Getting out of debt is a great goal. When starting on your debt pay off journey, things can look tough. By making a debt pay off plan, and using the debt avalanche, or debt snowball, method, you can get out of debt faster and get on to living your best life.

What would life be like if you didn’t have debt? How would you spend your time? What would the freedom feel like?

Being in debt restricts your ability to be free.

Being debt free allows you to do what you want – without being tied to the expectations of a bank or another individual.

Many people ask, “How can I become debt free? What are the steps to becoming debt free?”

In this post, I will be answering those questions, talking about what debt actually is, and providing you two great strategies for eliminating your debt. You will learn how to become debt free using the debt avalanche and debt snowball methods.

Let’s destroy that debt!

What is Debt?

First, what is debt?

Debt is money that you owe someone else. That someone could be a bank, another business, or a friend or individual.

For repayment, there are terms and conditions associated with certain kinds of debt.

For example, banks lend individuals hundreds of thousands of dollars for a house and allow those individuals to pay back the money over 360 months (30 years).

In addition, there is an interest rate associated with your debt. This interest is the “cost of the loan” to you – no one is going to give you money for free!

Each month, you will have a payment and this payment will be part principal pay down, and part interest.

A Debt Payment Example

Let’s say you have a $20,000 loan with a 6% interest rate and a 10 year term. Using an online calculator, your monthly payment will be $222.04.

Over 10 years (120 months), this will cost you $6,867.01 in interest. If you pay $100 extra a month, you can cut the time you are paying off your debt to 6.25 years (75 months) and you will pay $4,008.09 in interest. By paying an extra $100 a month, you will save yourself $2,858.92 and will be debt free 3.75 years ahead of schedule!

As shown above, by paying extra each month, you can save money and reduce the amount of time to debt freedom.

In addition, once the debt is gone you effectively give yourself a raise; you have more money falling to the bottom line each month for you to save, invest, donate, spend, etc.

Another thing to note: debt is legally binding. If you don’t pay back your debt, there are many negative consequences that can happen:

* Your credit score will tank and it will be more difficult to have a high credit score. Creditors report your delinquencies to the credit bureaus which are responsible for determining your credit score.

* You could be sued. Creditors gave you money for you to use and then pay back over time. If successful, the creditor and court can have your paychecks garnished until the debt is repaid – which means you take home less money each month.

* You might have to declare bankruptcy. Even though you will be able to get out of your debt, your credit will be ruined and your ability to get new credit will be destroyed.

Being responsible with your debt is very important because there are actually some benefits of having debt.

Is all debt bad? Is there such a thing as good debt?

In general, I believe debt is bad – and many other personal finance bloggers and experts believe debt is bad as well.

That being said, I do think there are cases in which debt can be a good thing.