Gift Yourself Financial Peace: How Be Debt-Free in 2026

High-interest debt is a top contributor to financial stress. This year, gift yourself financial peace by taking steps to get free from debt in 2026.

Step 1: Know Your Debt

To tackle your debt, first you have to know your debt. Write down exactly what you owe to each lender or credit card, and your rate of interest on each debt. This is also a good time to check your credit score. Having all the key information up front will help you find the smartest debt payment strategy.

When listing debts, keep in mind that financial experts typically consider some debt “good” and some debt “bad.” Examples of good debt include most mortgages, business loans, and low-interest student loans. Good debt typically comes with a fixed payment schedule, and may have a positive impact on your credit score assuming you’re making on-time monthly payments. Bad debt is high-interest, typically the result of unpaid credit card bills or loans from predatory lenders.

Step 2: Consolidate Debt

Debt consolidation—when you combine multiple debts together—has two major benefits. Firstly, fewer separate debts means fewer bills to pay. Moreover, debt consolidation can sometimes get you a lower interest rate on debt.

One way to consolidate debt is with a balance transfer to a credit card with a 0% APR introductory rate. While performing the balance transfer may come with a fee, doing this kind of debt consolidation effectively freezes your debt, so you won’t continue to accrue new interest. This is an important step in getting your debt under control, and it’s a smart idea to use the 0% APR period to completely pay off the debt.

You can also consolidate debt by applying for a debt consolidation loan. Make sure you’re working with at trusted lender who can advise the best options to reduce both the number of payments you’re making per month, and if possible, your interest rate.

Step 3: Develop a Strategy to Tackle Payments

If you can’t consolidate and you’re juggling multiple debts, it pays to strategize about which debt to tackle first. Two popular debt payoff methods are the “snowball method” and the “avalanche method.”

With the snowball method, you’ll focus on the smallest debt first: making extra payments on that loan, to get it cleared as fast as possible. With the avalanche method, you’ll focus on the debt with the highest interest before tackling other debt.

Both methods have their advantages. The avalanche method can save you more money by erasing high interest payments fast, but the snowball method can be motivating because it eliminates individual debts quicker. Check out this presentation for more information about debt repayment strategies.

Step 4: Budget, Save, Prioritize

No matter what strategy you choose, you’ll struggle to become debt-free if you can’t free up funds every month to put toward debt payments. If you haven’t already built a household budget, this is your sign to do so! Categorize expenditures in terms of wants and needs—and prioritize debt payments by putting them on the “needs” list.

Saving more money per month will also help you pay down debt sooner. A few tried-and-true savings techniques include canceling subscriptions, eliminating impulse buys and cooking at home instead of eating out. Check out more savings tips on the Harvard FCU blog.

With more savings every month, you might be uncertain how to distribute the money. Is it better to put extra funds into an emergency savings account or a retirement fund, rather than toward debt? Should money be divvied up?

In general, paying off high-interest debt should be prioritized over other types of saving and investment, but a free session with a debt counselor can help you develop your best course of action.

Step 5: Avoid New Debt

Paying off existing debt is only the start. The real key to staying debt-free is to avoid accumulating more high-interest debt. If you spend with a credit card, don’t let access to credit encourage more expensive lifestyle habits. Spending the money you have now, and only the money you have now, is an important means of avoiding high-interest debt.

You may wonder: if you’re treating your credit card like a debit card, why use a credit card in the first place? Spending with a credit card offers a number of advantages, including cash-back rewards and the opportunity to build your credit score—but that credit building only happens when your statement balance in full on time, every month. Budgeting (in other words, tracking expenditures and planning for future expenses) will also help to ensure you spend only the money you have and don’t accrue new debt.