No one wants to retire with debt, and certainly not credit card debt. But that's the reality of many soon-to-be retirees who have faced the recent economic downturn. Housing prices, unemployment, and rising health care costs have left some prospective retirees with a bit more debt than they hoped to have at this point. Many people approaching retirement with debt hope to avoid the less-than-ideal solutions of dipping into your retirement accounts or delaying your retirement. Here are some tips for getting rid of your excess credit card debt before you retire.
1. Fix the root cause. Many people are in debt through no fault of their own, such as long-term unemployment or medical issues. But some individuals are stuck with credit card debt that was brought on by simply living beyond one's means. To find true freedom from future credit card debt, you have to overcome the temptation to use debt to finance a lifestyle you can't afford. Learning to say no is tough. But thinking about what you would like to do after you retire could give you the motivation to finally make this change.
2. Develop a debt reduction plan. Once you decide to get rid of your credit card debt, the next step is to create a plan to systematically eliminate your debt. It's as simple as creating a list of all of your credit card debts and sorting them in order of the interest rate, size, or whatever other factor you choose. I recommend interest rate because you'll end up paying less in interest charges over the life of your payoff plan. Your goal should be to pour all of your extra income into the first debt on the list, while making the minimum payments on the others. Then work your way down the list of debts until they are paid off.
3. Put your plan in overdrive. Getting rid of credit card debt can seem like a never-ending process. But there are some things you can do to get to your goal faster. Here are some tips for speeding up the process:
- Request a better interest rate. Call each of the credit card companies associated with your accounts and ask them to lower your interest rate. Some won't budge, but some might be willing to help. You'll instantly begin incurring less debt from interest charges each month. This will help you to pay off your debts much quicker.
- Consider a consolidation. You have to be careful with these deals. You don't want to end up paying too much in fees and expenses to consolidate your debts, and you certainly don't want to use this as a way to simply transfer your debt only to incur more interest. But if you're 100 percent committed to getting rid of your debts, then it can be smart to reduce your interest charges by transferring your balances to a lower interest card or using some type of alternative debt consolidation.
- Drastically reduce expenses. One of the best things you can do to speed up your debt payoff plan is to reduce your living expenses so that you'll have more excess money in your budget to throw at your debts. Commit to fewer excesses for a period of time so that you can crush your debts even quicker.
- Temporarily increase your income. If your schedule will allow it, you should consider ways to bring in extra income. Take on a part-time job or set up a part-time business and use the cash flow that these new efforts generate to pay down your debts faster.
Philip Taylor is the author of 104 Ways to Save Extra Money. Read his popular blog, PT Money: Personal Finance for more insightful money tips, like his recent suggestions for the best online checking accounts.