say your car needs a new transmission and your savings won’t cover the cost. You have two options — finance the repairs using a credit card, or try to walk 30 miles to work.

Sometimes, life doesn’t leave us much of a choice.

Still, if you want to live a debt-free life, these kinds of problems don’t have to be impossible setbacks. Financing the repairs on a credit card and paying it off within a few months can keep your financial situation on track.

The key is to save those credit cards for emergencies so you can keep your credit score high, with access to low-interest debt if you ever need it.

So what types of debt are bad?

That’s a great question. Some people don’t want to owe anyone anything. To them, all debt is bad, and that’s a personal choice.

To others, being a borrower is okay. Maybe you want a home to raise a family in today, and you’re willing to build wealth and equity over time as you pay down a mortgage. That’s a personal choice too.

At the end of the day, you have to decide what makes you feel comfortable. That’s what you should work toward, and getting there is more of a choice than you might think.

For example, let’s say your beloved 1994 Honda Accord is on its last leg. You and that car have been on more adventures together than you can count. You know you’ll need a new car at some point, but you’re trying not to think about it.

Most of us live with a few problems like that (including debt) — things that feel too painful, scary, or difficult to face. But as we ignore them emotionally, they can often get worse financially.

So a big part of living a debt-free life is planning ahead for the tough things, at least financially, by paying down your debt and building an emergency fund.

That way, instead of getting stuck buying a new car with no down payment and high interest rates, you can choose how much you want to take from your savings account and how much you want to borrow in a car loan when the time comes.

Living a debt-free life puts you back in the driver’s seat, no pun intended. (Okay, the pun might have been intended.)

How to become debt free

Ready to live a debt-free life? Get the ball rolling right now with just 5 steps to create your perfect plan and reach your financial goals.

1. Figure out what you owe today

Take a look at your borrowing across the board. List out everything you owe and consolidate your debt payoff amount into a total figure.

You can do that with a simple pen and paper, or if you like apps better, Simplifi by Quicken can do it for you. It organizes your debts automatically (and all the good stuff too) so you can start to take control of your finances.

See how Simplifi organizes your finances automatically.

2. Rank your loans by lender and interest rate

Not all interest rates are created equal! Many student loans (even private ones) have fairly low interest rates, while credit cards can have APRs as high as 30% or more. Go through your list of debts and note how much you owe as well as the interest rate on each one.

3. Negotiate lower rates with your lenders

Did you know you can negotiate lower interest rates with your lenders? If your account is in good standing and you’ve been making your payments on time, you may be able to haggle with your lender to bring your interest rate down. 

Head into the conversation with some solid information, ideally with other loans or credit card offers with lower interest rates that you can talk about. They’ll want to keep you as a customer! While this is never a guarantee, it doesn’t hurt to ask. The worst they can do is say no. 

4. Determine how much you can pay

Next, determine how much you’re able to put toward your debts. Log into your banking app or look at paystubs to determine the amount of money you have coming into your bank account each month. Subtract what you owe for monthly expenses and see what you can put toward your outstanding debts.

For an easier way to keep up with it, Simplifi by Quicken gathers that information for you automatically too.

See how Simplifi creates your spending plan.

5. Pick a debt pay-down strategy

So, now you’ve outlined your debt and where you owe money. The next step is to implement a pay-down strategy. Even if you have several different debts — maybe some store cards, a car payment, student loans, and a mortgage — a repayment strategy can help you stay organized and ease the way toward a debt-free lifestyle. 

Debt snowball repayment

For debt snowball repayment, make the minimum payments on all your outstanding balances while you pay as much as you can on the smallest debt every month. Once that debt is gone, put as much as you can toward the next one.

Each time you pay off a debt, the money you can put toward the next one gets bigger!

Keep going until all your debts are paid in full. One big advantage to the debt snowball method is that paying off that first debt feels good. That helps you stay motivated as you watch your list of debts disappear.

Debt avalanche repayment

The debt avalanche payoff strategy is similar to the snowball method, but instead of attacking your lowest balance, you start with the loan that has the highest annual interest rate.

You’ll still make the minimum payments on the rest of your debts, but by paying as much as you can on your loan with the highest interest rate, you’ll avoid those steep APRs sooner.

The main advantage of the debt avalanche over the debt snowball is that it saves you more on those interest rates in the long run.

Debt consolidation

If you have several credit card debts or personal loans, you might be able to consolidate them into one loan that has a lower interest rate.

Credit card balances are often high-interest loans, but new cards may offer a low rate if you use a balance transfer to move your debt to the new card. Or take out a personal loan with a lower rate and use that money to pay off your high-interest debt.

Consider refinancing or consolidating your debt when the fed rate is low — this can be a great option to transfer multiple outstanding balances into one easy monthly payment. 

Create a budget you can stick with

Budgeting is crucial if you’re trying to push toward debt-free living. By deciding where your income should go before you get it, you can use it to knock down those debt payments and eventually pad your savings.

Once you work out your plan, set up your monthly payments automatically so you don’t miss any due dates. Here are some common budgeting techniques to get you started:

50-30-20 budgeting

A 50-30-20 budget is a good, simple budget if you’re just getting started — use 50% of your after-tax income on your needs, 30% on your wants, and 20% toward paying down your debt. Once you’re debt free, use the 20% toward your savings.

It’s a good rule of thumb, but it doesn’t work for everyone. If your needs are higher than 50% of your income right now, adjust the numbers to work for you.

Need more? Try these 13 ways to save money or pick up one of these 23 side gigs to make ends meet.

Zero-based budgeting

Zero-based budgeting allocates every cent you earn before you earn it, so you decide ahead of time what you want to spend on monthly bills and expenses, savings, and debt repayment. It usually breaks your spending down into very specific categories — gas, groceries, electricity, etc.

The goal of this type of budget is to help you spend your money very intentionally. It’s good for people who want to reach their debt-free life as soon as possible.

That’s how Logan and Ashley Rankin paid off $40,000 in debt and became millionaires in 7 just years.

Flexible budgeting (even without a budget)

If you really want to live a debt-free life, a spending plan is designed to work with any kind of budget, no matter how strict or how flexible you want it to be. You can even watch your spending without a budget at all.

  1. Start with your income
  2. Set aside enough to pay your bills for the month
  3. Set aside the extra money you want to spend toward your debt
  4. Spend the rest on whatever you want

As easy as it is to explain, it’s hard to do on paper because it’s a constant process. You have to keep up with every dime as you spend it. That’s exactly why we created Simplifi — to make that process automatic.

See how Simplifi’s spending plan makes it easy to stick to your goals.

If you have a partner, work together

One of the most important parts of sticking with a plan and ending up debt free is making sure you and your partner are working on the plan together. That will take some give and take on both sides as you explore what each of you is (or isn’t) willing to give up to make it happen.

Finances can be tough to talk about, but the key is to stay curious. If your partner doesn’t want to give up something that feels unreasonable to you, ask about it with the intention of getting to know them, not with the intention of changing their mind.

Why is it so important? What does it mean to them? What kinds of things are equally important to you? With the right approach, talking about finances can open up new dimensions of love, understanding, and teamwork in your relationship.

For more tips on budgeting with a partner, read How to manage money as a couple: home budgeting that works.

Stay out of debt for good

When you’re first getting started, a mountain of debt can feel insurmountable. But if you make a plan to pay it off, you’ll find that a lot of that stress goes away immediately — even if the process of becoming debt free takes a while.

So make your plan, then stick with your strategy. If you hit a few setbacks, don’t give up. Come back here to the blog or sign up for our free newsletter to get more tips on improving your financial situation.

Whether you’re looking for a great financial tool to make things easier or you just need some encouragement, we’re here to help.