Debt-Free Living

Interactive Video

[A smiling man is glancing out the window in a relaxed position with his feet on the table and his laptop in front of him.]

[Picture of a hand holding a ticket that says “Freedom.”]

Narrator: Being debt-free is like having a ticket to freedom! [Text appears, “debt-free.”] You won’t spend your time stressing about crazy interest payments or constantly worrying about money.

[A man thinking with a ticket labeled “freedom” in his thought bubble.]

But let's be real—most of us aren't living that no-debt dream. 

[A pie chart showing twenty-five percent.]

It turns out, less than a quarter of people in the United States are totally debt-free. And who might those financial geniuses be? 

[An excited woman holding lots of cash as confetti streams down around her.]

Are they people who have won the lottery or inherited money, [picture appears of a very excited man with money floating all around him], or do they have some other mystical power? [Picture appears of a smiling man holding his hands out while looking up at the money falling down all around him.]

[Picture of a group of five adults with a shared thought bubble containing the words “debt-free.”]

Actually people who live debt-free are not necessarily wealthy. They do, however, have some things in common. They are disciplined, patient, careful with money, responsible, and confident. [Bulleted list appears as mentioned in narration: disciplined, patient, careful, responsible, confident.] They live within a budget and focus on their goals.

[A graphic showing some benefits of debt in icon form. Pictured are: a home icon, a graduation certificate icon, a plant with a dollar sign icon, and a credit report icon.]

First off, let’s establish that debt can have beneficial purposes. If you use it wisely to invest in assets that will increase in value or generate income, such as a home or rental property, it’s not a bad thing. Debt can help you build your future potential by funding an education or helping grow a business. Debt can also help you build a good credit history, if it’s used responsibly. But, the best-case scenario is to live debt-free, or with as little debt as possible.

[Picture of a trophy with the phrase “debt-free” printed on its plaque.]

Debt can help you build your future potential by funding an education or helping grow a business.

[A man sitting on the couch with his hands behind his head thinking. In his thought bubble is a trophy with “debt-free” written on the plaque.]

Is living debt-free attractive to you? Consider some of these guidelines to work toward that goal. [Text on screen: “Consider some of these guidelines to work toward that goal.”]

[Picture of a man thinking and looking unsure.]

Make sure you can afford the payments on any debt you take on. [Thought bubble appears over the man’s head with the text, “Can I afford these monthly car payments?”]

[Picture of a woman with her hands on her hips, deep in thought.]

Only take on debt that has a reasonable interest rate. [Thought bubble appears over the woman’s head with the text, “What is the interest rate if I purchase this television with credit?”]

[A man deep in thought, scratching his chin.]

Keep your debt-to-income ratio low, normally recommended below 36 percent. [Thought bubble appears over the man’s head with the text, “$980 (monthly debts) ➗ $3,050 (monthly income) = 32% (DTI ratio).”]

[A smiling woman in a shrug position.]

Spend and live at or below your means. This means having a budget and sticking to it so you don't spend more than you earn. [Thought bubble appears over the man’s head with the text, ”Well, a four-night stay in a hotel isn’t in my budget. But a two-night stay is, so I’ll do that.”]

[Picture of a man with his arms crossed looking confident.]

Save money to ensure you won’t have to go into debt in unexpected situations. Pay Yourself First! [Thought bubble appears over the man’s head with the text, ”Alright, I feel pretty good about having a month’s worth of income saved. Now, I’ll try to save up two month’s of income.”]

[A woman looking curious.]

Avoid lifestyle inflation; don’t let your spending increase just because your income does. [Thought bubble appears over the man’s head with the text, ”Now that I earned a raise, I am tempted to purchase a couple new streaming services, but no, I don’t need to.”]

[A woman looking excited while looking at her phone.]

Try a zero-sum budget. It’s especially helpful if your income changes from month to month. Take your annual income and calculate a monthly average; then keep your expenses at or below that number. In months with higher income, save the extra instead of spending it. In months with lower income, the money will be there to use. [Thought bubble appears over the man’s head with the text, “My monthly income is $3,900. I’m spending $3,000 on expenses, so that means I have $900 to put into savings each month.”]