Sunday, February 19, 2017
How We Paid Off Debt Before Retirement
You can't be in debt and retire. Well, you can and plenty people DO live that way, but I would not suggest anyone do it.
My husband told me in 2015 that he would like to retire in 2017. That left just 2 short years to climb out of debt. We had one car we owed on and three credit cards at the time. If I remember correctly, it was about $20,000 of household debt plus a mortgage on our home. Since it was just the two of us and we live frugally, it wasn't a problem to get going with a "debt snowball" right away.
Have you heard of a debt snowball? Its a Dave Ramsey idea on how to eradicate debt pretty fast. You list your debt from smallest to largest balances. The smallest balance debt gets the most money thrown at it while the remainder debts get paid minimum balances. Once you knock out that smallest debt, you add what you were paying to it along with the payment for the next to smallest debt and that debt gets all the extra money while the remainder debts get just the minimum payment and so on until all your debt is gone. Of course the house takes a bit longer, and for us, we knocked it down quite a bit but not all the way out. However, we were able to refinance the remainder at a smaller interest rate and a WAY smaller payment that could be paid easily in retirement. Have we ruled out trying to pay THAT debt off sooner? Of course not. We would LOVE to be able to pay that down quicker than the 30 year loan it is on. But on the other hand, we ARE able to use it for a majority of our tax deductions every year so it does work out for us. And by having such an economical payment, we CAN put more money to that loan each month. The debt snowball worked for us and I'm SURE it will work for you too if you have the desire and fortitude to kick debt IN THE BUTT once and for all!
The next thing we did was to live on less. Quite a bit less! And the extra we WEREN'T using each month went to paying down the debt and beefing up our savings. This means really budgeting money each month into fixed and flexible amounts that we could live with so we didn't have the pinch of money nagging us to go out and spend, spend, SPEND! And learning to adhere to a budget is a good thing to learn before you find yourself on a fixed income.
We also went to a financial planner to discuss what retirement would look like living on the amount of money we had saved so far through my husbands 401K matching program, his pension and social security benefits. After all, you REALLY need to know that figure and know that it will be enough for you to live on now and into the future with the rising cost of living. And we also made an appointment with social security to discuss the different "tiers" offered based on what age you begin taking it. Also, very informative.
I will share more in the upcoming months about our budget categories and ways to live life fully within those parameters so stay "tuned".
Some budget books I like that might help you too....
Thanks for stopping by today and if you haven't put "Living On A Budget" at the top of your list of New Year's Goals as well as "Steps To A Debt Free Retirement"..... Might want to seriously consider doing it.