How to Become Debt Free This Year

It’s no secret that carrying debt keeps you from reaching your financial goals.

In fact, Kristin herself reflected on paying off debt for years, and we understand that many people carry debt but are looking to pay it off.

But, how can you become debt free this year, especially when inflation is high and jobs aren’t keeping up with an increase in costs?

According to Clever Real Estate, 47% of Americans say credit card debt prevented them from having sufficient emergency savings, while 22% could not buy a home. But, all hope is not lost.

If you are currently in debt, it’s totally possible to pay it off and become debt free this year (or sooner rather than later). Using the four steps below, you can become debt free and develop healthy financial habits!

1. Track and reduce your expenses

There are several ways to reduce costs: modifying purchasing, renegotiating costs, and sticking to a budget. Let’s talk about how each can help you inch towards debt freedom.

Trim excess costs

List out your monthly purchases and brainstorm ways to spend less. Here are a few of our favorites:

  • Stop making impulse purchases and appreciate the possessions you already own
  • Ditch name brands and select generic brands
  • Cut out subscription services you don’t need, like Amazon Prime, cable, streaming services, unlimited cell phone plans, and DoorDash.
  • Renegotiate insurance, credit card, and personal loan APRs
  • Save money on items you already purchase, both online and in store

Stop borrowing money

To become debt-free quickly, you need to stop borrowing money. Yes, it can be hard, especially if you have more month than money.

But if you quit using credit cards to make purchases and get used to using cash on hand to purchase food, gas, etc, you can slowly stop relying on credit cards.

This will help you keep more money in your pocket overtime because you’re no longer paying extra for interest!

Using cash will also make you think twice about the purchase and help you understand how much money you spend daily.

Utilize a budgeting app. 

As you begin to lower your expenses and become more aware of your money, using a budgeting app can help you automatically track and budget your income and expenses.

If you prefer pen and paper, that’s okay, you can use a notebook or budget planner too. Whatever helps you stay within budget is best!

2. Renegotiate high-interest debts and insurance costs.

While mortgage and student loans generally have a fixed APR (unless you can refinance), credit cards and personal loans can vary widely in APR.

And with APR rates rising over the last few years, it’s more important than ever to try to renegotiate.

If you are dealing with high-interest debts, did you know that you can request lower APRs and fees? Here’s how.

High-interest credit cards

If you have a credit card through American Express, you can apply for their financial relief program.

The program can reduce your APR, pause late payments, and forego annual membership fees. 

Other credit card companies may have a similar program if you want to reduce credit card debt. Contact each company separately to see if you can apply for relief.

Check out our best tips on how to pay off $5,000 in cc debt.

Of course, always be courteous when speaking with customer service. When you’re nice, they’re more likely to help you.  

Personal loans

Personal loans usually result from unnecessary spending or an unexpected medical event and can, unfortunately, come with a high APR.

If your personal loan has a higher-than-average interest rate, you should consider refinancing the loan with another lender.

When refinancing at a lower rate, you can also pay more than the required monthly payment, helping you get out of debt faster.


Insurance premiums for your home, auto, and health can take a significant portion of your monthly budget. Contact customer service once a year a couple of weeks before your policy expires.

It might take some time on the phone, but having an agent search for new discounts or more affordable plans can save you hundreds on an annual premium.

Always weigh the pros and cons when changing your insurance plan. Don’t forget to compare prices between companies for the best savings.

3. Determine a debt payoff plan that works for you

There are four main ways to pay off your debt.

No matter which you choose, sticking to the plan and paying more than your minimum payments can help you become debt free faster.

Debt snowball

The debt snowball method is excellent for people who need to start with baby steps.

The concept is simple: tackle your smallest debt balance first while making minimum payments on your other debts. 

Once you pay off your smallest debt, then you can move to the next lowest balance. With the first debt paid, you can add the money you used for your first debt plus your regular monthly payment.

Using this method accelerates getting out of debt without getting too overwhelmed.

Debt avalanche

If you have loans or credit cards with high-interest rates, consider using the debt avalanche method. Using this method, you start with the highest APR first, then the second highest, third, etc.

Paying off your first loan might take longer, but you will pay less interest charges.

You will still make the minimum payments on your other debts, and any extra cash will go toward your highest APR debt first.

Debt consolidation

Debt consolidation combines all of your debt into a single account. If you have multiple small debts, this might be your best option.

You can consolidate your debt into a debt consolidation loan or, if you have good credit, a 0% balance transfer credit card.

Debt management

A debt management plan can help people who owe more than $10,000 in combined debt but still can make a monthly payment.

You will streamline your debt and receive tools that can help you make smarter financial choices in the future.

4. Consider starting a side hustle

One of the best ways to become debt free is to make extra money.

Whether you ask for extra hours at work, pick up a part-time job, or start your own side hustle, any extra money can help your situation tremendously.

Think about it this way: just making an extra $100 per week ($400 per month), you could pay off an additional $4,800 in debt in one year. That’s a lot of money back in your pocket!

Invest in financial counseling

It can be challenging to get motivated when you want to become debt free and can’t see the light at the end of the tunnel.

Fortunately, some nonprofit organizations can help you create a budget and provide strategies to pay off debt on your timeline.

Consumer credit counseling services from a trusted source can give you options other than bankruptcy and even contact lenders to reduce interest and fees.

How to become debt free this year: Stay motivated. Stay accountable.

Getting out of debt isn’t easy, but it is possible. You are bound to make financial mistakes while paying off debt, but you need time to create healthy habits to reach your financial goals. 

If Kristin can do it, and the rest of us at Believe in a Budget, we know you can do it too, and we’re rooting for you!

This post may contain affiliate links. Read our disclosure for more info.

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