How to Stop Borrowing Money: 10 Step Guide to a Debt Free Life

Table of Contents

Did you know that over 80% percent of people in America are in debt?

Yep, according to ShiftProcessing.com’s American debt statistics that you can read here, the majority of Americans have some form of debt (including a home mortgage). So it’s pretty rare that people get out of debt completely.

But being debt free from all of your consumer debt is absolutely amazing.

I can tell from experience because I’ve been debt free twice now. The first time was to pay off my student loans. I was in college when I borrowed the money so I really didn’t know any better. But the second time I went into debt, that was just stupid.

In about March of 2020, it just hit me: why was I in debt again?! Why were we living paycheck to paycheck? It’s because of what we owed. At that moment, I was done.

Done with debt. Done with borrowing money. Done with being broke. I was working too hard for my money and seeing no results financially.

My wife was fed up as well. We decided that we were going to take another path. We decided that we were NEVER borrowing money again for anything EVER.

And so we paid off the rest of the consumer debt that we owed and started our debt free lifestyle. Next up is the house and that will be paid off in about 5 years.

So in this post, I’m going to show you how to stop borrowing money and how start living a debt free lifestyle in 10 easy steps. Let’s get to it!

How to stop borrowing money: 10 steps to a debt free life

Debt free living is tough but worth it. Let’s see how to do just that.

Step 1 – Have a BIG reason why

You absolutely have to have a BIG reason why you want to stop borrowing money and why you want to get out of debt. It’s very important to put this into your mind before you stop borrowing and paying that debt off.

So why is this important? Because if you don’t have a good reason why, you’ll soon be borrowing money again and going back into debt. I know this because I did this. That was me back in 2019. I paid off all my student loans a few years before that just because I didn’t want to have any debt. I had a reason why I was doing it. But it wasn’t a good enough or BIG enough reason why. I borrowed money again for a car in 2019. Great car. Horrible financial decision.

In about March of 2020, I was completely fed up. I finally had my “I’VE HAD IT!” moment. How were we living paycheck to paycheck?! I thought we were doing good but we weren’t paying attention. I realized that I needed a BIGGER reason why.

I now have a HUGE reason why. Or I should say a collection of reasons why that make up one BIG reason why: I’m sick of debt, tired of being broke and having nothing, sick of not being able to afford anything, sick of a negative net worth, my wife and I want to travel one day, I want to help my son go to college without loans, and I want to be a millionaire. We can’t do any of that if we keep borrowing.

So what’s your BIG reason why? Do you hate debt? Do you want to retire early? Do you want to become a millionaire? Do you want to travel with your spouse? Why do you want to stop borrowing and get your debt paid off? That’s what YOU have to figure out.

Step 2 – Stop borrowing money

So this is what you came for. How to actually stop borrowing money. Well, the answer is incredibly simple: you just stop. You don’t borrow money for anything ever again. I know you came for some practical tips so I’ll add those in as well. But sometimes the answer is just straight forward and simple.

So now you have your BIG reason why you’re doing this from step 1. The next step is to stop the bleeding. Stop the borrowing and the financing immediately. Every time you charge something or finance something, you’re digging your hole deeper and deeper.

In order to stop borrowing money, you need to start making different decisions on how you spend money. This mindset has to be a part of every single purchase decision that you make. Start thinking, “pay cash, don’t borrow,” for every purchase. Focus on making sure you have the money to cover each and every purchase. You have to take debt off the table. No more debt. No more borrowing money.

It might be tough at first. But it will get easier every single day. After a month or two, you’ll get used to it. After a year, it will be a part of who you are. You might even start to enjoy it like I do.

It’s a lifestyle and you have to be willing to only use the money that you make to buy the things you want. This is how you stop borrowing. This is how you start turning your life around. And this is how you build wealth over the long term.

Step 3 – Financial goals

Now that you’ve found your BIG reason why and you are no longer borrowing money, it’s time to set some money goals. This is fairly easy to do but I really want you to think about this for a few minutes. You’re going to write out these goals so that you can hold yourself accountable while you work your way out of debt.

I want you to set goals for the following:

Short term goals:

Don’t borrow any money for 30 days.
How long to get your starter emergency fund together? Let’s say $1,000 dollars in 1 month (1 total month).
How long to get your debt paid off? Write out how much debt you have and how much you can pay per month. Example – if you have $10,000 in debt and can pay off $1,000 per month, you can get it all paid off in 10 months. Just divide out how much you can pay by how much debt and go from there. Set a clear, specific goal – I want to pay off my debt in 18 months (19 total months with starter emergency fund).
How long for your emergency fund? I want to have a full funded 3 month emergency fund in 3 months after my debt is paid off (22 total months including debt payoff).
Any other short term financial goal like saving up a down payment for a home, cash flowing college, or buying a car with cash.

Long term goals:

How long to have your house paid off? I want to get my house and all total debt paid off in 10 years and 3 months (the average amount of time the typical millionaire pays off their home). My goal is 5 years from 2021.
I want to become a millionaire by age 45 (or whatever age you’d like to shoot for). The average age most millionaires become millionaires, according to this article here on Bfadvisors.com, is about 49 years old. My goal is to become a millionaire by 40.
I want to pay my child’s college or help them go to school without loans. This is another one of my long term financial goals.
I want to retire early or just retire with dignity and some money in the bank by 62. An easily achievable goal for almost anybody.
I want to travel to many countries after retirement or any other long term financial goal.

The beautiful thing about goals is that, even if you don’t achieve them all, you are usually still much farther along than you would’ve been otherwise. Sometimes you do achieve goals on time. That’s even sweeter. But if you just set some goals for yourself, you’ll be that much closer to success!

Step 4 – Create a budget

A budget is the key to getting debt paid off and not borrowing money anymore. It’s the way you track everything you make and spend, allowing you to control your money instead of it controlling you. With that being said, let’s quickly look at how you do a budget.

First things first, I want you to write down and add up all of your expenses in the last 30 days. Get on your online banking and do this. Or get it printed from the bank. This is critical to know exactly what you spent and what you spent it on. Add up how much your expenses are in total.

Next, you need to know your income – exactly how much you make per month AND per year. Write that down somewhere on that same sheet of paper. Underneath your total monthly income, write down the total of your expenses. It should look like this:

That should either equal out to not having anything left over or with a net of some money left over. If your expenses are MORE than your income, you have a big problem. Your expenses need to be less than your income. You’ve got to cut some things out. And that’s what the budget is for.

But what kind of budget? The best budget to use is the zero dollar budget. Why? Because it uses every dollar and doesn’t waste. It gives every dollar a job. Don’t do budgets that give you a ton of money to spend when you’re in debt or use your credit card as a budget. Heck no. The zero dollar budget is the BEST budget. You do get a choice, though, of how you can implement the budget.

You can use the Mint.com app or website, the EveryDollar.com app or website, an excel spreadsheet, or a pencil and paper. Whatever you choose, it has to zero out. With this, you’re learning how to “live below your means.” That just simply means that you spend less than you make. A simple and effective principle that keeps your spending in check. Lastly, for the haters who think it’s extremely restrictive, a budget is permission to spend! It’s not to limit you, just to track your expenses and help you control your money.

So listen, you’re going to suck at the budget at first. But you have to keep practicing and get better at it. It’s hard. But it’s time to grow up and do some work. You don’t have to be perfect, you just have to do a budget. It’s YOUR money. Control it and use it for good. Don’t just let it slip away.

If you can budget well, you’ll NEVER have to borrow money again.

Step 5 – $1000 dollar starter emergency fund

Now that we’ve crushed the first 4 steps, and you’ve completely stopped borrowing money, we need to get a little bit of a buffer in your bank account. Before you start your journey to get out of debt, you need a starter emergency fund of $1000 dollars to at least offset any small emergencies that might come up while you’re paying off debt.

Get this starter emergency fund funded as fast as possible so you can start paying off your debt. I want you to do everything you can to have this fully funded in 1 month or less. It’s only a thousand bucks.

Now on the flip side, you might also say: “yeah, it’s only a thousand bucks. That’s not a lot.” Yes, I know. This starter emergency fund isn’t meant to be at $1,000 dollars forever. Just short term while you pay off debt. It’s going to be uncomfortable so get your debt paid off as quick as possible so that you can fully fund this.

Can I increase it while I pay off debt? No. Save $1000 dollars and get your debt paid off. If you have more than $1000 dollars in savings already, use every last dollar down to $1000 to pay off debt. This might suck, but debt sucks. Get it funded and start working on your debt. Trust the process.

Step 6 – Get out of debt

Alright everybody, it’s time to get out of debt. This step needs to be done at a high intensity level, otherwise known as gazelle intensity.

If you don’t know what gazelle intensity is…let me explain. Gazelle intense is a way of living for a short period of time. “Gazelle Intense is the term Dave Ramsey came up with to describe the speed and intensity you should have when paying off debt,” according to his website. Check out their article here.

You need to get out of debt like your life depends on it. BECAUSE IT DOES. Debt is robbing you of your money and the awesome life that you could have. So we already talked about how you first need to stop borrowing money. Next up is that debt.

You need to know exactly what you owe. Write out every single consumer debt you have (any credit cards, car payments, student loans, and financing). List all of your debts smallest to largest and total it up.

Pause any investments (if possible). You will do this for a short period of time to use every dollar you can to pay off debt.

Now with the debt, pay minimums on everything but the smallest debt. Attack the smallest debt with a vengeance. Interest rate doesn’t matter. It’s about motivation not math. If you were really focused on the math, you wouldn’t have gotten into debt in the first place.

Do anything and everything you can to pay off your debts. Work overtime. Take extra jobs. Start a side hustle. You need to decrease expenses AND increase income. That will equal success.

Once you pay off the smallest debt, take ALL of the money that you were paying and add it to the money you were paying on the next biggest debt. Continue doing this and continue adding your money to the next loan. Then the next loan. Then the next. This is called the debt snowball. Your money in that snowball gets bigger and bigger until you pay everything off. You’re left with no debt and a large pile of money every month to do great things with.

Once you get to this point, with no debt, you shouldn’t need to borrow money ever again. Between the extra money in your snowball and your budget, you can cash flow everything (pay cash towards items) or save up for what you want to buy.

The next step is to fully fund the 3-6 month emergency fund. Don’t stop the momentum! Get this funded asap!

Step 7 – 3-6 month emergency fund

After you’ve gotten rid of all of your debt, the next step is to fully fund your emergency fund. This is an extremely important step in not having to ever borrow money again. You need to have an emergency fund of 3-6 months of all necessary expenses (how much it costs per month for bills and groceries times 3 months or up to 6 months).

You need to decide on exactly how much you want in your fully-funded emergency fund. If your job is somewhat stable, 3 months of expenses in your emergency fund is acceptable. If you’re self employed or your job is less stable, you should probably beef it up to 6 months of expenses. Decide what is best for your family.

For example, My family has a 3 month emergency fund of $10,000 dollars – our expenses are about $3,000 per month, which equals out to $9,000. So we decided on $10,000 dollars.

Quick note: fully funding this amount of money needs to be done at the same intensity level as paying off debt: 100% percent gazelle intense.

Step 8 – Invest 15%, Start kids college fund

Investing 15% percent:

Now that you’re not borrowing anymore and your consumer debt is paid off, you need to set up your investments. You want to be investing 15% of your gross income. Anyone can become wealthy if they stay out of debt and invest 15% percent of their income.

We recommend a 401(k) with a match first. A Roth 401(k) is also good. If you don’t have those options, open up a Roth IRA with mutual funds that have long-track records of success (over 10% overall growth). Here’s a quick way to remember how to invest:

Match beats Roth beats Traditional.

Starting kids college fund:

You should also look into opening up a 529 plan for your child’s college (if applicable). The amount doesn’t make a huge difference. Just judge based on your specific situation and contribute what you can. I will recommend setting a specific amount that you can pay every month and sticking to it. We personally contribute $100 dollars per month into a 529 for our son and plan to increase that in the future.

If this doesn’t apply to you, move on to the next step.

Step 9 – Pay extra on mortgage and get your mortgage paid off

By this point, you should be pretty well-versed in frugal living and not borrowing money. But I want to stress how important it is to continue living like this. Because if you do, you will undoubtedly become a millionaire. So let’s tackle the mortgage to help you get closer!

Now a lot of people will tell you to keep your mortgage around for various stupid reasons including to benefit from the tax deductions or for stock market returns vs. mortgage rate. All of that is crap. Nobody talks about the risk of owing money. If you owe money on your home, you will always risk foreclosure. When it’s paid for, you own it and nobody can take it from you.

If you want to be wealthy, and not have to borrow money again, you need to get your home paid off. This is a great asset to have towards your net worth and will free up a lot of money per month once completely paid.

Once you’ve completed the other 8 steps, start paying extra every month toward your mortgage. Pay whatever you can but dedicate a set amount per month toward this and do it every single month. The average millionaire pays their home off in 10.2 years. If your mortgage rate is too high, or you’re on a 30 year mortgage, see if refinancing to a 15 year mortgage is worth it. This article here on the Dave Ramsey website can tell you if it’s worth it or not.

We pay an extra $1200 per month on our mortgage. We could pay $2000 or more but we are living a little bit.

Our target home payoff date is August 2026.

Once you’re debt free, don’t sacrifice everything just to get your house paid off. You need to enjoy yourself and spend some of your extra money. Just make sure you’re budgeting, not borrowing, and being intentional with your money. So go have some fun!

Step 10 – Build wealth and give!

If you’ve made it this far, congratulations! I’ve yet to reach this step because this one is tough and takes awhile.

At step 10, you have no debt and your house is paid for. The last and final step is to continue investing to build wealth and to start being generous with some of your money.

I want you to do a couple of things here to continue with your success:

Continue investing. Max out your retirement account if possible.
Continue budgeting.
Continue living without debt.
Continue living below your means.
Continue being intentional with your money.
Save up for everything.
Never borrow money again.
Build wealth.
Give generously.
Spend and enjoy some of your money.

So that’s it

It’s a simple 10-step plan designed to help you learn how to help you find your reason why, develop financial goals, learn how to budget, pay off debt, fully fund your emergency fund, invest, start a 529 for your kids, pay off your mortgage early, build wealth, and enjoy your money. All while NEVER having to borrow money EVER again. That’s my hope for you. Good luck on your journey.