Women and Debt: Ditch the Credit Card to Start Saving for Retirement

For many of us, credit card debt can be an overwhelming source of financial stress. It can be difficult to keep up with minimum payments each month and it becomes hard to stay ahead when we rely on credit cards as a fall-back for monthly spending.

If you are a woman who struggles with credit card debt, changing some of your spending habits can help you reduce this debt and start paying yourself each month by saving for  retirement.

Scary Credit Card Debt Statistics

Credit is everywhere and it’s all too common for consumers to pull out the plastic rather than pay cash or use a debit card. Consider these statistics when it comes to credit cards:

  • Average credit card debt per household is$15,799
  • Total U.S. revolving debt (98 percent of which is made up of credit card debt): $793.1 billion, as of May 2011
  • The median household income in the U.S. is around $43,200, so that puts this level of credit card debt as between 5 to 12 percent of their annual income.
  • $51 billion worth of fast food was charged to credit cards in 2006, compared to $33.2 billion the previous year.

Women & Credit Cards

A study done by Javelin Strategy and Research shows that in 2011, women are more interested in paying off their outstanding credit card balances and reducing spending while increasing savings than men.

CreditCards.com infographic: Women more focused than men on saving, cutting card debt
Paying off debt not only eliminates the stress and anxiety of payments hanging over your head, it also frees up your money so you can put it to work for you. By increasing savings, you use your own money as a back up instead of relying on credit to get you by.

Women & Retirement

The one area of savings women are consistently lacking in is retirement. Most women won’t be prepared when that day comes, and even worse, many don’t even know how to begin to plan for retirement. The statistics for women and retirement are astounding:

  • 38 percent of women age 30-55 are worried they will live at or near the poverty level because they cannot adequately save for retirement.
  • 54 percent of women have little to no money left to save for retirement once they pay their bills.
  • According to a 2004 report released by the Federal Reserve, only 35 percent of single women had retirement accounts, and only 8 percent had traditional pension.
  • Today, half of all women over age 75 live alone. Recent data from the U.S. Bureau of the Census suggests that women can continue to look forward to a greater number of years living alone, solely responsible for their own well being, on limited incomes.

The Power of Paying it Off

While women are on the right track with the desire to pay off credit card debt, reduce spending and increase savings, there is little to no mention of women getting on track to save for retirement. Take a look at the statistic I mentioned earlier:

The median household income in the U.S. is around $43,200, so that puts this level of credit card debt as between 5 to 12 percent of their annual income.

Let’s look at this from a different angle.

Consider a single female who has her credit card debt paid off, and instead of using up 5 to 12 percent of her income to pay off her debts, she is putting that money aside to save for retirement.

If we look at the numbers, 5-12 percent of the median income is $2,160-$5,184 a year. Using the investment calculator on Wiser.com,  we find that this single woman (assuming she begins contributing at age 30 with a 6 percent return and a 3 percent inflation rate) who contributes this same amount to her retirement account instead of paying off debt could have $181,012-$434,428 in her own retirement account after 30 years!

If you are trying to pay off debt, the first step is to get your emergency fund to at least $1,000. Once that is in place, you will have something to fall back on instead of relying on credit.

Reducing debt can have a powerful impact on the success of your financial future. It allows you to put your money to work for you so you can start saving for the future.

View the sources for the statistics used in this article.