How does debt affect my retirement?

Excerpt from: The Wealth Ski Bum–10 Steps To A Successful Retirement.

Debt is the scourge of a good retirement plan. Why? You’re socking away a portion of your paycheck with the long-term goal of earning 8% or more, but at the same time, you’re paying 15% to 20% in credit card interest. It’s impossible to grow your money in this way. In 2018, the combined credit card, student loan, auto loan, and personal loan balances for Americans exceeded $4 trillion.27 While debt can help you purchase life’s necessities, it can also undermine your retirement plan if it’s not managed properly.

List your debt

Start with a list of all your debts, who you owe, the balance, the payment due date, minimum payment, and, most important, the interest rate you pay. You can order a free copy of your credit report via a variety of websites (search for “free credit report”). You’ll have to go online or call each creditor to get your current balance and interest rate.

Understand the true cost of debt

To better understand how much your debt is costing you, try using a loan calculator. For example, a $30,000 auto loan at 4.5% interest over five years will cost you $3,557.43 in interest.28 Credit card debt can be far worse. For example, if you have a credit card balance of $20,000 and are paying the typical rate of 18%, even with a monthly payment of $500 you’ll wind up paying $10,772 in interest alone (nearly the amount you borrowed).

Make timely payments

It’s important to at least make your minimum payments each month. Creditors will typically charge a late fee and damage your credit score if you pay late. A damaged credit score can limit your ability to get credit in the future and, even if credit is available, it can cause the interest rate to be higher. Just like you did for your retirement contributions, try setting up automatic payments from your checking account. Most of the creditors offer this service, and it can reduce the risk of mailing your check late.

Reduce debt

Making the minimum payments on your high-interest debt doesn’t reduce your balances, and you will pay a mountain of interest. Squash the debt faster by making additional payments, even if it means smaller contributions to your retirement plan until your high-interest debt is lower.

– –

Want to learn more about debt management and how affects retirement planning? Download Sandro Rossini’s new book for free:

Download Sandro Rossini’s new book, The Wealthy Ski Bum, Free (ebook giveaway).

Sandro is a retirement planning expert. As a special offer to my Ask The Expert readers, he is giving away a digital copy of his new book, The Wealthy Ski Bum–for free!

You’ll want to read this book if:

• You have started your first job and know nothing about retirement accounts, budgeting, and personal finance and you want an easy-to-read guide.
• You have a retirement account but don’t feel confident in your knowledge of investing and personal finance—and don’t know if you’re on track.
• You’re not new to personal finance and may even have an advisor—but you find all the jargon used by the professionals confusing and intimidating.
• You don’t like the topic and tend to zone out when you should be paying attention.

You will be redirected to empowermentcafe.com for download details.