Is debt threatening to ruin your retirement before it begins? 4 tricks that can help | personal finance
Almost everyone gets into debt from time to time, and it’s not always a big deal. But as you approach retirement, you want to get rid of as much debt as possible. With fewer payments to worry about, you can further expand your existing savings.
But getting rid of debt, especially high-yield debt, is easier said than done. If you’re struggling to get your finances under control, these four tips might help.
1. Focus on high-yield debt first
You should always prioritize debts with the highest interest rates first. If you have payday loans or credit card debt, this is the best place to start. Don’t worry too much about mortgages or other low-interest debt. Keep making payments on these, but don’t invest any additional money on them until your high-interest debt is paid off.
The debt avalanche method is a popular strategy for paying off credit card debt across multiple cards. First, you make the minimum payment for all your cards each month. Then you put the remaining cash on your debt at the highest interest rate. When you’ve paid off that debt, you move on to the debt with the next higher interest rate, and so on.
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You can also try using a balance transfer card or personal loan. Credit Transfer Cards Temporarily stop your bankroll from growing. They are therefore a good choice if you are confident that you can pay off your debt within the 0% introductory period. Otherwise A private loan might be a better option. These give you a predictable monthly payment so you don’t have to worry about your balance continuing to grow.
2. Look for other ways to collect more money
Depositing more money allows you to pay off your debt faster. You could work overtime at your current job or start a part-time job. Or you could use windfalls like year-end bonuses, raises, and birthday bonuses to pay off debt.
Again, if you have high-interest debt, focus on that first, and you may even want to put retirement planning on hold for a while. You’re probably paying more credit card interest in a year than you make investing your money, so it makes more sense to dump all your money on that debt first. Then, when it’s paid off, you can save for retirement while working on your other types of debt.
3. Don’t touch your retirement savings prematurely
You might be tempted to withdraw some of your retirement savings early to pay off your debt, but that’s actually counterproductive. For one, you pay a 10% prepayment penalty when you withdraw the most money retirement accounts before you’re 59 1/2 – and that’s in addition to any taxes you owe if the money comes from a tax-deferred account.
In addition, you will significantly reduce your retirement savings. When you start saving again, you’ll need to save a lot more per month to retire on schedule. You’d better leave your savings alone to let them grow until you retire.
4. Delay retirement
If all else fails, you still can delay retirement to give yourself extra time to save and pay off debt. It’s not the ideal solution, but it’s preferable to run out of money early on. You could also slowly retire and maybe go part-time for a while before quitting for good.
Everyone’s debt-payment strategy will look a little different depending on what they owe and how close they are to retirement. But don’t make the mistake of thinking that it will get easier with time. The sooner you start paying off your debt, the better off you’ll be in the long run.
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