If you’re drowning in debt, these steps can help you improve your financial situation and help you retire rich!
In this article:
- Debt Is a Roadblock for Retirement
- Debt is the Biggest Financial Threat in the U.S. Right Now
- Here’s What to Do If You’re Drowning in Debt
- My 5-Step Guide to Chipping Away at Debt
What to Do When You’re Drowning in Debt
Debt Is a Roadblock for Retirement
If I asked you to name the number one threat to your Rich Retirement, do you think you’d get it right?
Most people immediately think of taxes… a recession… or even inflation.
If you guessed any of the above, you’d be wrong.
There’s a threat even bigger than any of these, and it burdens Americans of all ages.
And, we’re not paying close enough attention to it.
The #1 threat to your Rich Retirement is debt.
And today we’re taking a close look at what this means for you, plus a simple 5-step plan to protect yourself from this threat.
Debt is the Biggest Financial Threat in the U.S. Right Now
Debt affects most of us at one time or another.
Even if you diligently pay off your credit card bills and loans on time, many Americans are only one misfortune away from being seriously set back.
Medical emergency, divorce, job loss, or any number of events could leave you reaching for the credit card and unable to pay off the bill.
And that can put a serious damper on your ability to retire on time — even without a national financial crisis.
Outstanding loans like leftover student debt, a car loan, or medical bills on top of your credit card bills could also hinder you from saving for your nest egg.
Credit card debt is higher than $1 trillion today — and Americans age 60 and up owe about one-third of this total.
Those over 50 owed more than $260 billion total last year, up dramatically from $46 billion in 2006. That’s how bad the debt crisis is in the U.S. now.
Bottom line is, if you’re over 50, you’ve probably felt debt-related financial pressure these past few years. Looking for possible ways for debt settlement can be quite intimidating, especially if you’re relying on your pension for your daily expenses.
The single best thing you can do to ease this burden is to have a plan in place for paying off debt.
Here’s What to Do If You’re Drowning in Debt
If the brakes go out on your car tomorrow, how would you pay for the repair?
What about if your cat needed surgery to save her life?
Or if you had to buy plane tickets to get to a funeral?
Can you afford to come up with the payment for life’s sudden crises and still manage to cover monthly payments for your existing loans?
After working with over 3,000 families, I’ve found that the biggest reason people have credit card debt is because they don’t have an emergency fund.
Most people charge their credit card thinking they will just throw money at the balance until it gets paid off.
And, while most people have the best of intentions, they don’t get the first emergency paid off before another one comes along.
Paying off your credit cards and other debts starts with establishing an emergency account.
Over the years I’ve coached countless clients on how to start an emergency savings plan to start hammering away at their debt.
And best of all, once you’re debt-free, you can use this same plan to start adding to your savings for retirement.
So what’s the best way to pay off debt?
Here’s what I tell my clients.
My 5-Step Guide to Chipping Away at Debt
Step #1: Create an Emergency Fund
What is an emergency fund? This is money people save up and keep for unexpected emergencies.
This could be either a money market account or a regular savings account. You just need to be sure you can easily access it in the event of an emergency.
Budget your income to include a percentage for emergency savings. This should be a consistent amount you can commit to every week, fortnight, or month.
Step #2: Find the Extra Money to Start Your Emergency Savings
Start by making only the minimum payments due on your credit cards. Put the rest into your emergency savings account.
If you feel a bit more wiggle room in your income, then you can start paying off more than your credit card’s minimum payment due.
Step #3: Treat Your Savings Like a Bill
Deposits into your savings account need to happen just like paying the rent or your cell phone bill. Continue until you have accumulated one month’s worth of living expenses in your emergency fund.
I would advise you to open a new account where you can deposit your emergency fund into. You can also automate your savings through an automatic online balance transfer from one account to the other.
Step #4: Start Hammering Your Debt
Once you have one month of emergency savings, divide your income into a percent you can live off of, a percent to save, and a percent to go towards debt.
Start with the smallest amount of debt first and go for the easiest pay-off. Work your way up on your debt list from the smallest amount to the biggest.
This also depends on the leeway your creditors will give you regarding the timeline of your debt settlement.
Step #5: Double Up on Your Savings
Once the debt is paid off, transfer the amount you were using to pay down your debt and put it in your savings instead.
Create a 3-month cushion. Once you have that, start adding that money to your retirement savings.
If you’re already drowning in debt, saving money for a comfortable future after retirement may seem like an impossible dream. Yet, it’s not impossible to turn your financial situation around.
I know this is not an easy fix. And it will take time.
But by choosing to start paying down your debt now, you are positioning yourself to enjoy a Rich Retirement.
Remember, the less you owe lenders, the more you have for you and your loved ones.
Have you come up with your own repayment plan for your debt? Share your experience in the comments section below!
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