Live debt-free: Downsizing to eliminate the mortgage

portrait of Beth and Scott Pretti and their son

Beth and Scott Pretti once lived a pretty standard suburban life.

They had "a typical four-bedroom family house" in College Hill, Pa. At 2,400 square feet, with two baths, a finished basement, theater room and detached garage, the Prettis had all the space they needed for their family.

But they also had typical debt: a mortgage and thousands of dollars in auto loans and credit card charges.

In 2008, the Prettis decided they had had enough.

And so they sold their house, downsized and now live debt-free. Here's how they did it.

When Beth, 44, a home care physical therapist, and Scott, 44, a self-employed exercise physiologist, married in 1996, they bought their first home for $140,000.

The couple took out a 30-year, fixed-rate mortgage that carried a monthly payment of about $1,200, including property taxes.

Six years later, they refinanced into a 10-year, fixed-rate loan. Their monthly payment grew to $1,700.

They also had two car loans and credit card debt. Combined, they were on the hook for an additional $25,000.

By 2008, the couple, who have a 16-year-old son, Evan, had grown tired of feeling tied down by debt and decided to make a change.

Beth and Scott Pretti's old house.First step: Sell the house.

This move also allowed them to live closer to their family, activities and church, which were a 25-minute drive away.

They sold their house for $260,000, and then they took the equity — about $190,000 — and bought their new place in Bethlehem, Pa., with cash.

No loans. No debt.

They even had enough left over to buy a new refrigerator and a washer and dryer.

"We figured, if we were serious about downsizing our lives, that it made sense to look for a house that would allow us to not have a mortgage," Beth says.

Their new home is about half the size — at 1,200 square feet — with three bedrooms and one bathroom.

Beth and Scott Pretti's new houseBut it suits them just fine.

The Prettis also made a new family budget, one that forced them to cut down on eating out and eliminated frivolous spending, "like those trips to Target for shampoo where you end up spending $100," Beth says.

The family managed by mostly spending with cash instead of credit.

"If I only have $20 in my wallet, I'm limited right there," Beth says.

Unburdened by the mortgage, they paid off the car and credit card debt in about a year.

"We wanted the freedom to do more," she says.

And they sure have.

Scott took three weeks to fulfill a lifelong dream of biking across the country. Beth and Evan met him at the end for a family vacation in Tybee Island, on the Atlantic Ocean near Savannah, Ga.

The cost of the trip: about $12,000, including a new bike and lost income for both of them.

When Beth qualified for the Boston Marathon in 2010, they stayed in Boston for five days and made a family vacation of it. They've also made trips to Disney World, Long Beach Island in New Jersey and "other random weekend trips to B&Bs."

Beth also threw a 70th birthday party for her mother-in-law that wouldn't have been possible before.

And living debt-free has also allowed the couple to make home improvements.

They've added central air, converted from an oil furnace to gas and landscaped the backyard. This year, the family plans to add a new fence and parking area so they no longer need to park on the street.

They're also saving about 15% of their income toward retirement and looking toward future bills.

"We had in mind our son's upcoming college education," Beth says. "He will be graduating from high school in 2014, so we know we will have college expenses for the next few years."

"I remember a specific conversation Scott and I had when deciding that we were going to become debt-free. I said, 'If we put the same discipline in our finances as we do our diet and exercise, we can do this easy.' "

And they have.

Beth and Scott Pretti on the beach with their son, Evan.

Beth and Scott Pretti's tips for living debt-free: