At a Glance
Getting out of debt is the ultimate financial goal for anyone who’s fallen down the debt cycle rabbit hole—which is most Americans. About 80% of us have some sort of debt, and it seems safe to say none of us want it.
Becoming debt-free can help you change for the better (and maybe even for good if you’re Wicked smart).
And now it’s time for a breakdown (of what we’re going to cover):
- Want to live debt-free? Here’s how to do it
- Pros of living debt-free
- Cons of living debt-free (believe it or not, there are some)
How to live debt-free
There are several approaches to becoming debt-free, but most people who become debt-free have similar characteristics. They tend to be:
- Confident: If you believe, you can achieve, right? I write for SNL now. (Not really). If you’re swimming in debt and belittle yourself, it’s going to be a lot harder to get yourself out of the hole. Debt-free folks don’t pay attention to what other people are spending their money on. They’re cool with skipping out on trips and not upgrading to the latest technology to stay in their debt-free lane.
- Goal-oriented: People who don’t have debt are driven toward reaching their financial goals. If you don’t have financial goals, that might be a good place to start your debt-free journey. It’s important to set SMART goals—that’s a mnemonic for specific, measurable, attainable, realistic, and time-based. For example, you could set a goal to pay off one credit card that has a $3,000 balance by the end of the year. This is doable, trackable, and you have a timeline, so it’s easier to manage. If you don’t check all the boxes when setting your goals, you’re likely to get discouraged and give up.
- Disciplined: Creating and sticking to a budget is key for those who aren’t in debt. They’re good about managing their day-to-day finances as much as the long-term.
- Astute: People who are debt-free aren’t the type to get sucked into a targeted ad on Instagram or finance a Tesla that they can’t afford. They’re practical and don’t fall for ploys like “25% off with the promo code DUMMY” on an item they wouldn’t otherwise buy. And they’re not concerned with keeping up with the latest trends. They’ll happily drive their good ol’ reliable 2011 Toyota Corolla into the ground. Cars are just a means to get from point A to B.
- Restrained: Being able to show restraint when it comes to collecting stuff is a big element of becoming and staying debt-free. You want to be able to avoid temptation and not jump at material things.
- Responsible: Being debt-free means prioritizing your essentials or needs over your wants or desires. Responsibility means eating at home most nights instead of ordering sushi and drinking bottom-shelf booze instead of the best cognac money can buy. (And that also means not driving home after consuming copious amounts of alcohol.)
- Patient: You have to be willing to wait for it. Becoming debt-free isn’t going to happen overnight. This also means being patient when it comes to making large purchases. Debt-free people are good about saving up for a big-ticket item rather than saying “YOLO—put it on my tab” and making impulse purchases.
If that sounds like you or you think you can take on those traits, that’s half the battle. The other part is implementing these characteristics to pay off your debt with a repayment strategy that works for you, like the debt snowball, debt avalanche, or a hybrid of the two.
How to live debt-free with no credit
Living a debt-free lifestyle doesn’t necessarily mean eliminating credit cards completely. You can still charge purchases as long as you pay off your balance in full and on time every month to avoid accruing interest or paying late fees. But if you feel like you lack the discipline to do that and think you’d have better luck moving to an all-cash lifestyle, that’s an option.
Eliminating credit cards means paying cash or using your debit card on everyday expenses and monthly bills. Swiping your debit card that often can have its downfalls, though, because if your credit card is lost or stolen and someone racks up charges, that’s coming right out of your checking account. You can dispute the charges, but it might take some time to resolve the issue. Even if you’re not dealing with fraud or theft, you could potentially hurt yourself by overdrafting your account. If you’re consistently using your debit card, you need to be extra mindful of your available funds.
The biggest downside to living debt-free with no credit is just that. Not having a credit history can be a challenge if you ever decide to take out a mortgage or need a loan down the road.
Benefits of living debt-free
So, is living debt-free worth it? This lifestyle can offer a slew of benefits for both your wallet and your mental health, but it is a commitment. Here’s a look at some of the possible pros of becoming debt-free:
- Increase your savings or investing. Once you pay off your debt, you can stop allocating money there and instead put that toward your retirement savings, emergency fund, or another savings goal like a down payment for a house.
- Decrease your anxiety. Being in debt is stressful. According to a recent CapitalOne CreditWise survey, money was the No. 1 cause of stress at 73% ahead of politics (59%), work (49%), and family (46%). And typically, people who are stressed about money don’t have enough of it, which often leads to taking on debt.
- Boost your credit. Being in a ton of debt can hurt your credit score. Most experts recommend keeping your credit utilization ratio—or the amount you owe compared to your total credit limit—below 30%. But the lower you keep that ratio, the better it is for your credit score. Eliminating revolving debt by paying your credit card bill on time and in full every month can work wonders for your credit score.
- FREEDOM. Reaching the goal of becoming debt-free ultimately gives you financial freedom. Want to donate a significant amount to a non-profit you like? Finally have the funds to take that trip across Europe? Without debt hanging over your head, you can do what you want with your money without having to worry about paying anyone back.