Amanda’s Note: This was provided by an online contact.
Debt is a killer and for millions of Americans being in debt means that they can never consider retirement. However, it doesn’t need to be this way as you can make retiring without debt a reality. Getting there is not easy you, will need to make some sacrifices along the way. But pulling it off will allow you to enjoy your golden years without the constant stress of worrying about how you will make ends meet.
In a perfect world, none of us would have to bear the burden of being in debt. But the realities of modern life make it very hard to live without access to credit. Things like student loans, car loans, credit cards, and mortgages are necessities in this day and age. However, some people can better manage their debts and here are some of the tricks they use to make it happen.
It’s All Relative
For you, the straw that breaks the camel’s back might be that last $20,000 in student loans. While for someone else it might be the monthly payment on their McMansion. The lesson here is that debt is relative to what you are earning today and to how secure your future income is.
We’ve all heard stories of celebrities who end up broke. Remember MC Hammer? And while the number of zeros after the amount might seem insurmountable, it is no different than the situation you are facing.
What does this mean? It means that you should put your debt in perspective. Don’t let it overwhelm you and then start to figure out ways to become debt free.
For example, if you are over 62, and struggling to make ends meet, then you might want to consider a reverse mortgage to freeze your monthly mortgage payments. Granted this approach is not the right fit for everyone. But if you are curious about how this might work in your case, then some additional FAQ’s can be found here.
No matter what you decide, remember that no problem is impossible to solve.
Know the Your Debt to Income
One reason why people get into debt trouble is that they don’t know how to manage their debts. When times are good rack up massive credit card bills buying items, they don’t really need to take extravagant vacations.
However, there is a way to make sure this does not happen to you and it is more than just making a budget. The answer is knowing the ideal debt to income ratio. According to most financial planners, you should spend no more than 28 percent of your ‘pretax’ income on household debt – that is your rent, or your home mortgage plus taxes.
In addition, no more than 36 percent of your pretax income should go to cover your entire debt. This means you only have 8 percent of your pretax income to cover student loans, car loans, and credit cards. It’s not a lot, but if you stick to these ratios then you will be in good shape for the long term.
Zap Your Student Loans
If it seems like student loan payments go on forever, it is because they do. In fact, student loans are the single biggest destroyer of wealth in the U.S. today. While most people over 55 have long paid off their student loans, millions of younger Americans are struggling to pay off an overpriced education on stagnant incomes.
Something has to give, and it should start by zapping your student loans. If you can do so, then double up on payments. While this might mean a few years of suffering as you will have no disposable income. The upside is that you will be free of these loans which are designed to literally bleed you to death.
Learn to Make Do with Less
Granted this is hard in the land of plenty, but keeping up with the Jones’ has a price and in the long run, it is not really one that is worth paying. Instead, learn how to make do with less. Keep your car for an extra year or two after the payments are over, hold off on that new TV or that expensive vacation.
If you do this you will find that you have more money in your savings account. Remember a bird in hand is worth two in the bush and if you want to retire without debt, then you need to adopt this saying as a mantra for your personal financial health.