Becoming debt-free is a goal a lot of people have. You may be wondering- “How do you become debt-free?” In today’s world full of people who are bogged down by student loans, is it really possible?
Here on Self-Made, we’re here to tell you that it really is possible. Here are some of the steps to becoming debt-free, and how to continue maintaining that lifestyle forever.
40. Think Like Someone Who Makes Less Money
When you listen to popular rap music playing on the radio, there are a lot of songs talking about being “young money.” They often talk about designer brands, luxury cars, and spending extravagantly. Being “poor” is seen as being one of the worst things in the world. This mindset encourages people to overspend on things to make themselves look rich, and this often gets them into a lot of credit card debt.
If you want to be debt-free, try to have the complete opposite mindset. Instead of feeling like you are “young money” every time you get paid, try to think of yourself as someone who is poor. Even if you are making a decent salary, this exercise in monk-like behavior is all about your mindset. If you consider yourself to be poor, then you will be less likely to spend extravagantly and get into debt.
39. Live Below Your Means
Living below your means goes hand-in-hand with acting like you are poor. Logically, if you live below your means, you are only spending the money you actually earn, as well as putting money aside for saving without ever borrowing anything. Most people get into debt when they live above their means and make purchases that they cannot actually afford with the cash they have on-hand. Remember that credit card companies are not doing your budget for you. So just because you get accepted for a line of credit does not mean you can actually afford it. That responsibility is up to you.
If you are trying to live below your means, it’s a good practice to carve out a chunk of your income for savings and pretend it’s not even there. If you make $50,000 a year, you could try to live on only $40,000. You should still be able to live a comfortable lifestyle, especially if you and your partner both bring in an income. But that extra $10,000 can be used to invest in your retirement or pay back your debt.
38. Use Coupons
Coupons are literally like free money. When you could save $1 to $5 per item at the grocery store, this adds up to hundreds or even thousands of dollars per year. If you want to be debt-free, it only makes sense to embrace coupons. When people are struggling financially, they are often embarrassed to use coupons at the store. They feel insecure about themselves and believe that coupons are a dead giveaway they are having money problems. But the reality of the situation is the exact opposite. The majority of people who use coupons are actually doing very well. A whopping 85% of people who use coupons make over $100,000 per year.
If you have never used coupons before, check out The Krazy Coupon Lady, where they have in-depth guides on how to get started. Some stores have different policies than others so you may have to read a brief overview on their website. You can find coupons in the Sunday newspaper, on Coupons.com, and on the manufacturer website.
37. Honor the Value of a Dollar
When you were a child you probably got really excited when your parents gave you a dollar. Back then, it seemed like a lot of money. You may have even thought long and hard about how you were going to spend it. When we become adults, we lose that excitement over the value of $1. We spend it so easily that we don’t even think about how long it took to earn it.
Unfortunately, nearly everyone has forgotten the true value of a dollar. The minimum wage in the United States is between $8 to $10 an hour. So if someone making minimum wage went out to dinner and spent $20, they worked two hours for that food. When they are making a spur-of-the-moment decision, it feels easy to spend that $20. But if you sit back and remember how long it took to earn that money, it becomes a different story. This same practice can be applied to your daily life, no matter how much you make. Ask yourself, “I have to work this long to earn this. Is it worth it?”
36. Carry Cash
In the modern world, most people use their debit and credit cards to buy everything. Even though this is a lot more convenient than going to the bank or ATM for cash withdrawals, it can also run you into trouble. When you are simply swiping a card it is very easy to forget how much money you have spent that day. However, if you carry cash and use that for your expenses, you’ll know right away how much money you have left in your daily budget.
As soon as the cash runs out in your wallet, you know you have to stop spending for the day. You could choose to keep cash in an envelope for the week and only keep your daily budget in your wallet. Even if you don’t want to give yourself a strict budget, this method may work out really well if you are going on vacation. Keep at least one card in case of emergencies and you’ll find that you spend less money overall.
35. Wait 24 Hours Before You Buy Something
Amazon.com is amazing for a lot of reasons. You can get two-day delivery to your home and find pretty much anything you could ever want in the world. The only trouble is that you have so many options at your fingertips that it can feel like a real temptation to click “add to cart.” If you have ever purchased something on Amazon only to have buyer’s remorse later, you’re not alone. This has become the new normal in our society.
If you want to prevent yourself from making these unnecessary purchases, follow the 24-hour rule. The next time you want to buy something online, leave it in the cart for at least 24 hours. After you have slept on it, you may realize that you don’t actually need this item after all. Better yet, create an Amazon wish list anytime you want something. The next time you get paid, you can go back to your wish list and re-examine the things that you wanted. If you still truly want it, go ahead and buy it. But most of the time you will realize that it’s not actually worth the money.
34. Compare Prices
Most people buy things at the store without ever thinking twice about it, and they feel shocked to see the total when they get in line. Anyone who has worked as a cashier can testify to how many customers question the total in disbelief. Instead of getting yourself into these kinds of situations, start to pay attention to how much your favorite items cost. There may be a $1 to $2 difference in the price from store to store, but it all adds up over time.
In the age when everyone has a smartphone, there is no excuse not to compare prices. There is even an Amazon app that allows you to scan the barcode of an item in your in the store to see if anyone is offering it cheaper online. There are some stores like Wal-Mart and Target that will even offer a price match for Amazon. If you find an item in the store and you see that it’s cheaper online, just take it to the customer service counter and they will be willing to price match for you.
33. Pay Off Your Credit Card Balances in Full
Believe it or not, it’s possible to have a credit card and still be debt-free. The key to doing this is to pay off your balance in full each month. In fact, it’s pretty much necessary if you want to build a credit score. No matter how much money you make, financial institutions still want to see how responsible you are with paying off debt. So even if you are making a responsible decision to not have a credit card, it can negatively affect you because you won’t have a score.
By getting a card and paying it off in full, this will actually build your score to be near-perfect in a short amount of time. Then, you can enjoy benefits like travel reward points from cards like the American Express Delta Sky Miles Card without having to pay any interest. Many people manage to travel the world for free using credit card points, but it’s really only possible to fully enjoy the benefits if you have a debt-free lifestyle.
32….Or Don’t Get a Credit Card at All
If you ever listen to the financial guru Dave Ramsey, then you already know he despises credit cards with a fiery passion. In his videos, he always tells people to never get a credit card, because it’s a gateway to getting into debt. He has a good point. Credit cards are where most people get into a lot of trouble because it takes a lot of discipline to stop yourself from the temptation to overspend. If you know that you do not have a lot of self-control, try to stop yourself from getting them.
However, Ramsey ignores the fact that most people need a credit score in order to qualify for a mortgage. Even though he gives advice about saving up cash to buy your own property, it’s not always realistic for everyone. However, if you have the financial means to live a life without a credit card at all, you should.
31. Check Your Credit Score Once a Month
Even if you’re debt-free, you still may want to have the option to borrow money in the future. This is especially true if you’re currently renting but eventually want to buy a house. Even if you owned a house outright, you still want to maintain a healthy credit score in case you ever want to sell your home and buy another. This is why it’s important to check your credit score at least once a month to make sure you’re on the right track.
You can create a free account on Credit Karma and get an annual credit report from all three credit bureaus. If you want to know more about how to raise your credit score, check out our list on 40 Surefire Ways to Boost Your Credit Score.
30. Set Up Automatic Savings
If you struggle with saving money, it may be better to keep it out of sight out of mind. You should be able to set up an automatic savings plan for each of your paychecks. If you’re not sure how to do this, visit your HR department for the company you work for. They can often have paperwork set up where they put a percentage of your paycheck into a savings account rather than checking.
You may also decide to manually transfer money into your savings as soon as it is direct-deposited into your checking account. Most online banking allows you to transfer between accounts with just a few clicks. If you make it a habit of doing this as soon as you get paid, you can try to forget that the money is even there. As time goes on, you’ll be surprised to see how much it adds up.
29. Eat at Home
It doesn’t take a rocket scientist to know that eating at home is cheaper than going out to a restaurant every night. This knowledge does not stop a lot of people from continuing the bad habit of going out every day. Whether it’s grabbing a $5 cup of coffee at Starbucks or treating yourself to a $4 breakfast sandwich, all of those small purchases add up.
Think about all of the items you regularly buy when you go to restaurants or convenience stores. How difficult would it be for you to start making those same foods at home? And if you buy certain things in bulk, would that save you money? For example, if you have a habit of buying an energy drink at the store everyday for $3 per can, you may want to consider buying a case. Those same drinks will be just $1 per can instead of $3. The more you can make these kinds of decisions with your food, the less you’ll spend.
28. Create an Emergency Fund
One of the many reasons why people get into debt is that they have to pay for an emergency expense. It could be a car repair, house renovation, or any number of emergencies that need to be put on a credit card. Instead of paying for the cost of the problem itself, you’re also going to be paying back the interest and it will cost you more in the long run.
This can be avoided completely by having an emergency fund. Remember that emergencies are not a matter of “if,” but “when”. Someday, you’ll eventually need that money to pay for an unexpected expense and it’s best to be prepared. Set aside something from every paycheck for a rainy day. Once that emergency happens, you’ll be very glad that you had it set aside.
27. Make a Budget
You have probably heard the advice to make a budget many times before in your life. Just like eating at home, this advice is nothing new. A lot of people do not want to make a budget because it would force them to see the reality of their financial situation. Most people say that making a budget makes them “feel bad” or “guilty” when they spend money because they know they’re buying too much.
It seems scary to be confronted with the truth of how much money you actually have once all of your bills are taken out of a paycheck and how much is necessary to save for your future. Most people may be afraid that there will be nothing left for them to have fun. But once you make a budget, you’ll see right away where improvements can be made and how to tackle your debt. Knowing the truth can be a huge benefit to moving forward with your goals.
26. Make a Meal Plan
Earlier in this list, we mentioned eating at home more often if you want to save money. But even if you go grocery shopping, it’s still very easy to accidentally waste money on food. A lot of the time, people tend to buy more food than they can actually eat. If you notice that food expires in your home without ever getting eaten, it’s a sign that you need to make a meal plan.
Once you have a meal plan, you’ll know exactly how much food to buy for each of the meals that you plan to make. It is always a good idea to overlap your meals in some way so that you can use the same ingredients in both dishes. Whatever amount of money you save on groceries can go towards paying off your debt faster.
25. Openly Talk About Money With Your Loved Ones
A lot of people refuse to talk about money with their family and friends because they feel embarrassed or they think it’s inappropriate. Some people even go as far as to keep their personal finances secret from their partners. They do not want to give the impression they are struggling. And if someone asks them to go on vacation, go out to eat, or go shopping for clothes, they are more likely to say “yes” even if they have to put it on a credit card just to save face.
If you’re trying to save money and get out of debt, tell that to your friends and family. This is nothing to be ashamed of. In fact, most people nowadays have some sort of debt. So they’ll immediately understand your situation. If anything, they will be proud of you for facing your issues head-on. It’s still possible to spend time with your friends, even if you are trying to save money.
24. Get a Side-Hustle
Nowadays, almost everyone has a side hustle. This is a second job or income stream that helps you make more money. It’s common among young Millennials who are trying to pay off their student loan debt. If you don’t already have a side hustle, you may want to consider getting one because it can help to accelerate the process of paying down your debt.
For example, assume that you get a second job working 20 hours a week. If you make $10 an hour, that’s $200 a week or $800 a month before taxes. That extra $800 per month could go towards paying off your credit cards while your full-time job can pay for your living expenses.
23. Shop at Thrift Stores
Frugal people tend to shop at thrift stores because they still love to find a good bargain, even if they make a decent amount of money. Some people refuse to shop at thrift stores because they feel that it will make them look poor. Others have the misconception that if they shop at one, they’ll be taking away clothing and goods from people in need. The truth is actually the opposite. Most major thrift store chains like Goodwill receive so many products, that 12.8 million pounds ends up in a landfill each year. So they actually need more customers to buy things, in order to prevent it from completely going to waste.
Goodwill has $1 items every Sunday, and a lot of the items are actually brand new with tags. You can easily get a new wardrobe of clothes from Goodwill and Goodwill Outlets for next-to-nothing. Depending on how often you buy clothes, this could save you hundreds or even thousands of dollars. Whatever money you save can immediately go towards paying off debt.
22. Use Your Time Wisely
What does time have to do with debt? A lot, actually. All of the people you admire most in the world have the same 24 hours in a day, but they’ve learned to use it wisely. Sit back and consider how you spend your time every day, and if you would get a better “return on investment” if you were to do something else. Try to outsource as many things as you possibly can to get your time back.
For example, let’s say you work from home, and you make an average of $30 per hour. If you spend a total of 5 hours a week cleaning your house, that is $150 in time. A housekeeper is paid roughly $12 per hour, which is $60. So if you could get that 5 hours back and spend that time working instead of cleaning, you could make $90 more.
21. Be Grateful For What You Have
One of the many reasons why people spend money is that they feel as if they need to buy things in order to be happy. It may be a new car, clothes, jewelry, or any number of items they see on Instagram. This is all a natural part of consumerism. Giving in to these temptations is one of the ways that people get into debt. They want something so badly, they are willing to put it on a credit card and worry about the consequences later.
You can avoid all of this by simply being grateful for the things you already have. Try to remind yourself that there are other people out there who have fewer things than you. If there is something that you truly want to buy, try to save up the cash instead of putting it on credit.
20. Make Long-Term Financial Goals
Sometimes it’s easier to save money and pay off your debt if you have long-term financial goals. For example, if you are only renting an apartment and spending the money that you have leftover each month, you may feel comfortable continuing with this lifestyle. But if you plan to buy a house, you may be more likely to pay off your debt in order to fix your credit score.
After paying off the debt and improving your score, the next step in the process is saving for a down payment. Having the goal of buying the house probably gave you more of an incentive to become debt-free compared to if you had no goals at all.
19. Find a Higher-Paying Job
This piece of advice is definitely easier said than done. However, there are a lot of people who get in debt simply because they don’t have enough money to pay for their basic needs. Some people do not have anything left at the end of their paycheck and they are forced to put necessities like groceries on a credit card. It’s fine if this is something that only happens every once in a while. But if this has become a regular theme in your life, it means you are not making enough money. The only way to fix this situation is to get a new job that pays more.
If you decide to look for a new job, start by updating your resume and put it on LinkedIn. Apply to jobs in your local area, and ask your family and friends if they know of any opportunities. If you do not have enough education or training to qualify for a higher-paying job, consider going back to school if you know that you’ll get a good return on your investment.
18. Try the “Snowball Method”
When you start the journey of trying to become debt-free, you may not know where to start. There are several strategies to tackling your debt, and it’s up to you to decide which one you will choose. Financial guru Dave Ramsey recommends people start with what he calls “the snowball method.” This is a strategy of paying off the lowest credit card balance first so that you get the instant satisfaction of having paid off your debt quickly.
Ramey probably recommends the snowball method, because it has a great psychological benefit on people. If you are not already financially savvy, this helps you realize that it truly is possible to pay down your debt. Once you get this momentum going, you will become more confident that you can achieve your goal, and paying off your debt will “snowball” and keep going until you reach your goal of being debt-free.
17. …Or the “Avalanche Method”
The “avalanche method” is the total opposite of the “snowball method”. This is when you figure out how much interest you are paying on each of your credit card accounts. Then, you choose the balance that has the highest interest, and concentrate your efforts on paying that first. It may be more difficult to achieve, but it will actually be better in the long run. Before you decide between avalanche and snowball, figure out how much interest you are paying on your credit cards and loans each money. Once you have the list of amounts, multiply the monthly interest by 12 to see how much you are paying per year in interest.
The avalanche method usually helps you save the most money because you are eliminating the biggest waste of money from paying interest. For example, let’s pretend that you have a low balance credit card that you were only paying $10 in interest every month. Compare that to a high balance credit card where you were paying $50 a month in interest. If you choose to pay off the smallest balance in 2 months, then you’re only saving $20 and interest versus potentially saving $100 in interest if you could manage to pay the other in the same amount of time.
16. Track Your Spending
If we were to ask you how much money you spend going out to eat each month, would you know the answer? Most people don’t know. They simply check their bank account balance and spend whenever they feel like it. If you want to pay off debt and stay out of it for the rest of your life, you need to start tracking your spending.
Pay attention to where your money goes each month. After you track this information you may be shocked to realize just how much you spend on expenses that you had assumed were small and insignificant. Once you know exactly where your money is going, it will be much easier for you to see where you can cut back on spending. If you feel that you need help tracking your spending, consider downloading the Mint app. This syncs directly to your bank account and breaks down your spending so you know exactly where your dollars are going.
15. Identify Your Wants vs. Needs
When you are getting serious about paying back your debt, make a list of all of your wants compared to your needs. There are certain things that are absolutely essential, like your rent or mortgage payment, utilities, transportation, debt, and food. These essentials should always be your priority. Once you have that total, you should deduct it from the total amount you make in a month to see how much is left.
Whatever is leftover normally goes towards your “wants,” like entertainment, shopping, and vacation. Once you have that number in your mind, you should know to never exceed that amount, unless you take on a side hustle or get a higher-paying job. Don’t forget to set aside some money for savings as well. But if you are truly serious about paying back your debt, you should cut out most, if not all of your unnecessary spending and put that towards your debt instead. For example, if you normally have $500 left each month for entertainment, you could choose to cut that out completely for a couple months until one credit card is paid off.
14. Sell Things You No Longer Use
Most people in the United States have things around the house that are still valuable but are no longer being used. Maybe you have brand new clothes in your closet with the tags still on them, or an old video game you received as a gift and hardly played. These things could be sold on eBay to get some of that money back.
Start by making a pile of items that can potentially be sold. Even if they are only $10 or $20 each, the value of these items will add up over time. Most likely, you have hundreds of dollars worth of things you can sell right away. Just download the eBay app on your smartphone to get started.
13. Refinance Your Debt
In some cases, it may be possible to refinance your debt and reduce the interest you are paying. This is when you get a larger loan to pay off all of your existing debt. By doing this, it also makes things a lot easier to manage, because instead of paying multiple credit cards or student loans, you are given one monthly payment.
However, before you say “yes” to refinancing, make sure you do your own math beforehand. In some cases, the interest would actually be higher on the refinance offer. One of the best options you have is to get a 0% intro APR credit card where you do not have to pay any interest at all within the first year. Transferring balances may cost around 3%, but beyond that, it would save tons of money and make it easier to pay back debt.
12. Reduce Your Expenses
Sometimes, it’s possible to reduce the cost of your monthly expenses. Call the companies responsible for your internet, TV, cell phone, utilities, and car insurance. Ask if there is any possibility that they could lower your bill each month. If not, do some research to see if their competitor has a better deal. If you want to keep your current service, some companies will be willing to match their competition in order to keep you as a customer.
Aside from trying to bargain for a lower monthly bill, you should also try to consider reducing certain costs that are too high for your own good. For example, maybe you got excited and bought a car that is costing you $500 a month. If you decide to make some big changes in your life in order to cut back your debt, you may decide to pay for a more humble $2,000 car outright and eliminate that monthly payment from your budget completely. Depending on how much you have paid on the car loan, you may be able to get your cheaper car for free when you trade it in at a dealership. Of course, this is just one example of how you can cut back on your monthly bills, and the rest is up to you.
11. Work Hard, Stay Humble
If you are working hard and you are focused on your goals, you may stumble across the opportunity to make more money. This may be because you got a raise at work or you were hired at a higher-paying gig. These opportunities for growth typically do not happen to people who think they are “too good” to put their nose to the grindstone and get the work done.
Bosses and clients know how to spot someone who is an outstanding employee, and they typically try to reward them for their effort. So if you always do your best, you just may find yourself getting the help you need to pay down your debt.
10. Anticipate and Save For Home Repairs
One of the number one things Millennials say that they regret about buying a home is that they did not anticipate how much repairs would cost. They felt totally blindsided and probably had to put a lot of expenses on credit cards. This could have been avoided completely if they knew to set money aside for repairs.
After buying a home, make a list of all of the repairs that need to be done around the property. Do some research to see how much those repairs cost and try to estimate how long it will be before it becomes necessary to fix it. Stores like Home Depot or Lowes will gladly approve you for a credit card to pay for these expenses, but you would be much better off paying for everything in cash and avoiding the high-interest payments.
9. Cut Your Credit Cards
If you are really serious about paying off your credit cards and becoming debt-free, you may want to consider cutting your credit cards in half. This eliminates the temptation to take it to the store because it’s no longer an option for you. You may want to keep the pieces just in case you need to make an emergency purchase online, or if you need the numbers to call the company.
Once the cards are cut in half, it feels very satisfying to know that you made a significant step towards becoming debt-free. As an added bonus, consider writing the amount of interest you pay each month with sharpie pen directly on the credit card pieces. This way, if you even think about punching those numbers into the computer to do some online shopping, you will have the interest right in front of your facing reminding you to say “no.”
8. Figure Out What You Will Save If You Were Debt-Free
Do you know how much interest you are paying each year? Most people never bother to figure it out. But if you did, it would probably cause you to feel an immense amount of stress knowing that money is going to waste. Once you have that grand total, ask yourself what you would do with that money if you were debt-free. For example, if you discover that you pay $2,000 a year in credit card interest, how would you enjoy that extra money if was handed to you in a stack of cash?
Envision how amazing it would be to have this extra money back in your life. Set a goal for yourself to get rid of the debt so that you can begin living a life where you can enjoy the things you love to do or the things you want to buy.
7. Read Books About Money
If you are reading this article, it means that you are already making an effort to learn more about personal finance. That’s great! There are so many books out there that can help you accomplish your goal. Here at Self-Made, we already compiled a list of 40 Books Everyone Should Read to be Successful. Many of them can be found at your local library, or you may even be able to listen to the audiobook on YouTube for free.
Once you make reading about personal finance a regular part of your life, this knowledge becomes more ingrained in your mind. It will become much easier to stick to the rules of financially successful people, and it will eventually lead to helping you become debt-free.
6. Unsubscribe From Retail Email Subscriptions
Nearly every online retailer ropes people into signing up for their mailing list by offering a discount on their first purchase. Or, if you make an account to buy something, that e-mail begins receiving updates on the sales. Sometimes, these e-mails can help notify you about something that truly saves you a lot of money. However, it is far more likely that they only tempt you into browsing the website and making a purchase.
If you are truly serious about paying off your debt, unsubscribe from all of your retail mailing lists. Not sure how to do it? If you use Gmail, open one of the e-mails, and hit “unsubscribe” near the subject line. This will ensure that you no longer see messages coming from that address.
5. Go to the Library Instead of Buying Books
If you love to read, you may make a habit of going to Barnes and Noble to pick up the latest novel from your favorite authors. It’s great to support the writers you love, but if you are trying to pay off your debt, you may want to consider taking a break from book-buying. It’s very likely that your local library has a copy of the book you want available to read, and you can get it for free. You can even rent e-books from your library, too!
If you truly want to own a book so that you can take your time reading it, visit a Goodwill thrift store. Their books are typically 50 cents each for paperbacks, and $1 for hardcover. And the Goodwill Outlet is even cheaper at just 25 cents per book, regardless of what type it is. You may be surprised to find some best-selling novels available for purchase.
4. Remember to Redeem Your Credit Card Rewards
If you are getting in the habit of collecting credit card miles, make sure to read the fine print about expiration dates. Certain credit card companies, like American Express Delta Skymiles Card have points that never expire. But other companies may force you to spend your points within a year or they are gone completely.
In most cases, the rewards you get from a points signup bonus amount to several hundred dollars. Don’t let this go to waste! Some cards allow you to pay for previous purchases with your points, and you can get money back on your credit balance. Or it just may be time for you to book your vacation.
3. Sign Up for Balance Alerts
Do you have a problem with getting too close to your credit limit every month? Or maybe you have let your bank account drop too low and accidentally overdrafted. This can be avoided completely by signing up for balance alerts.
Log in to the credit card or banking website, and select the alert notifications that you would like texted or e-mailed to you. If you’re not sure how to do this, you can always call your customer service agent and ask how to do this.
2. Cancel Your Unused Subscriptions
There are some subscriptions where you truly get your money’s worth. For example, if you canceled cable TV, you may only have Netflix to watch anymore, so it’s worth the fee that you pay. However, a lot of people sign up for monthly fees like a gym membership, music streaming apps, and so much more without ever using it beyond the first few months.
Go through all of your monthly charges and try to eliminate any subscription that you know you can live without. Some companies like Netflix even give you the option to “pause” your membership and keep all of your favorite shows. Remember that this may be temporary, and you can always go back to subscribing again once you’re in a better financial situation.
1. Put Money Towards Profitable Investments
Once you are finally debt-free, you can stop putting tons of money into your debt and focus on investing instead. Of course, you can get started investing long before you become debt-free, and the profit you make may actually help to pay off your bills if you get good at it.
One of your best options for retirement is a Roth IRA. If you begin investing the maximum amount in your early 20’s, you could even retire a millionaire.