How to Live Debt Free

We live in a culture of consumerism that keeps us spending money. Advertising is bent on convincing us that buying things will make us a better, happier,  healthier person. If you can’t afford it, buy now, pay later. There never seems to be any talk about actually living debt free. In fact, we are constantly pushed in the opposite direction. 

Many of us perhaps start out our adults lives with heavy student loan debt. We add to that debt by taking out a mortgage in order to have our own place.  We then upsize to accommodate a growing family and purchase a new vehicle as well.  As life would have it, along comes the unexpected expenses that have to go on a credit card. The end result is that a high percentage of us enslave ourselves to deep personal debt. We then work endless hours to support that type of lifestyle. 

Years down the road we realize we are living under a crushing load of debt. We start to think we are going to spend the rest of our lives under that cloud. Good bye personal freedom. Forget about living a life on our own terms. Living debt free never seems to be part of the equation.

For many of you I know this sounds familiar.  I’ve been there myself. At one point in time I was buried under two mortgages, massive credit card debt, student loans and vehicle payments.  It took me a few years of hard work, selling property, cutting my losses, and living frugally to finally get myself out of debt.  I can now say that I know from personal experience that there are things you can do to change your lifestyle. It is possible to reverse this whole process and live a debt free life.

This is not intended to be a financial counseling seminar.  I am NOT a money expert. There are a lot of people in the world that know much more about money management and finances than I do. However, I can tell you from personal experience the things that worked for me.

How I Became Debt Free

At one point in time I had approximately $295,000 of debt hanging over my head.  I felt as if I was drowning.  But, I made significant changes in my life. I worked really hard to make as much extra money as I could. I drastically downsized my life, I sold property, and then moved back to my homestead in Colorado. In less than 5 years I was completely debt free.  Was this easy? NO!! But now I am debt free.  I easily afford to work part-time.  I travel and take time off when I want.  

From personal experience, I know this takes a lot of sacrifice and commitment to a goal.  But, think of it this way. What you do now will affect your lifestyle 5 years from now. This will help you to focus. Realizing this will help you make better choices, become a discerning consumer, and be careful how you spend your money. Debt does not have to be a way of life. But you have to make a conscious decision that you want to live debt free and make the necessary changes to get there.  

If you are ever going to live debt free, it is important that you change your relationship with money. You need to closely examine your spending habits and evaluate how you budget yourself. That leads us to the following 6 steps to becoming debt free.

Six Steps to Become Debt Free

Step One

Make a conscious effort to stop borrowing money. Putting something on a credit card is the same thing as borrowing money.  If you want to become debt free as quickly as possible, stop using debt to finance your lifestyle. If you must make a new purchase, such as a new vehicle, wait until you have a significant down payment so that you have a very low monthly payment.  This makes it possible to pay the loan off quickly. 

Step Two 

Put together a realistic budget and stick to it. Start by keeping track of every single expense, no matter how small. Do this for at least a month, preferably two.  This will give you great insight into how you are spending money.  You should easily find areas in your life where you can curb your spending. You need to learn to live within your limits. Besides, spending more than you earn will never make you debt free.

There is one thing that I’ve done for years  that has worked well.  I always strive to make sure my monthly income is 30% greater than my monthly expenses. Then I stick to a tight budget. This allows me to always meet my expenses, take care of the unexpected, and save money as well. 

Another possible approach, recommended by NerdWallet, is to use the principle of the 50/30/20 budget as a guide. Essential expenses, such as housing, should be kept to 50% or less of your income.  Set aside 30% for wants and 20% for savings and paying down debt. But, since you are trying to pay down debt, you may decided to set aside 30% for savings and paying down debt and 20% for wants,which ever works best for you.

Additionally, as part of this process, make a list of the things in life that you value. Or make a list of the things in life that bring you value. If you are spending money on things that do not bring value into your life, then you need to get your spending in line with your values. You need to start thinking more in terms of needs instead of wants. Always buying what you want will burying you in debt. Good bye debt free life. 

Step Three 

Start saving money.  You need to have an emergency fund.

Did you know that 69% of all Americans do not even have $1000 in savings.  Additionally, 50% of Americans do not even have a spare $400 to take care of an unexpected expense. That being said, how can the average person ever think about being debt free?

It is highly advisable to start with at least a three month reserve. Then build up to 6 months.  Then one year. This means having enough money in the bank to cover all of your monthly living expenses without any sort of income.  If your income exceeds your monthly expenses by 30%, it is easy to put extra cash into an emergency fund.  You need to do this even if it means finding extra work. Having the emergency fund means you can cover unexpected expenses without using debt (credit card) to fund your lifestyle. It is extremely important to get in the habit of saving money. Having extra money to take care of the unexpected is an important step toward properly managing your finances and being debt free.  

Step Four

Put any extra money you have toward your debt.  Start with the debt that has the highest interest and work your way down.  I used thus method years ago when I was paying off a high debt load.  I started with paying off one credit card. Then I took the money I used to pay on that debt, and applied it to another debt on top of the normal payment. I kept applying this strategy and after about 2 years I was paying off my remaining debt at an accelerated rate. My debt free lifestyle was approaching quickly. 

Step Five 

Disconnect yourself from all of the consumerism. Buy only what you need.  Cut out expensive habits such as smoking, drinking regularly, partying, eating out, and habitual shopping. 

It is also extremely helpful if you unplug yourself from the daily onslaught of advertising. I gave up watching television many years ago and have no desire to go back. I feel as if this one simple thing has gone a long way to producing a better quality of life.   

Downsizing your life is key to reducing your financial responsibilities and living debt free.  Reduce your living expenses to the bare minimum and get a good idea of just what you can live without.  Get rid of unnecessary memberships, credit cards, and subscriptions services that you rarely use. Instead of paying for an expensive gym membership opt for outdoor activities that cost nothing.

Step Six

Earn more.  You have to earn enough money to repay the debt.  

Let’s face it.  You cannot pay off your debt if you have a life where you are barely making ends meet. Being in this situation is frustrating and discouraging.  But changing this is a matter of changing the behavior that got you into debt in the first place. Forget about using your credit card as a safety net.  

You must realize that in our culture the rise in cost of basic expenses such as food, clothing, medical, and housing, tend to out pace the rise in pay scale.  What this means for many households is that more and more people are using credit cards to finance their lifestyle. Statistics for years have stated that the average American household is living beyond their means. This becomes obvious when you realize that the average debt load of the American household is almost twice the median household income. So, what is the answer?

 It is extremely important to be in a financial position where your monthly income is 30% greater than your monthly expenses. This makes it possible to simultaneously pay the bills, put extra money toward your debt, and save money.  If your present employment situation is not going to make this happen, then figure a way to earn more.  

Work a part-time second job. Start a small sideline business. Work online through various project job sites. The point is this.  You are going to have to put out some extra effort, maybe for even several years, if you are truly committed to living debt free.  

Once I realized I needed to get out from under a huge debt load, I knew I was going to have to change my lifestyle and put out some extra effort.  Fortunately for me, because of my line of work, I have almost unlimited opportunities to take on extra gigs. That is what I did.  For 14 months I worked between 100 and 120 hours per week.  I was able to pay off $48,000 worth of debt during that time.  Once that debt was paid off, I took a wonderful and much needed 9 week vacation. 

The Result of All Your Effort

A significant portion of people in our culture live under a crushing load of debt and feel as if they will never see the end of it. But you have to realize they did not get there over night. Eventually they found themselves in that position because of a series of bad decisions. Perhaps you are in that position as well. But this does not have to be the end of the story.  You can change that.  I know this because it is exactly what I did.  I got rid of approximately $295,000 worth of debt in less than 5 years. For the first time in my adult life, I was completely debt free.

The end result was that I was able to make significant improvements on my homestead and pay cash.  I built a new cabin, installed solar, built a new woodshed, storage shed, chicken barn, and earth-sheltered greenhouse over a three year period.  I still remained debt free.  

For the first time ever I was able to take month long vacations by simply working a few extra days per month for a couple of months. Before being debt free, if I wanted to take such a vacation, I was working hard for 4 to 6 months.  

Once you are completely out of debt you will experience an incredible sense of personal freedom. Your day-to-day lifestyle and decision making processes will be easier than you could ever imagined. The very way that you go about your day-to-day life will change forever.  That is the good news.  But the downside is that you are going to have to work hard to get there.  

Becoming Debt Free Will Be Hard Work

Unlike what most of the self proclaimed “financial experts” may tell you, there is no magical way to get out of debt.  No silver bullet. The answer is not the same for everyone.  Each situation is unique and will require some critical thinking and personal evaluation.   

I realize this means making significant changes and potentially some personal difficulty. But, decide on what kind of lifestyle you want, set a goal, and stick to it. Always remember that what you do now will have a direct affect on your life 5 years from now.  Get in the habit of making better decisions.

One thing I can almost guarantee, once you are out of debt, you will never allow yourself to go back to being financially challenged.  Being out of debt relieves a lot of stress and will allow you to make decisions in your life with much greater ease. It is never too late to turn things around.

What Does This Have to Do With Living Off the Grid?

You may be asking what the heck this has to do with living off the grid and being self sufficient.  Bear with me for a moment. 

Many sources that I’ve reviewed malign the cost of going off the grid.  Everyone says the high cost of going off the grid is the main reason more people do not do it. In my opinion, the cost of going off the grid is far less expensive than living a life on the grid.  

If you give this some thought you will soon realize that paying cash for everything is far more difficult than borrowing money. After all, this is what you have to do in order to remain debt free.  But, I would encourage you to think of this in a different way.  

Let’s say you are completely debt free and want to buy some land, set up a homestead, and live off the grid.  You look for land and find that in order to buy what you want you are going to have to spend $75,000. Few people can pay cash for such a purchase, which simply means you have to borrow money.  

If you are completely debt free, it is so much easier to work extra and save up a $25,000 down payment.  Now you have a reasonable mortgage payment that you can manage while bearing the additional expense of setting up the homestead.  Start by building a small dwelling that suits your needs yet you can easily pay for it. Once that is accomplished, focus on paying off the land mortgage.

With forethought and planning you can first get completely out of debt. Then if you need to borrow money to live the life of your dreams, you end up with a very manageable debt load that can easily be paid off in a short period of time.  Mean while you are living a very economical lifestyle that is not only sustainable but also promotes rapid pay off of any debt you had to acquire in order to live the way you want.  

The point is this.  YOU are in control of your situation.   Your debt load is no longer a deciding factor in how you live. With being debt free, you will no longer feel the economic pressure that most people live with everyday. The average person spends the best years of their life paying off a huge debt load.  Then they try to have some reasonable lifestyle in their retirement.  You do not have to do this. With a little forethought and planning, the debt that you have can be easily managed and does not have to be a deciding factor in how you live.

Additional Resources for Becoming Debt Free

There are so many other really great resources on managing your debt load and getting out of debt.  Here are some links to some great articles. 

The supporters of credit.com have a great article on getting out of debt. 

Read Dave Ramsey’s article on 25 Ways to Get Out of Debt.

Read this article on the 10 Biggest Mistakes People Make When Paying Off Debt. 

Read this article on How to Get Out of Debt Fast. 

By the people of My Finance: 6 Easy Ways to Get Out of Debt. 

By Nerd Wallet: Debt Management Plans: Find the Right One For You. 

And before you try any sort of debt management program, read this article from Dave Ramsey The Truth About Debt Management.

Additional Posts of Interest

58 Ways to Make Money on the Homestead

Why the 30 Year Mortgage is Not Your Friend

The Importance of Simplifying Your Life

Go off grid and live well, 

Patrick