Financial Planning, Retirement Issues

Should I Carry some Debt into Retirement?

February 21st, 2018 ernie Posted in Debt Reduction No Comments »

problem for new retireesThe quick answer to the question, should I carry some debt into retirement is no, if you can avoid it. Obviously who would want to knowingly carry debt into retirement, however there are lots of people that are retired and are carrying some debt. Whether it is credit card debt or a line of credit, it is another monthly payment that must be made and depending on the interest rate it can also be very expensive. Credit cards carry interest rates of 21% or more on any unpaid balances. Even unsecured lines of credit can be expensive. They typically are higher amounts and the interest rates are higher as well for anything that is un-secured.

Why You Might Answer Yes to the Question, Should I carry some Debt into Retirement

Sometimes life just gets in the way. The best laid plans are foiled by early retirement. People get laid off from their jobs, are forced to retire early because of health or down sizing. If you find yourself in this situation and you still carry a mortgage, chances are you will carry it into retirement as well.

Many people decide to go on trips when they retire. Some will spend money on the house to freshen it up. There are many ways to spend money and if we are not careful it means we carry it into retirement as debt.

Debt in retirement does not always have to be a bad thing. Obviously we would prefer not to have any debt. Manageable debt that is declining over time through monthly payments is okay. Debt that is used for investments is obviously higher risk, but it can have tremendous payback.

For most people if you have debt, try to repay it as quickly as possible, paying down the highest interest rate debt first. Renegotiate your debt to arrange for lower interest rates and less fees. Avoid missing payments and if you must downsize your home and expenses to focus on reducing your debt as quickly as possible. Avoid spending money that you do not have and prepare for the day when an emergency will eat up a lot of your savings.

For more about debt reduction in retirement, click here.

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Prioritizing Debt Reduction or Adding to My Saving for Retirement

November 7th, 2017 ernie Posted in Debt Reduction No Comments »

prioritizing debt reduction or adding to my saving for retirementMany people want to know if it is better prioritizing debt reduction or adding to my saving for retirement? They also should add to this question of whether they have emergency savings available to deal with big financial surprises. As with most questions of this type there are several different answers depending on the situation that each consumer finds themselves in. Factors such as loan interest rates, existence of emergency savings, whether you own or rent, how long it will be before you retire and how much you have saved for retirement. We will look at each of these issues. Bottom line is that each consumer must make their own decision based on their personal situation.

Prioritizing Debt Reduction or Adding to My Saving for Retirement

A little more detail about each of these major areas.

  • Debt Interest Rates
  • Emergency savings
  • Years to retire
  • Retirement savings

Debt Interest Rates – Basically if you have a thousand dollars and you can  earn 5% income by investing the money compared to your loan at 3%, then you probably should save the thousand and invest it. If the 5% income will be taxed, then it might be equivalent since taxes will take some of your income. For loans and debts carrying interest rates higher than 6% e.g. credit cards at 21%, pay off the credit cards first.

Emergency savings – Everyone always needs to have money set aside for emergencies. Whether it is major repairs to your home, your car or a health issue, make sure you have 6 months of savings set aside to deal with emergencies. It could take 6 months to find another job if you lost yours.

Years to retire – If you are planning to retire shortly, pay off all of your debt as quickly as possible so that you are debt free when you retire. You may work longer, however saving will be much more efficient when there is no debt.

Retirement savings – Saving for retirement is incredibly important. So is paying off debt. Finding the right balance depends on how close you are to retirement, how much debt you have, the interest you are paying on this debt and what you can earn in your retirement savings plan.

Generally experts advise paying off debt as quickly as possible since in most cases the interest rate is higher than any investment income you can earn after taxes are paid.

Comments are welcome. For more information on this subject, click here.

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Viable options to get out of student loan default and rejuvenate your credit rating

October 7th, 2013 ernie Posted in Debt Reduction No Comments »

student loanDid you recently find out that you’ve graduated college not only with a degree but with a huge burden of student loan debt? Student loan debt crisis is the next big crisis that is paralyzing the US economy and is crippling an entire generation. Studies reveal that there are increasingly large numbers of seniors who are still bearing their student loan payments that they’ve incurred when they were in college. With the rise in the cost of education, no student or parent is being able to bear the costs of college alone and are thereby taking resort to student loans and are then falling into the trap of student loan debt. Most students wonder about the options they might take resort to in order to get rid of student loan default.

Student Loans and Credit Ratings

When you’re more than 270 days back on your student loan payments, you will be considered in default and getting out of such a situation is what it takes to deal with student loans. Most of the repayment plans and postponement options require you not being in default or might demand you to make 3 reduced but timely payments in order to qualify for the alternative payment option. Apart from that as long as you’re in default, you won’t be eligible to get new grants or loans. Nevertheless, check out some ways of getting rid of defaulted student loans.

Approaches to Eliminate Student Debt

  • Cancel the entire student loan: You can get out of defaulted student loans if you can qualify for getting the loans cancelled or rather discharged. This is perhaps the best option for a cash-strapped borrower as you no longer remain obligated to make payments. However, as there are restrained options for cancelling student loans, this option might not be for all kinds of student loan debtors.
  • Get a direct debt consolidation loan: If you owe debt on federal student loans, you can take out a direct debt consolidation loan so that you’re able to combine your payments into a single monthly payment. The loan will carry drastically lower rates than what you were paying on the individual loans and hence you can also save a considerable amount of money. Once you get a direct debt consolidation loan, you can stick to making a single outgoing payment to the US Department of Education.
  • Get an alternative repayment plan: Yet another way to get rid of defaulted student loans is to set up an affordable repayment plan with the loan lender. Based on their personal financial circumstances, the borrowers have right to request such repayment plans. Loan rehabilitation is also a way of changing the lender of the loan. After you make certain number of payments, the guaranty agency or the US Department of Education will sell off your loan to a new lender and the new lender will put a standard 10 year repayment plan in place. This will ease off the pressure of monthly payments.

Therefore, when you’re spending sleepless nights worrying about effective debt management of your burgeoning student loan debt level, you may resort to any of the above mentioned options. Repaying debt or cancelling debt will help you boost your credit score.

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Do the IRA accounts have any effect on debt settlement?

September 24th, 2013 ernie Posted in Debt Reduction 1 Comment »

debt settlementAn IRA is considered to be one of the best options for you to save money for retirement. There are various benefits of saving money through IRA’s, and the main one is the tax benefit. However, the question is can the IRA account help you with managing debts? Does it in any way affect your debt settlement ability? In order to find out the answer to these queries, you will be required to know all of the details regarding the IRA accounts. You will also need to know your total debt situation, who you owe money to, how much you owe and how long it will take you to repay these debts.

IRA and debt settlement

There mainly are two types of IRA accounts and these are the simple IRA and the Roth IRA accounts. Both of these have some forms of tax advantages, but the benefits differ on the basis of account type. You are supposed to put money into your IRA account so that you can go on to lead a stress free retired life. However, can you use the money from the IRA accounts to manage your debts? First of all, if you aren’t aware of the complexities, the most obvious fact is reduction in the amount saved. When you will be withdrawing money from the IRA or the Roth IRA account, it is going to result in loss of the total amount saved. Another disadvantage is that if you withdraw money from the IRA accounts, you will have to pay tax on that.

Still, if you are too deep in debt, and all other sources have been exhausted, using money from IRA accounts can help you avoid bankruptcy. The IRA accounts can help in improving your credibility to settle the debts. The IRA accounts have the capacity to stay put with the different types of retirement investments carriers like that of bonds and stocks, the money market funds and so on. Therefore, reaping the benefits becomes easy with the IRA account.

Debt settlement is the process through which the outstanding debt amount gets settled. So, if you can settle the debts, it becomes easier to become debt free, as the amount gets lowered. Although, not all creditors agree to settle the debts, you still can get some to settle debts. If you have been missing payments for quite a long time, and if you can exhibit that you are in serious financial hardship, and that there’s no way the creditor can get more than what you are offering; they may agree. Managing payments on a small debt is easier than a large debt. Therefore, if you can go on to let the money grow from the beginning in the IRA account, you can use some of it to make the debt payments, even after settlement.

However, if your debt problems are minimum and if you think that there are still other options, it would be better to try out those, rather than withdrawing money from IRA accounts. This is mainly because, there are tax consequences of the withdrawal. So, weigh all of the options, and the pros and cons before opting to use the IRA account.

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How to Reduce Debt

October 7th, 2012 ernie Posted in Debt Reduction 3 Comments »

How to Reduce DebtWe recently read a survey which prompted the writing of this post. This web site is dedicated to helping readers manage their debt and to also manage their savings. Consumers need to get involved and take control over their debt and savings to ensure they have a satisfactory financial future. No one else will do it for you.

We hope you read this post and can make use of the information as well to take control of your financial future. Failure to act or failure to deal with your debts is only going to cost you more money in terms of interest at the very least and at it’s worst, could push you into bankruptcy!

How to Reduce Debt – Survey

The survey is summarized as follows:

A recent survey indicates that consumers are not taking advantage of available tools and strategies to reduce and pay down their debt.

The reasons given are interesting.

They include:

  • The overall amount of debt that they have
  • Interest rates they pay on their debts  – despite interest rates remaining at near historic low levels.
  • The number of different debts they have as a barrier to debt freedom.

These are all valid reasons for the respondents, however if allowed to continue will stop them from not only paying down their debt quickly, but also cost them much more money as a result of increased interest charges.  Not getting involved and taking charge will possibly hurt you over a life time financially.

What are the tools available to consumers?

These tools include:

  • Consolidation of their debts at a single low interest rate.
  • Making extra payments on their mortgage.
  • Compare mortgage products from more than one lender the last time their mortgage came due.
  • Work with a professional financial adviser
  • A debt repayment plan that includes a specific date for when they expect to be debt-free.

More detail on each of these tools:

Consolidation of debts at a single low interest rate – with interest rates so low at the present time, it only makes sense to consolidate all of your debt into a single low interest rate personal loan or secured mortgage. Interest payments will be less and more of your money will go towards paying down the debt.
Making extra payments on their mortgage – even a single payment once a year can wipe thousands of dollars in interest of your mortgage and years as well off your mortgage. This is a great way to reduce interest and reduce your debt at the same time.
Compare mortgage products – Whether you are consolidating or just renewing a mortgage, a little competition between mortgage companies can sometimes save hundreds if not thousands of dollars. Shop around and let your current provider know so they have an opportunity to sweeten the pot.
Work with a professional financial adviser – if you are confused or overwhelmed with your current debt situation and / or savings, speaking to a financial adviser can sometimes help. They can look at your situation without any emotion, focus on the  facts and make the appropriate recommendations. Get two recommendations from two different advisers to avoid any potential of conflict of interest.
A debt repayment plan- develop a debt repayment plan in conjunction with the above strategies that indicates what debt will be paid off when, what debts should be consolidated and what your long term debt plan will be. your financial adviser can help develop this plan, however in the plan must be yours and adopted by you.

Reduce your debts now , by consolidating, low interest loans, make extra payments, comparing loan or mortgage products, working with an adviser and setting up a plan. It may take a bit of work, however in the writer’s experience nothing comes easy unless you put some effort into it.

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Debt Freedom

September 21st, 2012 ernie Posted in Debt Reduction 2 Comments »

Debt FreedomWe all would like to be debt free by a certain time in our lives especially as we get closer and closer to retirement. Managing our debts, whether it is a loan, mortgage or credit cards can be a tough job especially once it gets out of control. For most people, it is always sometime in the future, however the future never comes and we are still aiming for debt freedom ten years later. The only way around this is to have a definite plan that the entire family agrees to and supports. If you cannot make that happen you are going to have a challenge on your hands.

What is Debt Freedom

Most people think of debt freedom as having paid off all of your debts and not having to pay any loan payments or mortgage payments. For many people at all ages this is a tough objective and a small percentage actually achieve this definition of debt freedom by the time they retire.

On the other hand some groups will define debt freedom as everything being paid off with the exception of their mortgage, which has a specific payment amount and a final end date. While this is really not debt freedom, they can comfortably pay their monthly payments and these payments do not hamper their life style in any way.

Regardless of how you define debt freedom, many people are trying to achieve their definition of debt freedom and have found that the following strategies will help them meet their objectives.

Manage Holiday Spending

Holiday spending often puts people off their plans and causes debt to get out of hand.  Spending more than they planned at Christmas, taking a vacation that they really could not afford or spending more than they plan all contribute to not meeting the objective. While it is easy to say, set a budget for your holiday and meet that budget, few people are actually capable of doing so. It takes a lot of discipline and it also takes realistic budget planning as well.

Set a Budget

Set a budget for your holiday as well as everyday life. Be realistic and stick to it. We cannot anticipate everything so every budget should have a contingency built into it, however it does not mean that it automatically will be spent. It is there for the unforeseen and for emergencies. having a budget in the first place means you have thought about were you are spending your money and taking steps to manage it. This is an excellent first step and many people find that they will reduce their expenses just by giving some thought to what they are spending their money on and will reduce it accordingly.

Sticking to a Budget

Sticking to a budget in order to achieve debt freedom is one of the most difficult things to do. But if you have a budget, then you are halfway there. Now it is just to have the discipline to stick with it. Challenge all expenses and ask yourself if you really need this item or service. Can you do without? You may be surprised at how much you can save and free up for other things.

Assess your budget at the end of every week and adjust your future expenses accordingly to bring you back on to your budget target.

Family Commitment

Many budgets fail because they cannot get their families commitment to meeting the budget. If other members of the family control spending,  or portions of it, then unless you get them to join you in meeting your budget, there is little chance you will be able to meet your budget and achieve your objective of debt freedom.

The best budgets and debt freedom plans are fully supported by all members of the family, including your spouse and children.

Unpaid credit cards are a huge issue for many people. Credit card interest rates are very high some as high as 29% and at those rates, if you do nothing else you must pay these off as soon as possible. When you are paying a lot of interest, there is less money available to retire any debt that you may have.


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