How to Live Debt-Free: A Guide to the Debt-Free Lifestyle

Key takeaways

• Making a realistic budget and picking a payoff method are key for getting out of debt.
• Starting an emergency fund and planning for the future can help you stay debt-free.
• Once you’ve paid off everything, stick to a debt-free mindset and avoid borrowing.

Living debt-free, without the financial and mental burden of owing money, is possible — though it’s not always easy. You’ll probably need a budget, some money for an emergency and the right mindset. Still, it can be done, even in 2025.

How to live debt-free: 6 steps

You’ll need to both get out of debt and stay out of debt. Here are some steps to consider:

1. Assess your financial situation

Start by listing every debt you hold, including amounts, interest rates and terms. This way, you can take stock of your debts, be aware if you’re running up your credit card debt and have an idea of how much ground you need to make up to get out of debt.

2. Create a budget and spending plan

Next, it’s time to create a payoff plan. You can pick a strategy that works best for you.

For example, the debt snowball method has you pay off your smallest debts first, to get some satisfying quick “wins” to help with motivation. Meanwhile, the debt avalanche method has you pay off your debts with the highest interest rates first to save the most money.

You can compare the different repayment methods, and even mix and match as you think best.

But whatever path you choose, a budget will help you pay off your debts. Compare how much you make to how much you spend (including on your debt payments) and figure out how to close any gaps by cutting costs or raising your income (see step 4).

3. Build an emergency fund

An emergency fund is key to a debt-free life because it lets you avoid more debt when the unexpected happens.

Ideally, your emergency fund should have enough money to last you three to six months, including covering rent or mortgage payments, groceries, health insurance and the like.

That seems like a lot, but you can start small. Even setting aside $25 a month to a dedicated savings account is a good way to begin. You can also take advantage of surprise windfalls, like pay bonuses or tax refunds.

4. Increase your income

Raising your income is an extremely powerful way to pay off debt or build an emergency fund. The easiest way is to get a pay raise at work. A recent LendingTree study found that 82% of workers who asked for a raise got it.

You can also earn extra cash with a side hustle or passive income stream. By spending even just a few hours a week, you can make extra income to use on your journey to a debt-free life.

5. Consider professional advice

Managing your money can sometimes be a little more complicated than grade-school math, and you might not know all the ways you can improve your financial situation. In some cases, it could make sense to call in an expert.

A qualified financial advisor can suggest the best money moves to make. The National Association of Personal Financial Advisors (NAPFA) could help you find one within your budget.

If you’re having trouble just getting by and are taking on a lot of debt, you might need credit counseling to figure out your options. This service is often offered by nonprofits and can be a low-cost option for those who need it. The National Foundation for Credit Counseling (NFCC) can help connect you with credit counseling services.

6. Value a debt-free mindset

Working toward a debt-free life shouldn’t end after your debts are paid off. To stay free from owing balances and interest payments, you’ll want to keep a debt-free mindset.

Try to develop habits like waiting 24 hours before making an online purchase. Avoid using credit cards and delete saved credit card information from your browser to avoid making impulsive purchases that you’ll regret later.

Look ahead to costs you might face down the road. Think about when you might need to buy a new car or computer and consider creating sinking funds (savings accounts meant for specific purchases) so you won’t need to borrow money when the time comes.

Advantages of a debt-free lifestyle

A debt-free life means…

• Not worrying about debt payments
• Not owing interest
• Being able to handle emergencies without borrowing
• Not depending on a credit card to get through the month

Living within your means can be difficult — especially when emergencies come up, whether it’s a popped tire or a broken leg. And when inflation pushes prices higher, living without debt can be challenging.

But if you understand how debt works and are willing to take the necessary steps, you can live a comfortable life without owing anyone anything.

Understanding debt

When you borrow money, you usually agree to make monthly payments of both the principal balance (the amount you borrowed) and the interest (your “price” for getting the loan), along with any extra fees that may apply.

Some debt, like a car loan, has a specific amount and payoff schedule — these are installment loans. Others, like credit cards, let you keep borrowing up to a set limit so long as you keep repaying a set portion — this is called revolving debt.

Debt can also be divided into good debt and bad debt.

• Good debt helps you build wealth. This can include student loans, auto loans and mortgages.
• Bad debt is for things that don’t build wealth or that you can’t afford. This might include credit cards used to fund a more expensive lifestyle than your income can handle.

One of the worst parts of debt is paying interest — it can be expensive, and the longer you wait to become debt-free, the more you’ll pay.

Understanding debt will help remind you why avoiding borrowing money is worth the effort.