Debt-free article

3 Steps to Being Debt-free

How to gain control over what you owe

Debt management in America remains a roller-coaster issue.

Since the 2008 financial crisis, U.S. citizens sharply decreased their debt. But as the economy strengthens, those levels are slowly rising again. The Federal Reserve reported that total consumer debt rose 9.7 percent to approximately $3.24 trillion in July 2014, the largest increase since July 2011. Of that amount, $880.5 billion was revolving debt, which primarily consists of credit card balances.

However, in some regions, spending is still decreasing. Arizona recently experienced the largest annual drop in average credit card debt nationwide, according to TransUnion data. In the second quarter of 2013, the average Arizonan carried $5,349 in card balances, which fell to $5,241, or a little more than 2 percent, by the second quarter of 2014.

Being debt-free is possible, but it requires a plan. Try these steps if you’re ready to gain control over what you owe.

Step 1: Get an accurate financial picture.

Find your financial starting point by ordering a copy of your credit report and credit score. They will have your current debt obligations, interest rates, credit evaluations and any errors, which you can begin fixing. For a free report, visit or, and be prepared to pay about $20 to obtain a one-time “snap shot” of your credit score from

Fill in the picture by figuring out precisely how you spend your money. suggests writing down every cent spent for a month, from rent to the $2 coffees at the corner café. Random purchases can eat away at income in surprising ways. According to, each year, American women, ages 30-49, spend an average of approximately $1,200 on cosmetics alone.

Step 2: Adopt a simpler way to budget.

Several methods exist for establishing a budget, but some are just easier. The 50/20/30 guideline splits your spending into three broad categories of 50 percent of your monthly income allocated for fixed costs, 20 percent for financial goals and 30 percent for flexible spending.

  • 50 percent: Fixed costs are bills and expenses that don’t vary much, such as rent, utilities or car payments. Gym memberships and Netflix subscriptions fall into this category because they are set monthly obligations; however, those are also easy places to cut.
  • 20 percent: Financial goals are investments for your future. Paying down credit card debt, saving for a home or building a nest egg goes here. Credit counseling means seeking out a reputable organization and enrolling in a debt management plan (DMP), but it can be worthwhile. According to a recent Transparency Project report from Cambridge Credit Counseling, clients on DMPs received interest rate reductions averaging 14.49 percent.
  • 30 percent: Flexible spending covers food, entertainment, shopping, hobbies and gas. Financial planners highly recommend building some degree of flexibility into a budget, so that you stick with it.

Step 3: Find ways to make money beyond saving more and spending less.

Find or free up some cash to pay down debt with some inventive strategies:

  • Sell stuff you don’t need. Ebay, Craigslist and old-fashioned garage sales can generate money just for debt reduction.
  • Cash in part of your insurance policy. recommends this tip if you have a whole life insurance policy that has cash value available. If you have beneficiaries, only use part of the value, not all, to pay down debt quickly.
  • Negotiate your interest rate. A national survey by found that 56 percent of consumers who called credit card companies to ask for a lower rate had positive results.
  • Reconsider your big nest egg. Your savings may serve you better lowering your debt. says to compare the interest rate being earned on your savings to the rate being charged on your credit cards and to put extra money on whichever is higher.