Stop Credit Card Debt from Usurping Your Nest Egg Before Retirement
This is a guest post by Susan Green
There are debts that can wreak havoc on your retirement funds and cause you to go broke at the tail-end of your work-life. One of the most woeful forms of debts is credit card debt, from which you should steer clear at all costs long before you retire. You may be wondering why. Here is the justification for that:
Why should you repay your credit cards?
The best advantage of repaying your credit card balances is that it’ll ensure a financially stable retired life for you. This is because as per the recent market survey by TD Ameritrade, an average baby boomer has about $500,000 less than they will need in retirement.
A lot of consumers like you do not consider credit cards as loans, although in reality, they are. If you fall in the group of 34% baby boomers with credit card debt, it could prevent you from leading a retired life that is free of financial hardship.
The fact is that the interest rate on credit cards is exceptionally high and some continue to compound interest on a daily basis. With cards like that, creditors make more money by charging exorbitant interest rates, and you end up deeper and deeper in debt.
Though you should avoid using credit cards as much as possible, they won’t completely upend your retirement goals. Still, making the repayments every month is a different issue altogether. For that reason, you need to get a plan in place to clear your debt obligations that you might be carrying before retirement.
Credit card debt repayment plan for the baby-boomers
So, to get rid of growing credit card balances before you hit retirement age, just follow the tips listed below so you can get on track to be financially independent in your golden years:
- Fix the problem – A lot of baby-boomers like you incur debt through no actual fault of their own. This may be in the form of medical issues or long-term unemployment.However, it may be the case that you’ve gotten into debt for spending beyond your means. So, to get rid of credit card debts completely, you’ll have to let go of your urge to splurge on items that your current income doesn’t otherwise permit.
Yes, it’s a fact that saying no is pretty difficult. Still, you’ve got to do that, if you want to enjoy the things that you’ve planned for your retirement.
- Cut down your overall debt amount – The moment you’ve resolved to free yourself of your debt obligations, the very next step that you must take is to create a debt reduction plan, strategically.You simply need to draw up a list of all your credit cards and arrange them in increasing order of their interest rate, total outstanding bills, their payment deadlines, penalties and various other factors that you may deem fit. Listing your debts in increasing order of their interest rates will prevent you from paying excessive amount of interest over the entire term of the repayment plan.
In this case, your goal should be to make extra debt payments whenever possible towards the first debt on the list. However, you should still continue making minimum payments towards your other credit accounts. Go down the list until you do not have a single debt to repay.
- Accelerate your debt repayments – Though you may feel repaying your credit cards is a never-ending process, there are some really effective ways to speed up the process without putting too much of strain your finances. For instance, you can talk to your creditors and negotiate for better rates on your cards.Even a rate of cut of one percent will translate into a lot of savings and help you to clear up your debts more quickly. However, if you somehow fail to negotiate for better rates with the creditors, then you may well opt to get all your outstanding bills consolidated through a credit card balance transfer, into one single monthly obligation.
This will help you to manage your payments and even get some waivers with respect to the late fines or over limit charges levied on your accounts.
Apart from that, you’ll have to make a significant reduction in your monthly household expenses. By the virtue of reduced expenditures, you’ll be left with more disposable cash to make larger debt payments. This will also help you to eliminate your financial obligations even more quickly. In addition, you’ll develop the good habit of staying within your budget as a result.