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Mark from North Carolina is 65, but he’s not retiring any time soon because he’s made “absolutely horrible decisions with money all my life.”
He called into the The Ramsey Show and told the hosts that his wife has about US$10,000 (C$14,000) in a 401(k) — the American equivalent of a RRSP — and he has “maybe a couple thousand (1).” Their total debt includes a US$115,000 (C$162,000) mortgage, about US$22,000 (C$31,000) in credit card debt and a car loan.
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While retirement may seem impossible, show host Dave Ramsey told Mark he can still enter retirement debt-free with savings — but it will take some sacrifice.
“The house will be paid for and you’ll be debt-free,” Ramsey explained. “But you’re working a while.”
Paying off consumer debt
Mark and his wife have a couple of good things going for them — both of them are still healthy enough to work, and together will earn about US$105,000 (C$148,000) this year.
“First time we ever broke $100,000,” he said.
Assuming they can maintain that level of income going forward, the couple can afford to aggressively pay down their unsecured debt. Ramsey suggested putting at least US$2,000 (C$2,800) a month toward their car loan and credit card balances, so they could eliminate those debts within a year.
Next, the host — recounting his “7 baby steps” money plan — told Mark to build an emergency fund with three to six months’ worth of expenses. This will safeguard the couple from unanticipated setbacks.
To stash cash for an emergency fund, look for a high-interest saving account (HISA), such as a no-fee savings account from Simplii Financial. A HISA offers stability, growth potential and liquidity, which can make it a great place to store emergency cash as it can grow to support your future and is easy to access when emergencies arise.
The Simplii HISA boasts no transaction fees or minimum account balance, so you don’t have to worry about being penalized for making money moves or be deterred from saving, whether it’s big or small.
Even better, you can earn 4.5% on eligible deposits, provided you open an account before January 31, 2026 — some terms and conditions apply.
For now, Ramsey said Mark and his wife should focus on paying off the house and building a nest egg. If they work until they’re 72, Ramsey estimated, they could have about US$200,000 (C$282,000) in retirement savings, the house will be paid off and they’ll be free of debt. It may not be much, but it’s a far more tenable situation than the one they’re facing now.
Ramsey labelled Mark’s case as “sobering” and said it should serve as a cautionary tale to frivolous young spenders.
“If you’re 35 and you’re listening, that should be a warning shot across your bow,” the host said. “Don’t show up at the doorstep, aged 65, broke with a car payment.”
If you’re worried about debt, and not sure where to get started, here are a few key areas to dig into.
Read more: Here are 5 expenses that Canadians (almost) always overpay for — and very quickly regret. How many are hurting you?
Debt-to-income ratio
Another important part of personal finances is understanding your debt-to-income ratio (DTI). Depending on your age, income level and financial goals, the amount you put toward paying off your consumer debt may differ.
To determine your debt payment amount, you could follow the 50/30/20 rule, in which you spend 50% of your budget on household expenses, which includes your mortgage or rent, utilities, monthly bills, transportation and groceries.
Another 30% goes toward “wants” and the remaining 20% goes toward debt, savings or investments.
However, depending on your circumstances, you may want to adjust this ratio — maybe to 50/20/30, meaning you would spend 10% less on “wants” and put that money toward debt payment instead.
Another general rule of thumb is called the 28/36 rule, which stipulates that while your mortgage shouldn’t exceed more than 28% of your gross income, your total debt payments — including car loans, student loans and credit card debt — should stay below 36%.
Lenders may use this rule to determine whether to extend credit to borrowers, as it sheds light on the amount of debt a consumer can safely take on. Your income and credit score can also be large factors.
If your debts feel overwhelming, a debt consolidation loan may help you pay them off faster, and at a better rate.
Mogo — an online platform offering a range of financial products, including debt consolidation loans — can make borrowing easy and stress-free.
With Mogo, getting pre-approved for a loan takes minutes and won’t impact your credit score. Plus, once you’ve settled on the loan that’s right for you, they will send you smart alerts to remind you of payment due dates and any other important information, so you don’t fall behind.
Timely payments can also translate into a credit limit increase, so you could ultimately get rewarded for staying on top of your debt repayment.
How to manage consumer debt
If your DTI ratio is high, there are options to help you manage and pay down debt. If you have multiple credit cards, consider a balance transfer card that may provide 0% APR for a limited time. You could also refinance other loans or take out a debt consolidation loan, as previously mentioned.
In the longer term, you could look to increase your income, such as by taking on a side hustle or moving into a higher-paying role, either with your current employer or elsewhere. You could also reduce your housing expenses, which may involve downsizing, renting out a room or getting a roommate.
For Mark and his wife, paying off their debt and saving for retirement likely means working into their 70s. But it also means when they do officially retire, they’ll be debt-free.
“The best time to plant the tree was 20 years ago. The next best time is today,” cohost George Kamel said.
If you plough through debt with “focused intensity,” he said, “you’re going to get through it faster, make more progress, and then when you do get to building that nest egg, you’ll make serious progress fast.”
Regardless of the approach you take to pay down your consumer debt, Monarch Money can help you budget and set a timeline for repayment.
Monarch Money is a budgeting app that tracks your account balances, spending and investments all in one place, potentially making staying on top of your debt repayment a streamlined process. Monarch also offers a seven day free trial, so you can find out if it works for you before commiting.
Plus, for a limited time, you can get 50% off your first year with code WISE50.
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