Everybody dreams of the day when they can finally retire, bit it takes careful planning in order to retire debt free. More Americans than ever before are retiring with mortgages, credit card debt, auto loans and home equity lines of credit. A large amount of non-mortgage debt can be a good indicator of an individual living beyond their means. If retiring debt free is your goal, it must become your number one priority.
Create an Action Plan
It is essential that you sit down today and create a plan of action. Create a budget with all expenses listed. Look carefully over the expenses and determine if there are any areas in which you can scale back. Take the time to investigate certain bills to ensure you are receiving the lowest rate possible. Shop around for car insurance, cell phone plans or cable television packages. Paying down debt will require a commitment to live within your means.
Gather all documentation showing exactly how much you are in debt. Separate them into three categories. The first category is small debts that can be eliminated quickly, the second category is moderate debt that would take less than a year to pay off and the third category is long-term debt with a term maturity of over a year. Look at your disposable income and decide how much can be focused towards paying down your debt above and beyond the minimum payment. Pay off small debts as quickly as possible and then focus the money you were using for those to go towards your long-term debt.
If you have significant debt or feel you simply do not have the income to begin paying down your debt, it can be beneficial to apply for a debt consolidation loan or home equity line of credit. This will allow you to pay off multiple debts in exchange for one lump payment. A debt consolidation loan or home equity line of credit will help reduce your overall interest rates, eliminate late fees and require one monthly payment. If you do go with debt consolidation, always try to pay more than the monthly minimum payment in order to pay it off as quickly as possible.
Save for Retirement
Any money that is not being funneled towards reducing your debt should be invested in your retirement plan. Talk with a financial adviser who can help you decide where and how to invest your money. How you save your disposable income is just as important as saving money. Participate and contribute as much as you can afford in your employer's retirement plan such as 401(k). Have a portion of your paycheck, start with as little as 1%, directly deposited into an IRA, 401(k) plan, investment or savings account. As you eliminate debt, increase the percent deposited.
Consider Working Longer
You may need to consider working for longer than you planned or working at more than one place of employment until your debt is eliminated. Working for longer means fewer years of consuming after you retire. Studies show working even one extra year raises retirement income overall by nine percent.
Retiring debt-free does require sacrifice, discipline and commitment on your part, but do not forget to reward yourself as you meet or achieve your goals. Rewarding yourself gives you something to look forward to and helps you to keep a positive mindset. There will be set backs, but stay committed to following your plan of action, reducing your debt and saving for your retirement.
Financial Planning, Retirement, debt