Struggling with credit card debt?
Get your FREE quote today!

How to Live Debt Free

Written by:
Financial Literacy Specialist

“I can’t take it anymore. It’s time to say goodbye. You just aren’t good for me…”

Don’t worry, this isn’t the start of a soap opera. That’s you breaking up with your debt. Do you feel like you’re in a toxic relationship with your credit card debt, personal loan debt, medical debt, car payment, or any other type of debt you suffer from? Are you living paycheck to paycheck? You aren’t alone. We’ve helped millions of people like you break up with their debt, too.

We know it’s tough. But there are plenty of better financial situations in the sea. You may even want to get together with debt-free living. Consolidated Credit can introduce you.

What does debt-free living mean?

Contrary to what you may believe after reading the phrase, debt-free living doesn’t always mean having absolutely no debt. It means getting rid of your bad debt, keeping your good debt, and living life in a financially sustainable manner.

Being debt free will help your finances tremendously.

Jeff Rose, Good Financial Cents

Good debt vs. bad debt

Not all debt is bad. This can be difficult to wrap your head around since the word “debt” has such a negative connotation. However, having some good debt is essential to maintain your debt-free life because it helps keep your credit score high. When your credit score is high, interest rates on any loans you have will be lower, helping you control your debt levels and keep your finances manageable.

When it comes to good debt, mortgages are the best debt you can have. Debt from student loans can also be good if it’s not too high, since investing in your education usually has a significant return on investment. On the other hand, debt from credit cards, almost all auto loans, payday loans, etc. is bad debt. Bad debt usually has high interest or helps you with a purchase that only depreciates in value.

Credit card free vs. debt-free

how to live debt free; credit cards in a row

You don’t have to cut up all your credit cards to have a life free of debt. In fact, closing accounts can be bad for your credit scores. When you live a debt-free life with credit cards, you pay off your credit card balance in full every month. If you do carry a balance, you don’t let it build up. You have a plan for paying it down and get back to zero within two or three billing cycles after a major purchase.

Credit builder loans

If you want to build up your credit without the risk of going into more debt, credit builder loans are a good option. When you take out this type of loan, the bank actually deposits the money into a Certificate of Deposit (CD). You make monthly payments like a regular loan, but you can’t use the money until the CD matures. Then you get your money back, plus the interest earned on the CD. You build credit and build your savings at the same time.

5 Steps to Start Living Debt Free

Ready to break free of your toxic relationship with debt? Read this guide to learn how other people live debt-free.

Step 1: Paying off all your current bad debt

This is an obvious place to start. Paying off debt can be difficult, and it won’t happen overnight. Yet, it’s totally necessary for debt-free living. You can pay off your debt in a variety of ways. Confused about which method to go with? Call a certified credit counselor for a free debt and budget consultation today.

Need help starting your debt-free life? Get a free debt and budget evaluation from a certified credit counselor today.

Step 2: Assessing debt and income

The first thing you need to do when beginning your debt-free lifestyle is understanding the big picture of your financial situation. Many people avoid calculating the true totals of their debt and income. They are afraid that their situation is bad, and they don’t want to face the consequences.

how to live debt free; calculator and notepad with budget written on it

Let go of that fear and find your true totals. It’s the only way to see your money clearly and prepare for the next step.

Step 3: Creating a budget

When you have a clear view of your debt and income, it’s time to use that information to create a comprehensive budget. Take your time with this step. You want to be extra thorough and make sure you don’t forget anything.

Start by detailing your total monthly income. Then, write down all of your expenses divided into “necessities” and “discretionary spending.” Once you have all of your categories, start setting limits for yourself. Be realistic and consider how much you already spend. If you usually spend $400 per month on groceries, it’s not feasible to set a goal to only spend $40 per month.

Budgeting Made Easy: Make Budgeting Simple


Money Management

Budgeting is fundamental. Learning how to build a budget provides the foundation you need to build a stable financial life. This booklet teaches you how to make a realistic spending plan that will help you manage credit card debt and achieve your savings goals.

Open Booklet Download Booklet

Step 4: Prioritizing saving and emergency funds

You can only maintain a debt-free life if you can avoid taking on bad debt in the future. The best way to do this is by prioritizing saving money and building your emergency fund. This is the secret of this step: step 2 isn’t done yet. You made your budget, but until you add monthly contributions for emergencies and savings, you aren’t finished.

Automate your savings; manually pay your debt.

Josh Hastings, MoneyLifeWax

Discover the process of creating an emergency fund »

Step 5: Living within your means (and using credit responsibly)

Congratulations! You made a budget and put saving closer to the top of your list. Now the only thing left to do is stick to it. When you follow your money guidelines and avoid taking on any new bad debt, this is living within your means. Continuing to educate yourself on personal finance will also help you maintain your debt-free lifestyle.

Cancel recurring charges you can live without.

Alison Tedford, Sparkly Shoes and Sweatdrops

3 Best Parts of Living Debt Free

Keeping more of your income

Living with debt means putting much of your income toward monthly debt payments. Living debt-free means keeping much more of the money you earn for yourself! Having more cash on hand makes day-to-day living much easier. It’s also easier to save money.

Enjoying improved mental health

Debt has a measurable negative effect on your mental health. Getting rid of it reduces stress and gives you more time to do the things you love.

Coping with Financial Stress: Strategies for Emotional and Financial Wellness

Coping with Financial Stress

Money Management

Financial stress can affect your life at home, your ability to be productive at work, and your relationships. This booklet offers guidance on steps you can take to minimize financial stress and deal with the finances that that are keeping you up at night in a practical way. Learn how to set realistic goals and have the right money mindset.

Open Booklet Download Booklet

Looking forward to an easier future

Along with keeping more of your income, debt-free living also means you can invest more of your income into your retirement fund. A bigger retirement fund means you are more prepared for the future – and the relaxing retirement of your debt-free dreams.