Getting Control of Debt Before You Retire

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You may have big plans for retirement, but can you afford them? Fifty percent of KAA-boomers will retire with debt. Here are a few simple tools to help you get control of debt now for smooth sailing in the future.

Getting Control of Debt Before You Retire

Debt can be a hard habit to break in our consumer culture. Considering this, it is no wonder that so many people are currently in debt and many people are still in debt by the time they retire. The statistics say it all:

50% of people retire with debt

That is an alarming number, especially since many of those people will likely end up living on a fixed income once they retire. Since retirement can mean a cut in income for many, having this debt can really take a chunk out of their monthly budget. But what is the answer? Can you really pay off your debt before you retire? What is the best way to approach the issue?

Get control of your debt

I know, I know… easier said than done, but it’s the truth. You have to come up with a plan and implement it years before you retire, so it is best to start now. Following these steps is a great way to help get control of your debt:

  1. Stop accumulating debt.
    If you have little to no debt already, now is not the time to start piling it on. Even a small loan can start a vicious cycle of debt if you are not careful. If you already have debt, then you already have a deep enough hole to climb out of.
  2. Calculate your disposable income.
    Take your regular monthly bills and add them up. Then add in expenses for food, gas, cleaning supplies and other necessities. Subtract this amount from your monthly take-home pay. This is how much money you have to put toward your debt every month.
  3. Divide this amount among your creditors.
    For example, let’s say you have a $30,000 car loan, $15,000 in credit card debt, and a $15,000 personal loan. Let’s also say that you have $1,000 extra disposable income to put toward debt each month. You will give $500 to your car loan and $250 each for your credit card debt and personal loan. Note that these amounts are on top of your minimum monthly payment for those debts (which should have been included when you were adding up your bills).
  4. Pay your creditors.
    Make sure the payments are on time to avoid extra unnecessary debt due to late fees.

Tips & Tools

  • You will be able to pay off your debt more quickly if you eliminate things that you don’t need from your budget, in order to free up more money to put toward your debt. It may be tough to live without some of these things at first, but you will be thanking yourself when you are able to retire debt free.
  • Whenever you get an unexpected amount of money, such as from a bonus at work, take a little bit out to treat yourself to a nice meal and then put the rest of it towards your debt.
  • If you must keep credit cards around, only keep one, put it in a safe place and use it only in the case of a dire emergency.
  • It is easy to avoid large impulse purchases with your credit card if you steer clear of those items in the first place. For example, don’t visit electronics stores or shopping malls if you have a weakness for them. If you must go, get in, get out and remember your main goal–paying off your debt before retirement.
  • It may be easier to pay off credit card and personal loan debt if you consolidate them into one low-interest payment.

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