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Get Out of Debt Before You Retire

by Guest on May 31, 2012

Saving for retirement is an important process that is best done over the course of several decades. For many of us, however, saving money takes a backseat to paying off debt.

Reducing debt is a large part of retirement planning. Throughout your retirement, you may be expecting to have a steady but limited income. It’s a time of your life when you don’t want to waste valuable funds on monthly debt payments.

There are several options that can help you achieve a debt-free status before you hit retirement age.

If you don’t have an overbearing amount of debt, a concrete budget may be all you need. A debt counselor can help you with this if you have questions, or you can do it yourself. Start with the amount of money you take home each month after taxes. Subtract from this how much you need each month for necessities like groceries, transportation and housing. Then carve out some money for luxuries like entertainment and dining out.

The remaining money should go toward retirement savings and debt payoff. It’s best to set aside as much as you can for retirement, but be sure to commit to saving an amount you’re comfortable with. If you set aside too much, you won’t be left with enough for your bills, and saving up too little could mean financial hardship down the road.

Don’t forget your monthly debt payments. Excluding a mortgage or rent, debt should make up 10 percent or less of your monthly budget. Keep in mind that paying more than the minimum will get you out of debt faster and will save you money in interest.

If you have more debt and cannot comfortably pay your bills, you may want to consider options like debt consolidation, debt settlement or even bankruptcy.

In debt consolidation, you’ll replace multiple loans with a single, larger one. The obvious benefit to this is that you’ll have less paperwork and fewer bills to keep track of, simplifying your finances. But the process has additional advantages. Loan consolidation typically leads you to receive lower interest rates and better repayment options. This can save you money, which then can go toward your retirement fund.

Debt settlement is another popular money-saving option. In a successful debt settlement, you could end up footing only a fraction of your total bill. That’s because a well-established debt settlement firm knows how to successfully negotiate with your creditors and convince them to forgive a part — or in some cases, the majority — of your debt. That could translate into thousands of dollars saved on your part. This will create room in your budget for more retirement savings.

As a last resort, you may have the option to file for bankruptcy. This erases all or most of your debts and provides you with a clean foundation on which to rebuild your financial life. However, this is an extreme solution with lasting consequences. It should only be considered after budgeting, consolidation and settlement have been ruled out.

Jon Robinson is a Consumer Financial Advocate for Debt.org – America’s Debt Help Organization

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