What Percentage of America Is Debt Free? (2024)

Around 23% of Americans are debt free, according to the most recent data available from the Federal Reserve. That figure factors in every type of debt, from credit card balances and student loans to mortgages, car loans and more.

The exact definition of debt free can vary, though, depending on whom you ask. For example, some people don’t count mortgages because they are viewed as “good debt” by creditors, since they are secured by the property itself. It may be helpful to look at the percentage of people who hold different types of debt in order to get the full picture.

Source: Federal Reserve data

Americans owe a lot of debt in general – over $17 trillion. Because there are so many types of debt, and debt is usually necessary for big things like owning a home or going to college, very few people are totally debt free. However, having some form of debt isn’t always a bad thing. A mortgage allows you to own your own home long before you’d have the money to do so, for example. And having some sort of debt is actually good for building credit – as long as you make your monthly payments on time and don’t borrow more than is manageable, your credit score will benefit.

Still, you should absolutely try to minimize unnecessary debt. For example, while it’s great to have a credit card, it’s not ideal to carry a balance on one unless you have an introductory 0% APR, as interest is expensive. You should try to pay your balance in full each month. In addition, you should avoid predatory loan types like payday loans and auto title loans that are extremely expensive.

How to Become Debt Free

1. Assess Your Debt: List all your debts, including interest rates and minimum payments. This will allow you to take stock of your situation and prepare you to get organized and create a debt payoff plan.
2. Create a Budget: Outline your income and expenses to understand where your money is going. After determining how much of your income you need to put toward non-debt expenses, decide what portion of the rest you are willing to put toward paying off your debt. You should also cut out any unnecessary expenses and redirect that money toward your debt. Then, track how you use your money and stick to your goals. You can learn more about how to budget on WalletHub.
3. Build an Emergency Fund: Ideally, you’ll want enough money in the fund to pay for 3 to 6 months of expenses. You don’t have to wait until the emergency fund is entirely built to start paying down your debt, but you should put some money toward it each month.
4. Choose a Strategy: Focus on paying off high-interest debt first (avalanche method) or the smallest balances first (snowball method). The first strategy will get you out of debt more quickly, but the second one can help keep you motivated by allowing you to meet individual milestones faster. You can learn more about the best way to pay off debt on WalletHub.
5. Increase Your Income: If possible, find additional income sources like a part-time job or investments.
6. Use Windfalls Wisely: Put unexpected money like tax refunds or salary bonuses toward your debt.
7. Avoid New Debt: Resist the temptation to take on additional debt while paying off current obligations. The exceptions to this are if you use a balance transfer credit card or debt consolidation loan to put your debts in one place and lower your interest rate. Still, stick to the budget that you made and don’t make frivolous purchases.
8. Use the Island Approach: The Island Approach is when you use different credit cards for different types of transactions. It emphasizes keeping your everyday expenses separate from other types of balances like balance transfers and purchases that won’t be paid in full, so you can maximize the effectiveness of your payments and accrue as little interest as possible. Most importantly, you should strive to pay your everyday expenses in full each month.
9. Seek Professional Help if Needed: Consult with a financial planner or debt counselor if you need assistance.
10. Stay Committed: Understand it's a gradual process, and stay committed to your plan. Celebrate small victories along the way.
11. Review Regularly: Regularly review your budget and debt payoff strategy, making adjustments as necessary.

By following these steps, you can work methodically toward becoming debt free. It's a challenging journey, but with discipline and determination, it's achievable. You can learn more about how to pay off debt on WalletHub. You can also take advantage of free tools such as WalletHub’s credit card payoff calculator and mortgage payoff calculator.