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Get Out of Debt and Stay Out of Debt

(this is the most important advice we can give!)

At whatever age you retire, you must own a home and be free of non- tax- deductible debt.  Otherwise, your income will be reduced, and there would be very little money left after rent and/or loan payments.  If you retire at 65 and will be relying on Social Security benefits, the maximum you will receive is about 40% of pre-retirement earnings. This is not the time to find out that you don't have enough money to retire comfortably.  See the Social Security Online page on estimating your retirement benefits.  If you want to retire early, or have more money when you retire at 65, you will need either savings or a pension from your employer.

If you have or plan to have children, you should try to ensure that the mortgage on your home will be paid off before your children enter university.  This will free up funds for their education.

It is very important to stay out of debt until you buy a home.  Debt is the reason many people are not financially successful.  Being in debt can be very stressful, and can reduce your quality of life.

The information below will help you on the road to financial freedom.

bulletStart saving money as young as possible.

If you are still living at home and you don't have a budget, now would be a good time to start.  You shouldn't have accumulated any debt yet, and it is easier to stay out of debt than to get out of debt.  The earlier you start saving, the easier it will be, because it will become a habit.   If you can take advantage of your parents' generosity by living cheaply at home, you can get a good head start on your financial freedom.  This will mean making an effort to live harmoniously with your parents, which should not be a problem if you look at the long term benefits.  Besides, just because your parents don't want you out drinking all night or robbing gas stations doesn't mean they are trying to spoil your fun.

Tip:  Start saving early.


bullet If you already have non-tax-deductible debt:
bullet Use your pay yourself first money to pay off non-tax-deductible debt (over 8% interest) more quickly.  See our Save and Invest page.
bullet Pay off your highest interest rate debt first, which would probably be your credit cards/bookie/loan shark.  All of these have very high interest rates.
bullet If you cannot pay the entire balance of your credit card at the end of the month, stop using your card and cancel it!
bullet You should only have one credit card.  If you have more than one, it is more likely that you will run up your credit card debt.  There are more bills to pay, and it is more complicated.  Figure out which card is best for you, and cancel the rest.
bullet If you have more than one credit card with a balance on it, concentrate on paying one off completely first.  Then pay off the next, and so on, until you are down to one credit card.  Don't use this card unless you are able to pay off the balance at the end of every month.
bullet Pay off any other loans that you have, paying off the higher interest rate loans first.
bullet After all your non-tax-deductible debt is paid, start saving for large purchases such as appliances, vehicle, etc., so you can pay cash for them.

Tip:  Get out of non-tax-deductible debt (over 8% interest) as quickly as possible.

  Be better organized / make life simpler

bullet If your pay yourself first money is going into tax-deferred retirement savings, have the contributions set up as automatic deductions from your payroll to be transferred directly into your retirement account.
bullet If your pay yourself first money is going to pay down debt, set up automatic transfers from your checking account.
bullet Use only one financial institution.
bullet Use only one credit card, and have your regular bill payments (electricity, gas, cable, telephone, etc.) charged to your credit card.  You will have fewer monthly payments to make.
bullet Check your credit card transactions frequently.  This can usually be done online.
bullet Do as much as possible online, reducing trips in your vehicle.
bulletBuy term life insurance instead of whole life.

Tax Tip:  Pay yourself first by payroll deduction or automatic bank transfers.

Your financial plan should include the following steps:

  1. Define Your Goals

  2. Personal Budget

  3. Get Out of Debt

  4. Buy a Home

  5. Save & Invest

Revised: October 31, 2020


Copyright 2008 Boat Harbour Holdings Ltd.   See Reproduction of information on

The information on this site is not intended to be a substitute for professional advice.  Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage.
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