How to Pay Off Debt and Get Rich in 20 Years

There is always a way out. So here is how to start paying off that debt immediately, and use those skills to get rich!

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Yep, we’re going to tackle the big ones today. How to pay off your debt, which should be at the top of everyone’s to-do list when it comes to finances. Then, we’re going to move on and use those skills to actually get rich in the next 20 years.

First, paying off that debt

If you’ve been reading my work, talking to your financial advisor, visiting this website, or even just searching briefly online about finances, a budget is going to be your first line of defence. Especially when it comes to paying off your debt.

A budget will help you stay in your lane – know what you can and cannot afford, and help you achieve your long-term goals. Goals that literally cannot be achieved if you have debt and loans that are taking on more and more interest.

So what to do? First, create that budget based on the last three months. You should try and do this once a quarter, as prices rise, hydro use changes, birthdays come and go, and therefore your expenses fluctuate. Then, identify where you can save, and what you can skip all together. From there, use every single penny you can put aside to put towards your debt.

Have more than one? No problem. Create a list of all your debts and loans from highest to lowest interest rate. Pay off your first debt first, while paying the minimum balance of all the others, throwing everything you can at the first one. When it’s paid, move on to the second and so on. Within one-to-three years, you could be totally debt free, no matter what you held before.

Then, get rich!

This is where you put those new found skills to good use. You’ve now had let’s say three years of learning how to cut, save, and spend less. You’ve put it all towards debt. But now that the debt is paid, don’t suddenly drop those skills! Start saving, and put it towards some diversified, strong investments.

Of course, I’m going to give you a suggestion here to show you how to make those funds work for you. Today, I’m going to recommend a simple bank stock like Canadian Imperial Bank of Commerce (TSX:CM). CIBC stock is further down right now than the other banks stocks, due to its exposure to the Canadian housing industry leading to lower loan originations.

However, CIBC stock has proven time and again over several decades it can return to pre-fall prices from its 52-week lows within a year. So you can look forward to a quick return, as well as a higher dividend. That yield currently sits at 5.98%, while the stock trades at just 11.3 times earnings.

Let’s say we see the stock return to 52-week highs within a year, and move on from there at a compound annual growth rate (CAGR) of 7%, as well as the dividend. Here is how much you could have in 20 years starting now by putting aside $3,000 each year, or $250 per month.

YearShares OwnedAnnual Dividend Per ShareAnnual DividendAfter DRIP ValueYear End Shares OwnedYear End Stock PriceNew Balance

After that surge, you could have $287,000 in your portfolio from investing $3,000 per year! So pay off that debt, and start getting rich.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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