Retiring with no debt is a smart and financially sound goal for anyone who is approaching retirement and looking for ways to reduce their monthly expenses. Unfortunately, many people will find it difficult to get everything paid off in the few years before retiring. Getting rid of debt, however, is one of the better ways to make sure that a person will not outlive their retirement income. Fortunately, there are several different types of debt help that can be used to get out of debt quickly.
In order to pay off their debt by the time they reach retirement, a person first has to know how much he or she owes. A person should start by gathering all of his or her bills and making a list of all of their debts. Be sure to include the minimum payment amount, interest rate, and the total owed, otherwise known as the pay-off amount.
Next, a person should write a budget that includes just the minimum payments for each debt. By doing this, the resulting spreadsheet will indicate how much money will be left over at the end of the month that can potentially go towards debt repayment. If there is no money left over at the end of the month, this means that a person cannot meet their minimum debt obligations. People in this situation may need to call a financial professional to work out a debt settlement or modified debt repayment program.
People that do have money left over, however, need to decide how much of it can be used to pay off debt. A general rule is to use your age as the percentage of disposable income that you can devote towards paying off debt quicker. For example, a sixty year old man would want to devote sixty percent of his leftover or disposable income towards paying off his debt faster. As with any rule, however, an individual’s circumstances will determine how much he or she can actually devote towards paying off debt faster.
Once you have determined how much you can pay towards your debts, apply this amount to your bill with the highest interest rate. Be sure to make the minimum payment on the rest of your debt, of course. Depending on the amount of this bill, the debt could potentially be paid off within a matter of months. Once this bill is paid off, the minimum payment amount will disappear from your budget, freeing up cash.
Depending on your circumstances, this money can be used to pay off more debt, invest for retirement, or pay for other items. It is typically recommended that after each bill is paid off, however, a consumer adjusts his or her budget. This involves removing the debt from his or her monthly expenditures, and using the “new” leftover money with the same formula as was used before. A portion should go towards debt repayment, a portion towards investment, and the rest towards improving a person’s quality of life.