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Becoming and Living Debt Free

Jul 11, 2017

Are you in debt? If so, you’re not alone. The average American is carrying $135,924 in debt today.[i] It’s little wonder that many of us feel as though we may never escape from under the overwhelming amount of money we owe.

For many of us, debt starts mounting as soon as we graduate from college. Graduating seniors left school in 2015 an average $30,100 in debt.[ii] Not exactly the way many of us imagined our lives starting out.

When you factor in a new car, a first home, and the use of a credit card to get you through a few slow months, you are now looking at a potential mountain of debt.

The hardest thing about having so much debt is finding a way to tackle it. While it may not be easy, becoming and living debt free is possible.

Knowing Where You Stand

Sure, you know you have some student loans to pay off. Perhaps a few credit cards. Maybe even a personal loan you took out a few years back that just won’t go away. But do you know what you really owe?

Although it might be difficult, if you truly want to get a handle on your debt, you’re going to have to go over everything you owe to find your true debt number. This will allow you to move forward and make a plan of attack. It will also help you understand whether paying down your debt is really within your financial means.

can help you get an overview of how much cash you have versus your level of debt. Make sure that you account for every last penny you owe, including items such as unpaid parking tickets or past due bills from an apartment where you used to live. While you may think that these debts have simply disappeared, they can come back to haunt you and your credit score when you least expect it.

Becoming Debt Free

It may seem as though you will never pay off your debt, but there are several methods that will allow you to start small and work your way to being debt free. First, you need to know your budget. Realizing how much money you truly bring in and how much your mandatory expenses are (and, no, we don’t mean dinners out or your favorite latte) will help you create a plan to pay down your debt.

Tracking where every dollar is coming from and going to will help you determine how much money you actually have to pay down your debt. Depending on the rate that you want to pay down your debt, you can find different ways for you and your family to cut back.

Out of Sight, Out of Mind 

If you know you will spend any money that is in your bank account, open a separate savings or that you will devote solely to paying down your debt.

Automatically transfer a lump sum out of your paycheck to this savings or money market account to ensure that you stick to the budget you have set. Your account can also help you earn interest on the funds that you are setting aside.

How to Pay off Debt by Yourself 

Once you have established how much leftover income you can put towards your debt, there are a few ways you may decide to tackle paying it down.

For some, starting with the smallest balance can provide them with an instant feeling of satisfaction. By paying off and closing a small amount of debt, you can feel like you are well on your way to success. It can also help relieve stress by having one less line item on your budget.

Others may find it more advantageous to take on their biggest challenge head on. Look at your largest debts and decide what you want to pay off first. For many, paying down student loan and mortgage interest can result in tax relief in the form of incentives. Talk to your tax professional to find out whether paying down these big ticket items can reward you with a large refund that you can use to pay down even more debt.

The most important factor to review is the interest rate associated with each debt. If your highest bills feature a 3% to 5% APR, they will cost you far less in the long term to pay back than a credit card that charges you a 25% APR on your unpaid balance. Paying down absurdly high interest balances can save you hundreds or thousands a year depending on your level of debt.

Consolidating Your Debt

For many, student loans were among the first debts they took on. Unfortunately, if you needed to take out that loan on your own without a cosigner, that lender may have charged you a much higher interest rate than someone with established credit.

Debt consolidation is potentially ideal for individuals who borrowed money when interest rates were high or they had a less-than-ideal credit score. When you consolidate, you lump a portion of your debt into one singular loan that features a lower interest rate than your existing debts.

This is a great solution for many people. It reduces the number of bills to keep track of while keeping mounting interest payments at bay. Look into to find out what interest rate you could qualify for.

Talk to Your Creditors

If you have high levels of debt that are past due, it may be time to speak with your credit companies. Some companies may offer deferments or repayment plans that can help you pay off your loan without defaulting.

If you debt is too severe and has gone into collections, you may also be able to discuss a debt settlement option. Debt settlement is when a creditor negotiates down your debt to receive an agreed upon amount now, rather than small continuous payments.


The last resort for many, bankruptcy may be able to eliminate most if not all of your debts in a very short time. Bankruptcy may be a solution for those whose income is too low for them to pay off their debt.[iii] It is also a complicated process, and most people will most likely require the advice of a lawyer to navigate a bankruptcy filing. Talk to a bankruptcy lawyer today if you think this is the best option available to you.

Living Debt Free

Once you have gotten yourself out of debt, it is critical that you don’t let yourself go back. It may be impossible to get your mortgage paid off in just a few years, but it is possible to remain free of credit card debt.

Being Smart with Your Credit

We are not going to tell you to give up credit cards altogether. Owning a credit card can help you build credit and improve your credit score. However, there are good and bad ways to use a credit card.

Select a card that does something for you. Look for a credit card that rewards you for your purchases. Whether it is an airline card that provides you with miles or a cashback card, find the right one for your lifestyle. When researching cards, make sure you look at the annual fees. Many rewards cards may not be worth the fee that they charge you. 

Pay Off Your Balance

The smartest thing to do after you are free of credit card debt is stay that way. Pay off your balance every month. Right now, the average credit card rate is 16%. For those with less-than-stellar credit, the average is 23.4%.[iv] With rates like that, it’s easy to see how you could quickly slide back into debt.

Treat your credit card as you would your debit card. Never spend more than the money you have in your bank account to pay it off. This will allow you to raise your credit limit in case there is ever an emergency that requires you to spend more than you have.

Live with Less

It may seem like common sense, but this can be the hardest part of living debt free. Trying to limit your purchases and continuing to live as carefully as you did when you were paying down your debt can help your build up your savings for other things. Work on putting or an emergency fund so you don’t need to tap into your credit if something should happen.

No matter where you are in terms of your debt situation, the best thing you can do is to start paying down your debt today. Formulate your plan for becoming and living debt free now.

If you would like further information on how any of the or options available from Bank of Internet USA might help you reach your financial goals, please feel free to contact us by phone at 1-877-541-2634 or by email at at your convenience.



[i] “2016 American Household Credit Card Debt Study” NerdWallet.

[ii] “Students Are Graduating With $30,000 in Loans” 18 Oct 2016.

[iii] “Bankruptcy” United States Courts.

[iv] “Average Credit Card Interest Rate Hits Record 16%” Consumer Affairs. 30 June 2017

"Becoming and Living Debt Free"

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