Retiring without debt is a worthwhile goal, but a difficult one to achieve. It means no car, mortgage, credit card, or student loan payments weighing over you. But the thing is, not everyone will be able to retire without debt. It requires a lot of saving and sacrifice, particularly if you haven't been budgeting and contributing to your retirement. That said, being debt-free in retirement isn't always financially smart. Sometimes your best financial move might be to carry debt with you to earn money on it.
If retiring debt-free is your goal, follow these steps to make it happen:
1. Create a planUnless the financial goals you currently have allow you to retire debt-free, you've got to take action today. Develop a plan and make concrete, realistic goals for you to achieve. Determine how many years you have left until you plan to retire. Calculate the amount of debt you owe -- keeping in mind that you have to pay for interest. Use that calculation as a basis for creating a financial plan that will help you retire debt-free. Remember that there are two ways to pay debt down: increasing your income and decreasing your spending. Both should be a part of your debt-free retirement plan.
2. Play the numbers gameAssess your money habits. If you're serious about retiring debt-free, you have to know how you're spending money and where you can make cuts. Take stock of the types of debt that you have, including credit card, student loans, car and house payments. Focus on getting rid of the debt that has the highest interest first. Double or triple what you are currently paying. It won't be easy, but you must be disciplined. The sooner you can pay that debt down, the more you can contribute to your retirement.
Here are a few tips to help you pay down your debt:
Live within your means. Don't spend more than you make. It sounds like common sense, but you have to consistently save money if you intend to retire without debt. Live frugally so that you can keep your monthly expenses low and use the extra money to pay off bills. If you want to retire debt-free, you'll have to stick to a budget and focus on your retirement savings. Even if you're able to get rid of your debt by the time you retire, you still have to live on something! So be sure to save a large portion of your paycheck (maybe 40 percent or more) in a savings account. Don't forget that there will likely be unexpected expenses in the future, so save for those emergencies as well. The last thing you want is to retire debt-free and then find yourself in trouble because you can't afford major expenses like hospital bills and long-term care.
4. Commit to your debt-free retirement goalsRetiring without debt is a lofty goal and you'll have to make big sacrifices in order to reach it. That means you might have to give up some of your wasteful spending habits and postpone fun plans you might have had. It will be tough, but think about your ultimate goal.
5. Be flexibleWhile working towards your goal of retiring debt-free, you might have unforeseen issues pop up. Maybe you have a medical emergency or you don't reach a targeted goal in time. That's OK. You might do everything you can and still not rid yourself of all your debt. You're still left better off than you would be if you had not taken action. Plus, you're far ahead of millions of Americans who are woefully unprepared for retirement.