How to Get Out of Debt? The Financial Gurus Answer
Retirement planning is a lot easier with the weight of debt off your shoulders. Some debt is almost unavoidable, but that doesn’t mean you can’t clear it away, and smooth your path forward. All it takes is a plan, and the stick-to-itiveness to see it through.
If you’re trying to hone in on the best ways to eliminate debt and add more to your retirement savings, here’s what three well-known financial gurus have to say:
Clark Howard: Break the Cycle and Start a Better One
Known for his nationally-syndicated talk radio show, Clark Howard focuses on a simple, workable, 5-step plan for eradicating debt so you can get on with your life. Step one? Stop the debt cycle by refusing to buy anything on credit.
Howard’s plan includes an element that you’re probably familiar with, and that’s the emergency fund. Everyone needs one, even if it starts out as small as the $1,000 he recommends. This can save you from dipping into retirement for a new set of tires or the co-pay on an unexpected medical expense.
Making a budget is critical to paying off debt, but so is being realistic, says Howard. If it’s too complicated, you might not stick to it. Once your debt is organized, then you’ll be able to spot overspending and direct more of your cash toward paying off debt.
Dave Ramsey: Build Momentum with Small Successes
Dave Ramsey is famous for his “Debt Snowball Plan.” Unlike some financial gurus, Ramsey believes it’s more beneficial to attack small debts first, and work your way up.
With Ramsey’s plan, you’ll start on the road toward a debt-free life and more carefree retirement by paying off the smallest debt that you owe. Once that is accomplished, you’ll route the amount you were devoting to that debt into the next larger one.
Ramsey believes becoming debt free is partly psychological. When you see successes building up, you’ll be more inclined to continue. And by adding more and more toward the higher and higher debts, you’ll also build momentum.
Suze Orman: Eliminate Credit Card Debt for Good
There’s a 9-step plan that leads to the 10th, which is a happy retirement, with Suze Orman’s guidelines for getting out of debt. Because credit card debt is such an issue, her plan focuses heavily on that problem.
Step one might be painful. Orman recommends cutting up every credit card that you own, except one for emergencies. But that one shouldn’t stay in your wallet. She recommends paying more than the minimum payment every month and negotiating for better interest rates, and educating yourself on the terms of each card you’re paying off.
She also explains that all debts are important, not just credit card debts. Although you might worry more about eliminating a high-balance credit card, it’s just as important to pay off medical bills and any other debt that you owe. And when one debt is paid off, Orman is also a proponent of applying that payment amount toward another debt.
NewRetirement: Debt and Retirement
Debt is a major threat to a retiree’s financial security. In retirement, your income and assets are fixed — you are not making more money, you are living off what you have. A fixed income means that you will not have more money tomorrow to pay off the debt than you do today. You will simply be paying more interest – wasting money every month you carry the debt.
You should think carefully about retiring if you have debt — particularly credit card debt.
Housing debt — a mortgage — is considered by many financial planners to be acceptable for retirees. However, there are various strategies for eliminating or optimizing mortgage payments as well. Downsizing, mortgage refinancing and reverse mortgages are all strategies for optimizing your housing for better retirement finances.
Get Out of Debt
You don’t have to incorporate every piece of advice from each financial expert into your debt-free living plan. Find what resonates with you and you’ll be more likely to stay the course.
Retirement planning isn’t necessarily hard, but carrying a debt burden can make it feel that way. Start clearing it away now, and every year ahead will be a bit smoother than the last. Use a retirement calculator to see how your debt will impact your retirement finances.