18 Ways To Become Debt Free

Updated: Aug 16


Women with her arms stretched out looking at the sun.
How can you become debt free, and is it worth it?

I hear people say they became debt free, and I often wonder what it really means. Because……….most times they are still paying a mortgage and/or a car note.


Everybody owes somebody, even rich people use credit. They may pay it off but at the moment they swipe, they owe.


So, does debt free mean you have paid off all your debt or does it mean you have paid off all your “bad” debt.


Can one truly be debt free?



What is debt ?


Debt is borrowing money from an entity. Now by entity, I mean: a person, a company, a financial institution, or government.


Some debt is considered “good debt”. When debt is going to increase your income, it is considered good debt. That makes sense!


This means your student loans and mortgage can be considered “good debt” because it has the potential to increase your income and grow your wealth.


Any debt, however, can turn bad if the rates are too high or it is not handled responsibly. So with that being said, if you aspired to be debt free, could you do it? Is it really possible or even plausible?


First, let’s take a look at 18 ways to become “debt free”....................


18 ways to become debt free


Debt avalanche
Refinance debt
Debt snowball
Re-examine your budget
Build a budget
Bump up your debt repayment percentage
Dedicate unexpected windfalls to your debt
Use savings to pay down larger debts
Meet with a credit counselor
Use your tax refund check to pay down debt
Negotiate debt settlement
Sell items for cash
Consolidate debt with a personal loan
Consider withdrawing from your life insurance
Use a cash-out refinance
Do a credit card balance transfer
Pay more than the minimum payment
File for bankruptcy (Last resort)


Debt avalanche

white snow falling down a mountain.

If you are contemplating making a break from mountains of debt, one method you could try is called “debt avalanche”. Debt avalanche is when you pay debt according to the APR %.


For example, if you have a credit card that has 25.5% APR, you would pay this off first, then pay off your car note that has an 6% APR.


You could do this with personal loans, student loans, mortgage, etc.

You would pay the minimum balance on all your loans, but pay a higher amount on the debt that has a higher APR %, until you are done with it.


Then move on to the next one.



Refinance debt

Interest is sometimes what kills us when it comes to debt. Most people don’t even see it coming, because they don’t see it’s costing them down the line.


They want to know what it will cost them now!


That's how lenders are hoping you think, when it comes to interest rates.


But to combat this, search for lower interest rates and refinance your debt. You can do this with just about any loan you have.


The less interest you have the faster you can pay off debt.


Debt snowball

A kid building a snowball.

Debt snowball is when you pay off your smallest debt first. You will still pay the minimum on your other debt. But you will put a larger amount on your smallest debt to pay it off.

For those of you who like to celebrate the small wins, this is a great strategy for you. It makes you feel like you are accomplishing something.

And, you are!

But, debt can be overwhelming and paying it off this way will give you little things to celebrate along the way.


Build a budget

Creating a budget is another strategy to become debt free. Knowing where each of your dollars are going will help you to decide where to best spend your money.

You will be surprised, despite the recession, the amount of money you have. But you will never know if you don’t take inventory of it.

I know this is making it seem like your finances is a “big corporation”, but when you stop to think about it, you are your business and your finances is corporation money.

Take inventory of what is costing your business so much money. Do it with the sole purpose of having extra to pay off your debt. Savings will have to wait.



Pay more than the minimum payment

To pay off any debt you have to give them more than they’re asking for. So try to pay more than the minimum balance to pay down or pay off your debt.

If you are tight on cash, start small , then, as you eliminate debt, instead of putting the extra into savings just yet, put it into paying above the minimum on another debt until you are done.

Re-examine your budget

Once you create a budget, revisit it in a few months. I personally re-examine my budget quarterly (every 3 months).

Now don’t get me wrong, I budget every month, using the “no budget” method…….yes this is a real thing………but I re-examine it quarterly.

If you are trying to pay off debt this is a good strategy, because we get so busy with life……..we get a good routine going, that we don’t realize that this routine may longer benefit our needs.

You may be at a point where you can allocate funds from one expense to help pay your debt faster.

You will never know until you take another look at that awesome budget you created.


Bump up your debt repayment percentage

Take the extra money you save to put towards lowering your debt percentage.

This means that you will have to forgo those name brands for a while until you reach your goal.

Dedicate unexpected windfalls to your debt

If your parents recently sold their home and want to give you your share now, or your stocks you bought years ago just “raised the roof”, the first thing you think about is treating yourself to something nice with that extra money.

Well, don’t party just yet!

Take that unexpected windfall and use it to pay off your debt.


Use savings to pay down larger debts

If you’ve been doing a good job saving money and building a little nest for yourself, think about putting some of it toward your debt.


Keep your emergency fund in tack, but the rest can go towards extra payments to help you pay off your balances.


Use your tax refund check to pay down debt

Tax returns and bonuses. Put them to good use by dedicating them to your debt.

I know, I know, you wanted to go to Hawaii this summer, but think how much more you’re gonna enjoy Hawaii when you're debt free.

If being debt free is your goal!

Getting a large amount of money like this is a great way to give yourself relief and pay off as much debt as you can.

Ok, Ok, ok, put some aside for Hawaii, but the rest goes to debt.


Sell items for cash

Garage sell with all the items you no longer use.

Have some cool stuff around the house, things you didn’t even remember you had!? Sell it!


Selling items for cash is a great way to make extra money, and although you aren’t going to be rich from your sales, you can be richly happy with enough money to pay down your debt.

You see what I did there…………Any who, don’t count this method out, because every little bit helps you get closer to your goal.



Do a credit card balance transfer

If you are paying off credit card debt, a smart thing to do is transfer your balance to a card with a lower interest rate.


This will help you pay more toward the balance, less on interest, and pay it off quicker.


Check to see if your current card company will offer you a deal before you apply at another company.


You can call or apply to upgrade your card online.


When you apply online, even if they tell you you are not eligible at the moment, wait a few days, it triggers some sort of signal and they will offer it to you a few days later.


Now these next few suggestions are alternatives, if you may have let things get a little out of control.


Negotiate debt settlement

Call your creditor to negotiate a settlement. This may be beneficial if you have received a large sum of money and don’t want to spend the next few months paying off your debt.

They will give you a slightly lower percentage of your overall debt you can give them in a lump sum and you’ll be done with it.

This works if you no longer have use for debt, I wouldn’t do this for a debt that’s in good standing because then you start to negatively affect your credit score.

I would definitely do this if I had a debt that I was struggling to pay and it’s always past due.

If you are just not able to handle the debt anymore, ask to settle to get it out of your life.


Consolidate debt with a personal loan

Since it takes one to know one, take a debt to pay a debt! You can take out one loan to pay off the small loans that you’ve accumulated.

This'll give you relief if you find it hard to keep up with so many bills you’ve stacked up .


Be careful with this, though. It only works when the loan is enough to cover all the debt you’re trying to eliminate.

Consider withdrawing from your life insurance

If you’ve had a life insurance policy for quite some time, check to see if you’ve built some equity in it.


It usually takes years to build the cash value component in your life insurance


If so, cash it out to pay off your debt, in most policies, you won’t have to pay that money back.


But beware, because you will most likely have to pay taxes on the amount you take. Do your research before you make any moves.



Use a cash-out refinance

This will work if you have a nice bit of equity in your home, you can refinance your home for a larger amount than what you currently owe, then pocket that amount to use toward your debt.

For example, if you purchased your home at $250,000 and you’ve paid $100,000 into it, you can refinance your home for $150,000, take the $50,000 and do with it what you please.

In your case, pay off your debt.

You can even do this if you have not paid off this much of your home but the market has changed and you now have a decent amount of equity in your home.

But make sure you consider closing costs and other fees that go into refinancing.


Meet with a credit counselor

Women giving financial counsel to a gentlemen
When debt is too much to handle alone, call in reinforcement.

If all of this is a little too much for you, seek credit counseling.

They’ll help you prioritize your debt, negotiate with the creditors, and put you on a personalized debt management plan.

If you feel overwhelmed about your debt, you are not alone. Having someone point you in the right direction could be the best fit for you.


File for bankruptcy (Last resort)

Now if you are just way in over your head and just want it all to end quickly, you could file for Chapter 7 or Chapter 13 Bankruptcy.


Before you take this last resort step, keep in mind that it takes time to build your credit. You’ll have to wait 7 years before you can apply for anything. This includes a home or a car.