How to Reduce Your Debt Before Retirement

Much of financial planning for retirement revolves around stashing money in a retirement account. But the other side of retirement planning involves your spending; what will your monthly budget look like, how much income do you need to cover expenses, and can you reduce debts so that your expenses are lowered? 

Yes, it is ideal to enter retirement free of debts, or with as little debt as possible. So as you plan for retirement, eliminating debt is almost as important as saving money in a retirement account. Begin taking these steps now, so that you enter retirement with fewer obligations taxing your budget. 

First, take a closer look at your monthly budget now. What interest rates are you paying toward revolving debts like credit cards? Consolidating all of those high-interest debts into one low-interest loan can help you get them paid off faster. Another thing to consider at this time is a mortgage refinance, because interest rates remain incredibly low. 

Then, you should assess your spending habits and revamp your budget. Try not to ever carry credit card debt to the next month; only spend what you can pay off in the first billing cycle (before interest accrues). 

 Your next crucial step involves changing your mindset toward your financial priorities. The first person you should pay is yourself! Take a look at your paychecks, decide how much you can contribute to a retirement account first, and then use the rest to pay for living expenses and debts. 

The best way to save for retirement is by diverting part of your paychecks to a retirement account via automatic contributions. That way, you’re not even tempted to spend the money. 

After saving for retirement, now you design your monthly budget. And don’t forget to make a regular savings account a priority! One monthly “expense” should be stashing a little cash in an easily accessible account for emergencies. Now you’ll never have to charge unexpected expenses on a credit card ever again. 

Finally, try to start thinking about finances in the long term. Yes, picturing the distant future is difficult, but it’s inevitable! You will retire one day, and you’ll be glad you took positive planning steps now. 

We can help with that last part. Make an appointment with us, and we will guide you through the process of picturing your retirement and then making a strategy for your future.