Skip to content

Getting Out of Debt Does Not Make You Rich


Many of you read this blog regularly and because I’ve taught you that debt is hardly ever a tool for wealth, you are doing your very best to pay down your short term loans and credit cards. This is all well and good, but I want to make sure that you understand that getting out of debt does not make you rich.

The Typical Response to Ditching Debt

I know that getting out of debt typically takes quite a long time (most likely a couple of years at the minimum), but the average person thinks that this is the end goal. “Hooray, I’m out of debt! Now I can use this extra cash flow to have some fun! After all, I deserve it…”

At this point, vacations are booked and generous gifts are dispersed to your close relatives for birthdays, anniversaries, and Christmas. But, you should be generous, right? After all, you are debt free, and that puts you into a more wealthy category than most.

The Next Steps

While I do agree that you could loosen the reigns a little on that budget of yours, it’s certainly not time to ditch it completely. My wife and I are currently having a tough time with this. We have been debt free since February, 2011 (outside of our house mortgage that is), and since then, we have grown our savings, but at a much slower rate than what we could have if we would have stuck with our budget a little better.

Think about this for a minute. Yes, you’re out of debt, but if you continue to spend all that you earn until your retirement years, how much money will you have to retire on? That’s right! Absolutely nothing, because you never saved a dime after you ditched that debt!

According to the plan that I’m living by, after the debts are paid, you should save about 6 months worth of expenses into your emergency fund. Yes, I know, this is not super exciting and your money will earn next to nothing in that savings account, but this money is for emergencies and should be kept in a place that’s incredibly liquid (meaning, it’s easy to get at when you need it).

After your emergency account is properly funded, it’s time to invest! While getting out of debt will not make you rich all by itself, this step certainly can. Imagine if you were able to put $1,000 into your investments each month. Over the course of 40 years, your contributions will only add up to $480,000, but guess how much your account will be worth (assuming a 10% interest)?! $6.4 million! I would say that with that money, you are ready for retirement, and you’re now officially rich. 🙂

Please don’t stop at debt freedom, invest for your future! Are you currenly on your way to a hefty retirement fund?

Get Out of Debt Money


My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. I think a 1000 a month is doable and even a bit conservative for some but as a starting option is perfect.

    • I think so too. Thanks for the comment Jai.

  2. Totally agreed Derek. Being debt-free is more like the mid-point on the journey than the final destination.

    I’ve seen a good comparison between getting out of debt and losing weight. In both cases, you need to lose it, keep it off, and then define a new lifestyle once the weight (or debt) is gone.

    Great article!


    • Very true SFH! Even those that are physically fit need to keep going to the gym. Those of us that are debt free should still monitor our accounts and strive for that next goal. Thanks for the comment!

  3. I agree. A lot of bloggers seem to focus solely on getting rid of debt. While I agree it is a great first step for high interest rate debt, sometimes it doesn’t hurt to keep a mortgage if you have a great interest rate and can make more using your money elsewhere.

    Plus, once the debt is done it is time to grow your net worth by increasing assets. Paying down debt increases your net worth, but if you spend all of the money you used to pay down debt your net worth with stall out as liabilities aren’t going down and assets aren’t growing.

    • I disagree with holding onto the mortgage. Do you know what 4% of $100,000 is? That’s $4,000 that you’ve lost to interest on your house. Let’s say that you have $10,000 to invest this year. What percent would you have to earn to make back that $4,000? 40%!!! That just isn’t going to happen. Pay down the home loan and you’ll be much better off.

  4. This is an important piece that not enough people focus on… Life after debt. Although if there was a magical tool that could give you a consistent 10% net (not average) a year and never go down, let me know and I’ll put all of my clients money in that.

    • Index funds do pretty well year after year, and there are hardly any fees! Of course it’s not a consistent 10% but in the long run, there’s definitely a large gain.

  5. I’m not investing right now as much as I would like. I really want the comfort of having no debt right now, just in case something happens.

    However, I am still contributing around 15% to investing.

    • Yep. Pay off that debt! That will sure be a fun day when it’s all gone. I can’t wait till we get rid of our home mortgage! 🙂

  6. We are many, many years away from being debt free, but I agree, the way it’s looking now it would be simply shifted toward saving for retirement. The bottom line should be to increase your net worth. If you can no longer do so by paying down debt, then just shift to the savings side and you’ll be moving right along.

    • I still think it’s best to pay off your debts ASAP (which will naturally increase your net worth).

  7. I can’t WAIT to have this problem! Psychologically, I can’t invest until my student loans and car are paid off, since I don’t think I can get better than 5% right now on any investment.

    • Yep. Pay off those loans and then invest heavily! It will be 100% worth it. Believe me!

    • Off the top of my head, real estate or index funds. Or, if you have a good idea, invest in your own business!

  8. Good topic Derek! This is one of the areas that I think a lot of people really neglect. It’s all fine and good to cut your costs and eliminate your debt. But I think you’ve really got to look at things in terms of opportunity cost. For example, I’d rather invest my money in our IRA rather than pay down our auto loan because it’s a difference of earning a potential 8% versus paying down a 2% loan (inflation excluded). On top of that, the contributions to my IRA “force” me to learn to live without this money – essentially living off of less money than I really make. In terms of retirement, we’re currently maxing out both our employer plans and IRA’s.

    • But, does your IRA guarantee you 8%? I don’t think so. You could actually lose 20% in the next year, you just don’t know. But, the 2% is a guaranteed gain if you no longer need to pay the interest on your loan.

      • No one really knows, but since I’m investing in mostly index funds, I’m pretty confident that I will at least match the average return of the market. That should do better than 2%.

  9. Quite interestingly, the investments are really needed if we want to make money online algun, otherwise, do not try to blogs that’s not right … I hope Ma not having this problem …

    • We do need to invest in order to grow our wealth. Is that what you were trying to say…? 😉

  10. After taking a year to pay off all my debt, I found it hard to NOT save. It’d become a habit. Now, I did start going out to eat more frequently, buying more clothes, and going on vacations, but I stilled saved a substantial portion of my income. Getting out of debt is only one step in becoming financially free. It doesn’t stop there.

  11. I like the view that getting into debt will make you SUPER RICH. It’s what levered buyout shops and real estate investors do since the beginning of debt.

    • Haha. I guess it depends how you look at it huh? Interesting viewpoint.

  12. Being debt free is an accomplishment, but many fall back into debt because they do relax their budget and spend more than they should. You have to keep the end goal in mind – becoming debt free should be the path to get you to your goal.

    If debt free is your goal, your new goal should be to remain debt free or save extra for retirement. This will help you stay aligned with your budget.

    • Even I have fallen prey to this. Sometimes it’s easy to think you “deserve to spend a little more” now that you’re out of debt. That’s what we’ve done. Sure, we’ve beefed up our savings a little bit, but I bet we could have done a lot more if we paid attention.

  13. Very well said Derek. It’s true that some(or probably a lot) celebrates when they are at the zero-debt status. I guess that’s normal. You pay yourself or reward yourself once in a while.

    Personally I think those who want to get out of debt are those with plans for their future. And more than half would want to be rich. If they stick long enough to their plans, ‘rich status’ is waiting at the finish line.


    • I bet you’re right that many of those that are looking to get out of debt don’t want to stop there, but I think old habits tend to creep in. I’ve heard countless people that are trying to get out of debt….again! For whatever reason, it just doesn’t stick.

  14. If anyone out there can please explain to me why the rich are allowed, after spending more money than God and going into debt, to keep their main house, but also any other property they have while the rest of us out here have to either walk away from our homes or file for bankruptcy. Can someone explain to me what makes the rich some much more important, so much better than the rest of the 6 billion people on the planet? I just want to know…

    • I can’t answer that for you, but if I were you, I’d spend more time worrying about yourself and your budget rather than complaining about the rich…. complaining about something that’s out of your control is a waste of time.

Comments are closed for this article!

Related posts