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Eliminate Debt (except for a mortgage)

The elimination of debt, strictly speaking, is a precursor to your investment plan. For most people, consumer debt is a huge drag on their ability to save. Not only does consumer debt funnel away money from savings, the interest rate on most consumer debt is extremely high. The elimination of all consumer debt should be the number one priority of anyone who embarks on a savings/investment plan.

Stop the Escalator!

With rare exceptions, the interest rate on consumer debt is higher than the rate of return on your investments. In other words, if you have 100 dollars in a savings account and you are carrying a $100 dollar balance on a credit card, then each month, you pay out more interest on the credit card account than you collect from your savings account. This is like trying to walk up a down escalator. The more debt you have, the faster the escalator is going. Your best strategy is to pay off the debt and stop the escalator. Once the debt is paid off, then put your credit cards away unless you can pay off the entire balance at the end of each month.

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