According to a Government Accountability Office report released in 2021, older Americans had roughly three times more debt in 2016 than in 1989. The median debt for those over 50 was more than $55,000 in 2016.
Not much has changed. A GOBankingRates survey in late 2022 found that the average American is $63,000 in debt.
If you’re among this crowd, you may be worried that your debt will impact your ability to have a comfortable retirement. Fortunately, you can take control and become debt free by age 60.
Stop Taking On Debt
You need to stop the bleeding. Don’t take on any new debt unless it’s absolutely necessary. That way, you can focus on getting out of the existing hole without making it bigger.
Assess Your Situation
Before you do anything else, you must figure out where you currently stand. So, list all your debts, including the loan type, creditor’s name, balance, minimum payment, payment due date and interest rate. Then, total your debts.
Create a Strategic Debt Payoff Plan
There’s more than one way to pay down debt. For example, some financial experts say you should first pay off your debts with the highest interest rates (usually credit cards). This strategy is known as the debt avalanche, and it can save you a significant sum in interest payments.
However, you could also pay off your debt from smallest to largest account balance, known as the debt snowball method. While you may pay more in interest with this strategy, following it can get some quick wins under your belt and give you some much-needed momentum.
Remember: Ultimately, it’s wise to enter retirement debt free. But how you reach that goal is up to you.
Revise Your Budget — and Your Spending
Looking at your monthly budget, you’ll probably find expenses you can scale back on or eliminate. Start by cutting low-hanging fruit, such as unused subscriptions and impulse buys.
Then, you can progress to finding ways to save on the essentials. For example, consider buying store-brand goods, using coupons or purchasing used items.
Depending on your situation, you may want to take more drastic measures, such as selling a spare vehicle or getting a roommate. You also could downsize your home to reduce your mortgage payment or walk away with some extra cash to invest.
Bring Home More Money
Slashing your spending goes only so far. If doing so isn’t enough to get out of debt before age 60, you should consider generating more income. For example, you could work overtime, pursue a promotion, get a higher-paying job or start a side hustle.
Pro Tip: Make sure those additional funds get put toward your debt as soon as they hit your bank account. That way, you won’t be tempted to spend the money.
Beef Up Your Cash Reserves
While paying off your debt is critical to your financial wellbeing, so is accumulating and maintaining a hearty emergency fund. This cash will help you cover urgent and necessary expenses without turning to a credit card.
In addition, consider saving for large, expected expenses in advance. For example, you can set aside a small amount of each paycheck to replace your car in five years or put a new roof on your house in 10. That way, you won’t need to finance the purchase.
Eliminating your debt will give you much more wiggle room in your budget. But you still need to save sufficient funds for retirement. That means you should keep investing as you pay off your debt.
If your company matches your retirement plan contributions, you should contribute at least enough to get the maximum match. Then, as your debt balance decreases, you can increase how much you invest.
Still in Debt After Retirement?
If you still have debt and you’re already retired, don’t lose heart. You can manage your debt by sticking to a budget and paying off your credit cards as soon as possible. You also might want to chat with a financial planner, financial advisor, credit counselor or other professional to help you develop a personalized strategy.
Warning: Don’t ignore tax debt. The IRS could garnish your Social Security payments, making it more difficult to cover your expenses and make debt payments.
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