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Stage 3 - Debt Freedom

Active Cash Flow > Lifestyle Cost; + No Unacceptable Debts

Stage 3 occurs once active income is enough to support current lifestyle expenses, some Runway has been saved, and unacceptable debts have been eliminated from their financial picture.


Whether mortgage or student loan debts are included here is up to you.

I argue you can be at this stage as long as all unacceptable debts have been removed from your financial picture.

"Acceptable" and "Unacceptable" debts

You need to understand the difference between “Acceptable" and “Unacceptable" debts here.

Acceptable debts are debts incurred at low interest rates, which you can tactfully use to increase your Savings Rate. Examples of acceptable debts include mortgages on rental properties, Student Loans to get a degree that will actually increase your income, and prime car loans in order to get to work and make money. These are not the worst things in the world to have, and can be left alone for now.


While these debts can be useful, they should never be accrued needlessly, however.

Unacceptable debts include high interest debt from things like credit cards, subprime car loans, payday loans, or any personal loans to friends or family. These debts do you absolutely no good.

The best method to pay off unacceptable debts can be found in the Debt Paydown Stretegies section.


You will often see people refer to these debts as "Good Debts" and "Bad Debts", however I argue referring to them as either "Acceptable" or "Unacceptable" debts is a more accurate representation of their utility.

"But Dave Ramsey says paying off debt is more important"

The SR50 method claims the additional Runway is more beneficial than paying off debt 3 months early. It does not make a significant difference.

Increase your Savings Rate