If you’re one of the very few Americans who are completely debt-free, then congratulations, and read no further. However, if you’re like the rest of us, then this applies to you.
Consumer debt is on the rise at an alarming pace. The average American household has thousands of dollars in credit card debt, followed by thousands in student loan debt, and thousands more in auto loans. In addition, you have mortgage debt, and the total seems beyond reach in many cases.
Heading into your retirement years, one is apt to consider your financial landscape, and take a look at prioritizing which debts to focus on before you hear the words, “Congratulations on your Retirement.”
According to a study by the Employee Benefit Research Institute, housing debt was the major component of debt for families with a head age 55 or older. The debt levels among those with housing debt have obvious and serious implications for the future retirement security of these Americans, perhaps most significantly that these families are potentially at risk of losing what is typically their most important asset—their home.
Nearly 33% of Americans' total expenditures in 2015 went toward housing, according to the U.S. Bureau of Labor Statistics. One way to shave down your mortgage is to apply extra money toward the principal.
In recent years, almost three-quarters of students graduating college were saddled with an average debt of over $25,000 each.
One thing to keep in mind here is that your child can finance their student loans, but you cannot finance your retirement. If you’ve taken on the responsibility of paying for your child’s education, start repaying loans as soon as they come due, make more than the minimum payment, and as soon as your child gets a job after graduation, have them contribute a certain amount each month to paying down the debt.
If you have $10,000 on a credit card with 12% interest, for example, it’s going to take more than nine years to pay it off if you're only making $150 payments, according to Credit Karma's calculator. You'd pay over $6,500 in interest.
In addition, it would be wise to look at your highest-interest debt and consolidate. Some companies offer zero percent interest for 12 months on a balance transfer.
Eliminating debt doesn’t necessarily mean you have to make sacrifices, it just means you need to change your habits. So sit down, go through your budget, and figure out where you can trim the fat.
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