When you retire, the last thing you want to worry about is making room in your budget to pay off debt. If you end up having a lot to pay off after you’ve left the workforce, you could eat through your budgeted money much faster than you thought. Unfortunately, too many people find themselves in this situation.
“According to EBRI, the average debt for households age 55 and over increased from $73,727 in 2007 to $75,082 in 2010, and total debt payments as a percentage of income increased from 10.8% in 2007 to 11.4% in 2010. This is an unsettling trend when you combine it with the fact that housing is a major component of debt for families age 55 and older,” according to Forbes.
And, how do you expect to do anything fun once you’ve retired if you always feel like you’re strapped for cash? To avoid this problem, make sure you are debt free by the time you retire. That means your mortgage should be paid off, your credit cards have zero balances, and you should own a car that has been paid off. Ready to find out how you can retire with no debt? Read these six tips.
1. Make a budget
Get on track by creating a monthly budget for yourself. In order to improve your finances, eliminate debt and get on retirement track, you need to know exactly what you’re dealing with. Start by keeping track of your income and expenses, and make sure your budget accounts for everything – monthly expenses, yearly expenses and occasional expenses. Make sure you also account for any fluctuations in your monthly expenses (such as utility bills), according to Military.com. Once you understand your budget you can begin figuring out ways to add cash to it by finding places to decrease your expenses. The extra cash will help you pay off your debts more quickly. Once you’ve eliminated them entirely, you can start building up your retirement nest.
2. Pay more than the minimum
This is extremely important if you’re hoping to eliminate your debt. The smaller the payment, the longer it’s going to take you to repay the charges. Rather than pay a tiny amount, pay as much as you can each month. If you usually pay a $100 minimum, do whatever you can to double that to at least $200, according to The Motley Fool. Examine your expenses (this is where budgeting comes into play) and figure out where you can cut down on expenses – forego going out to eat and buying Starbucks coffee. Take that money and make sure it’s going toward your monthly payment. Those small sacrifices will help you increase your payments, which in turn, will save you at least hundreds of dollars in interest payments.