5 Strategies to Help You Live a Debt-Free Life

For many people, living a debt-free life is a goal that equates to financial freedom and thriving, not just surviving. All forms of debt, be it student loans, car loans, credit cards or medical debt, can be stressful, regardless of why you took on the debt in the first place. Not all debt is bad. Low-interest debt that you accrue to help you increase your net worth, such as a mortgage, can be considered good debt.

Getting and staying debt-free can relieve stress and free up more of your money. Here are some tools and tips to help get you there.

1. Figure out what living debt-free means to you

Determine what debt-free looks like for you and what's realistic based on your unique financial situation. For example, it may mean having zero debt, not relying on credit cards, or eliminating any bad debt — like payday loans and high-interest credit cards.

And while there are many benefits to being debt-free, you also should consider some of the potential downsides:

• You may become "credit invisible." Unless you have enough liquid assets to cover your financial needs, having some form of credit is helpful. If you pay off or close your open credit accounts, credit bureaus may be unable to calculate your credit score — making you credit invisible. Without a credit score, you may have trouble getting approved for credit and loans and renting a home. You may also have to pay more for things such as a cell phone or car insurance.

• You'll have to make sacrifices. Getting and staying debt-free will take some sacrifices, such as cutting back on some expenses so that you can funnel more money toward getting rid of debt. On the other hand, to accomplish some goals, you may also have to consider taking on certain forms of debt, like student loans.

2. Know how much debt you have

Before figuring out your approach to living without debt, knowing exactly how much debt you have is good. Understanding your debt-to-income ratio will help you better weigh your options for tackling debt.

3. Choose a payoff method

Here are several debt payoff methods to consider as you work toward being debt-free.

Debt snowball: With the debt snowball method, you prioritize paying off your lowest balance first. You pay the minimum amount on all other accounts. And once you get rid of the lowest balance, you add the amount you were paying to the minimum payment on the next highest debt amount — which grows like a snowball as you roll it.

Debt avalanche: With the debt avalanche method, you prioritize the debt with the highest interest rate while paying the minimum on other debt. Then, you move on to the next highest interest rate once the debt with the highest interest rate is paid off.

Debt consolidation: With debt consolidation, you roll all high-interest debt into one monthly payment at a lower interest rate. Consolidating your debt may shorten the time it takes to pay it off and make payments more manageable.

Debt relief: Debt relief can help ease your financial burden by changing the terms or the amount of your debt. You should explore debt relief if paying off your unsecured debt, such as personal loans and medical bills within five years isn't possible or if the total amount of your unsecured debt is 50% of your gross income or more.

Debt relief options include:

• Debt management.

• Bankruptcy.

• Debt settlement.

4. Find a budget that works for you

Getting into the habit of tracking your money is always a good financial move. And finding a budgeting system that works for you can help you maintain a debt-free life. Try zero-based budgeting, the 50/30/20 method, or the envelope system.

You can also use budgeting apps that automate the process and even find ways to budget that speak to your unique needs and abilities.

Create an emergency fund

As you are adopting your new budgeting system, be sure to prioritize building an emergency fund. Even if you can only manage to put away small amounts at first, having emergency savings can help you avoid new debt by having cash on hand when unexpected expenses arise.

Some ways to build emergency savings include:

• Setting an attainable monthly savings goal instead of aiming to save one large amount.

• Automating your money so that funds are deposited into savings at the same time each paycheck.

• Using savings-focused apps to help you slowly get into the habit of saving money.

5. Manage your emotions

First, it's important to remember that having debt or living a debt-free life isn't a moral issue. You aren't a bad person if you have debt and aren't a good person if you're free from debt.