Debt Free Retirement: Make it Reality, Not Just a Dream
With the economy as shaky and unstable as it is currently, you may be worried about your financial future and if retiring debt free is really an option. Your current debt can have a major impact on how your finances will look after retiring. It is essential to learn good debt management solutions and techniques, so retiring debt-free is a reality and not just a dream.
Stop Accruing Debt
If you are nearing retirement age, you need to stop accruing new debt that you cannot have paid in full by the time you retire. You can still buy your dream boat in time for retirement, but rather than going in debt by getting a loan, set aside a separate savings account for it and pay for it with cash in full. Having a savings account used solely for financial goals is one of the best debt management solutions that can help you retire debt free.
Reduce Current Debt
Categorize all of your current debt into three columns. The first category should be small debt that you can pay off quickly, the second is for any debt that you can pay off in less than one year's time. The third category is for debt with a year or longer terms. Next, prioritize your debt by looking at your spendable income and see how much you can spare above and beyond the minimum payment. Focus on paying off the small debts first, once those are paid off you can allocate that money into paying off larger debts.
Focus on Saving for Retirement
If you want to be debt-free, you have to focus on saving for the future. Any extra money that is not used for paying down your debt should be allocated into a savings plan for after you retire. It can be helpful to consult a financial adviser who can help you diversify your portfolio and provide ways to invest your money. If your employer provides a retirement plan like 401(k), contribute as much as you can afford. Start with one percent of every paycheck to go towards your retirement plan and increase the amount incrementally as you pay down your debt.
Working Longer May Be Necessary
You may also want to consider working more than one job while you still can or working for a few years past when you wished to retire. You can raise your overall retirement income by nine percent by working just one year past retirement age. Working past retirement age also means fewer years of consumption after you retire. Nobody wants to work dual jobs or longer than they have to, but it will be worth it if you can retire debt free.
Debt Settlement or Consolidation
If you feel you cannot afford to pay off your debts or make your monthly payments, there are two options to consider. Debt settlement
is one option. You can contact the creditor who owns your debt and see if they will take a reduced lump sum payment in exchange for closing your debt.
The other option is loan consolidation. You can consolidate your debt by taking out one loan large enough to pay off multiple debts which leaves you paying one affordable monthly payment. This can also improve your credit score as each debt is shown as paid. It may also have the added benefit of qualifying you for better interest rates on other types of loans you still owe.
Retiring debt free does not have to be just a dream, it does take time, sacrifice and careful planning on your part, but the reward is well worth the sacrifice.