The case for being completely debt free and how it can positively impact your mindset (2024)

The Mint app has shut down as of Jan. 1, 2024. For alternatives, check out CNBC Select's ranking of the best budgeting apps.

Americans are no strangers to being in debt, so much so that it's now simply become a way of life for many. According to 2021 Experian data, the total average debt balance across all consumer products was $96,371, reflecting an increase of 3.9% from the year before.

While the total levels of debt have increased in recent years there are still many Americans who are aggressively working to pay down their debts. For some, becoming debt free has completely changed how they view personal finance.

Select spoke to several Americans who are currently living debt free and details on how you can do it, too.

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For many, living debt free is a dream that unfortunately may feel far from reality. Whether it's a matter of strategic debt, such as a low-interest-rate mortgage or student loans, or high-interest-consumer debt that's from a credit card, many Americans are accustomed to living in the red.

For some, however, the very idea of owing someone money creates a sense of dread and the feeling of a large weight on your shoulders. This feeling alone is reason enough for many to fully prioritize paying down their debts.

Tara Falcone, chartered financial analyst, certified financial planner and founder of the app Reason, explains how doing paying down your debts can fundamentally change your life and give you a sense of freedom.

"Individuals that are completely debt free absolutely have a different mindset. There's a greater sense of peace, freedom and opportunity that comes with being debt free," says Falcone. "Not owing anyone anything or being beholden to anyone offers debt-free individuals more options and control over every dollar they own. When you have no debt, you're able to, with 100% freedom, decide how and when to spend your money."

While Jasmin Beltran, a communications and public relations manager at Albert, is now at the top of the debt-free mountain, her journey there wasn't easy. After graduating from college, Beltran accrued both student debt and credit card debt —between her modest starter salary and New York City living expenses, she was making little headway on repaying them.

At the onset of the pandemic, like many young professionals, Beltran moved home to Arizona, using the opportunity to pay down all of her debts. After six months of saving and paying, she was finally debt free.

Beltran says she has now experienced the same sort of euphoria described by Falcone. "The biggest change for me has been a shift in the way I think about debt and money overall," she says. "I am definitely more careful about jumping into debt now knowing how quickly toxic debt like credit cards can grow."

That said, she also remains pragmatic in her views regarding debt: "I've learned not all debt is bad debt," Beltran says. "Things like student loans add value to your life and help you gain more opportunities. It's about finding the right financial mix for your situation."

Living debt free has also given Beltran a new sense of freedom —she is now living in New York City once again — this time without roommates — and focuses on investing for the future.

Dr. Alex Melkumian, founder of the Financial Psychology Center in Los Angeles, says becoming debt free is connected to understanding what's important in your life. Those striving to be debt free have to manage their expectations and emotions, says Melkumian, since some will not be able to immediately afford buying a house or new car after paying off their debt. He adds that while no strategy is perfect, aiming for perfectionism isn't the best approach. It's better just to get started than overthinking what strategy may be best for you.

Here are a few tips to consider when designing your own debt-takedown strategy.

Know what your debt amount is

Once you've made the decision to pay down your debt, the first step is to find out exactly where you are and what you're up against, which may in fact be the most excruciating part of your journey.

"Login to all of your [financial] accounts," says Falcone. "Open any unopened credit card or student loan bills you've received. Then take stock of every debt you have. Write down the balance, interest rate and minimum payment for each. Finally, add all of the balances together to know exactly how much debt you have to pay off."

Pick a debt paydown strategy

Here are several well-known methods to help you pay down your debt:

• Debt snowball: When you roll a snowball downhill, it gains momentum and size. This strategy suggests you eliminate the smallest debt first and work your way up to the largest. While doing this ignores the math of interest rates and other factors, it focuses mainly on the psychology of momentum. Conquering the small debts first will help you mentally tackle your larger debt balances.
• Debt avalanche: Best for those who enjoy working with numbers and knocking down your overall debt, this system suggests eliminating your highest interest debt first while making minimum payments on the others. This will help you save the most on interest charges.
• Debt consolidation: Instead of having five or six debts to tackle, it can be helpful to put everything in one singular place through debt consolidation. For example, I recently consolidated my car loan and student loans through a personal line of credit, which has saved me money in interest and lowered my stress level when it comes to tracking numerous debts. If you have multiple credit card balances to pay off, consider grouping them together.
• Debt counseling: If you're facing significant debt with limited ways of paying it off, consider credit counseling so professionals can help you settle your debt and get you started on a repayment plan.

You can use a 0% APR credit card to perform a balance transfer and save on interest charges to help pay down high-interest credit card debt. The U.S. Bank Visa® Platinum Card provides one of the best overall intro APR periods: 0% for the first 18 billing cycles on balance transfers and purchases (after, 18.74% - 29.74% variable APR; cardholders must complete balance transfers within 60 days from account opening).

Whichever plan you choose, try to stick to it. This will be your foundation for getting out of debt.

Create a budget and cut out discretionary spending

Creating a budget may sound like such a bore, but it's one of the most important parts of building a debt paydown plan. By doing this, you can figure out a nearly exact date of when you'll officially be debt free.

As you create a budget, do your best to cut out discretionary spending, as this particular category of spending is where budgets can get significantly dragged down. Whether it's regular trips to your local coffee shop or shopping sprees on Amazon, cutting down on non-essential spending will allow you to redirect any cash towards your debts.

Consider using a free budgeting tool offered by Mint or Empower (formerly Personal Capital) to help you create a budget and track your spending.

Once you become debt free, stick to a plan to stay that way

Whether your debt payoff date is a few months away or several years away, enjoy the moment when it finally arrives —but make sure you have a plan to remain debt free.

"Be open to potential financial strategies and options available," Falcone says. "For example, people with credit card debt are made to think that credit cards are evil and that they should pay for everything in cash. However, once you become debt free, it is possible to use credit cards as a cash alternative to earn rewards for regular spending so long as you pay off your card in full every month. Like any tool, it's all about how and why you use it."

While personal finance can be about running numbers to see what makes the most sense for your financial goals, that simplification misses the point — personal finance is personal.

There is nothing wrong with not aggressively paying down low-interest debt as long as you're taking care of your emergency fund, putting money away for retirement and accomplishing other personal finance goals.

However, for some like Beltran, finding a new sense of peace by being debt free simply supersedes the math. If you aspire to live debt free, following a few steps —calculating how much you owe, choosing a paydown strategy, creating and sticking to a budget and formulating a plan to remain debt free once you've achieved that goal —will help make your debt-free dreams a reality in no time.

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