5 Steps to Help Get Out of Debt Before Retirement
Prioritizing saving overspending will help you get the retirement you’re after. But, what if you’re already in debt and are now planning out your retirement? Here are some steps to help get out of debt before retirement.
Create a budget
‘Budget’ doesn’t have to be a four-letter word. It’s one of the best financial tools that you can have no matter your situation, but it’s especially important when you’re trying to become debt-free. Budgets are useful when you are trying to understand your expenses, how much income you actually bring in a month, and how much you are spending on discretionary and non-discretionary purchases.
Using a spreadsheet, track your monthly income, your mandatory and non-mandatory monthly purchases. Consider tracking your purchases for a month or two so you can get a good idea of where exactly your money is going. From there, you can focus on your debts and how much monthly income you have to pay them off.
Invest in an emergency fund
Not having an emergency fund will set back your goals, If you don’t have an emergency fund to take care of unexpected expenses, you’ll have to cut back on expenses or go into more debt to take care of the situation. Emergency funds are built for a variety of unexpected expenses like roof repairs, car breakdowns, losing a job, and more. When you can take money out of your emergency fund, you’ll be able to get out of debt before retirement.
Participate in your employer’s retirement match
The best time to start saving for retirement was yesterday, and the next best time is today. Take advantage of your company’s 401(k) matching program if they offer one. It’s recommended to save 15% of your gross income on retirement every year, and your company match can help you get there. If you don’t utilize it, you’re leaving free money on the table. Compound interest benefits those who start saving young the most, but you can take advantage of it as soon as you start saving.
Pay down your ‘bad debt’ first
“Good” debt includes your mortgage or some car payments, while “bad” debt includes credit cards and other high-interest debt. Pay more than the monthly minimum on your highest interest debt and once that is paid off then go to the next highest. Once you’ve paid off this debt, consider saving the amount you were paying into your retirement fund. Also, many credit card companies offer 12-month or 24-month 0% interest rates after you open them. In this case, it’s wise to transfer your balances over to that card and work on paying it off. Make a payment plan that’s higher than the minimum amount due.
Speak with a financial advisor
Financial advisors who specialize in retirement can help you every step of the way. Fiduciary advisors will take an unbiased look at your finances, discuss your retirement goals with you, and the steps you need to take to get there.