Debt-free retirement living requires a lot of preparation and work. However, it’s not entirely impossible. Read on for seven tips to help you commit to a plan and get started today.
In this article:
- Commit to Living Debt-Free Early
- Plan out Practical Goals to Get out of Debt
- Reduce Your Spending on Housing Costs
- Avoid Cosigning Any Loan
- Try Getting Loans for Short-Terms Only
- Start Paying off Your Credit Card Debts
- Remain Disciplined as You Come Close Towards Debt-Free Living
7 Tips to a Debt-Free Living in Retirement
1. Commit to Living Debt-Free Early
To be able to get yourself out of your debts, you need to commit to your plan as soon as possible. After all, it’s not going to be an easy process.
It’s easy to get frustrated and sidetracked by mounting expenses, bills, and interest rates. Thus, your commitment will be crucial to attaining a debt-free retirement.
Keep your eyes on the prize: Think about how wonderful it would be like to retire without having to worry about paying off any old debts, and keep in mind how much easier it will be to figure out debt payment now while you can, and not when your income is limited after retirement.
Bottom line: When you have fewer expenses during your retirement, you have fewer worries.
One way you can commit to improving your personal finance and living debt-free is by setting up automatic monthly payments. That way, you can’t procrastinate or “forget” paying any of your debts off.
2. Plan out Practical Goals to Get out of Debt
Once you’ve committed to getting out of debt for your retirement, it’s time to set your goals. At this point, you know you want to live debt-free, so how do you go about it?
First, you need to look at how much debt you have now. Then, find out how much much of your budget you can use to pay off debt every month.
After you figure out your financial capacity, compute how long it’ll take you to pay off the entirety of your debt. Your financial ability will dictate the timeline that you strictly follow.
At the same time, you should make sure you find a way to keep track of all your debt payments.
Remember that you’re likely going to give up on some pleasures. However, if the end goal is to get yourself out of debt, then you should stay committed.
3. Reduce Your Spending on Housing Costs
Housing costs may be occupying most of your expenditures in your household budget. In that case, you should try and reduce your housing costs as much as possible.
Ideally, you should be spending no more than 30% of your income on housing costs.
There are also plenty of debt spending rules that help dictate how much you should ideally spend on housing costs or debt.
For example, there’s the 28/36 rule. This rule dictates that households should be spending 28% of their monthly income on housing costs.
On the other hand, 36% should be the total debt-to-income ratio you spend in a month.
By reducing your housing costs, you have more leeway to spend on paying off your debts.
4. Avoid Cosigning Any Loan
When you cosign any loan or debt, legally they become your personal loan too.
No matter your level of involvement, or lack thereof, in the acquisition of this debt is, you’re still a debtor. Thus, if you can, try and avoid cosigning any debts that you don’t completely own.
Otherwise, you’re adding onto your debts for something that doesn’t even benefit you. This debt includes cosigning on student loans, too.
If you’re considering cosigning any debt like student loan debt, remember one thing. If the person doesn’t pay their debt, then you could end up paying for it yourself.
5. Try Getting Loans for Short-Terms Only
Long-term loans tend to have lower monthly payments. However, interest rates are usually much higher.
Overall, you’re spending more money in the long run.
If you absolutely have to get a loan, try and get loans with shorter terms only.
Short-term loans will require a higher monthly payment amount from you. While this is the case, the interest rates will usually be much lower.
Plus, short-term loans get resolved much faster. Finishing payments for a loan more quickly means you’ll likely have more extra money at the end of it.
Again, getting short-term loans will require commitment from you. As stated before, it’s not easy to achieve debt-free living for retirement.
However, it will be a big load off of your shoulders when you get out of debt.
To have a more positive result from short-term loans, avoid using them to pay off unnecessary things or luxuries. Only take out a loan on things you really need and nothing less.
6. Start Paying off Your Credit Card Debts
People often see credit card debts as misguided consumer debt.
Consumer Debt Definition: This is a type of debt someone owes because they purchased consumable goods.
Most people think people rack up debts on their credit card because of a shopping spree. However, this isn’t the case at all.
A lot of people use their credit cards to pay for their health care bills.
Credit card debts have a very high-interest rate. Therefore, you should begin paying off your credit card debts as soon as possible.
You can start by paying off the smaller credit card debt first. Then, go bigger and bigger, like a debt snowball, so you can tackle your debts without being too overwhelmed.
7. Remain Disciplined as You Come Close Towards Debt-Free Living
Once you get closer and closer to reaching your debt-free living goal, you’ll see that you have a more significant budget now. It will be quite tempting for you to start spending more on pleasures again.
However, you should control and discipline yourself. Discipline is crucial, especially if you’re still not completely debt-free.
Even if you’re debt-free now, it’s best that you still retain that bit of discipline. You never know when you’ll need money for an emergency fund on a rainy day.
Instead of spending money on unproductive pleasures, you may want to consider putting it into investments. Annuities are a great example of retirement income you should look into.
Debt-free living is a challenging journey to undertake. However, it’s worth it if it gets you the freedom to enjoy your retirement to the fullest.
Spending your retirement worrying about payments is no way to live. Retirement is when you should have the most financial freedom.
Get yourself out of debt by acting on your goal of debt free living in retirement now.
How is your journey towards a debt-free living for your retirement? If you’re working on it right now, feel free to let us know by leaving a comment down below!
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