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How to Pay Off Debt and Get Rich in 20 Years

young woman celebrating a victory while working with mobile phone in the office
Image source: Getty Images

Written by Karen Thomas, MSc, CFA at The Motley Fool Canada

Contrary to what popular stories tell us, getting rich is not something that happens overnight. It requires a lot of hard work, patience, and discipline. In this article, I’d like to go over how we can start the journey today, so that we can look back at this in 20 years from a position of real wealth.

Rethinking debt

The number one step in this journey is to change our relationship with debt. When you really think about it, debt is something that chains us down, and gets rid of our choices, freedom, and flexibility. So, we better make sure that this thing that we are in debt for is really worth it.

From my experience, it rarely is worth it. Because in the long run, we can get more happiness and peace of mind from maximizing our time doing the things we love than from any material luxury. So, let’s start off by working on our minds. We have to get rid of the notion that we must “keep up with the Joneses” and that material things prove our worth.

Paying down debt

The next step is to embark on a debt repayment plan. This plan includes living within our means so that we stop racking up more debt. It also includes setting aside as much money as we can for debt repayment. I would maximize this amount to the best of my ability.

A good rule of thumb is to pull out all the stops in order to bring your debt balance to zero. This can mean taking additional jobs to increase your income, selling things, and maybe even getting an interest-free loan from a family member.

So there are some key recommendations for how to pay off debt. The goal here is to stop the bleed.  I compare interest payments to flushing money down the toilet. We want to minimize this as much as possible.

Investing for growth and riches

This final step is the most exciting one. This is where you finally have paid off your debts and you can now think of saving and making your money work for you. Your first step in this stage is to open up two registered accounts, an RRSP and a TFSA, if you don’t already have them.

Next up is actually choosing investments that will allow your savings to multiply. Current interest rates make bonds a good option, but choosing the right stocks will lead to the goal of being rich faster. Many stocks have a positive outlook for the next 20 years. Building a portfolio that considers the potential upside as well as the risks (downside) means that diversification is key.

An example of some stocks that are good candidates are tech stocks like CGI Inc. (TSX:GIB.A).

CGI is a leading global $27 billion IT and business consulting services firm. This company has been growing as the world digitizes at an accelerating pace. It’s financially strong, operationally sound, and a recognized expert in its field.

Another stock that has great potential is Well Health Technologies Corp. (TSX:WELL).

Well Health’s stock is a little more on the risky side, but it’s one that’s growing rapidly as it helps healthcare systems digitize. Lastly, as a play on the rapidly expanding liquified natural gas (LNG) industry, Tourmaline Oil Corp. (TSX:TOU) also offers great potential.

Tourmaline is Canada’s largest natural gas producer and North America’s fifth largest producer. It’s benefiting from its supply agreements with the U.S.’s largest LNG exporter, and it stands to benefit greatly from the competition from LNG Canada (est. by 2025).

The bottom line

It’s definitely not easy to embark on this journey of debt repayment and stock investing like CGI, Well Health, and Tourmaline to get rich in 20 years time. But with a little determination and a clear goal, you will quickly feel the benefits and be hooked.

The post How to Pay Off Debt and Get Rich in 20 Years appeared first on The Motley Fool Canada.

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Fool contributor Karen Thomas has a position in CGI, Tourmaline, and Well Health. The Motley Fool recommends CGI and Tourmaline Oil. The Motley Fool has a disclosure policy.