BHUBANESWAR: Eighty per cent of the income earners admit to being underprepared for retirement, yet most of tend to be spenders than the general populace. This suggests that to spite the face, one is cutting the nose and is probably using debt to do the cutting. So, what are we to do?
The key is stick-to-it-iveness — and with the right plan of action, you’ll start to see results in no time. If you’re a heavily indebted breadwinner with no financial plan in place, you must aim to be debt-free by the time you retire. Ideally, all debt should be cleared by the age of 45.
This gives enough time to boost your retirement fund as opposed to paying interest over to the bank. Before you can achieve lofty goals, such as stashing emergency savings or fixing a minimum 20 per cent down payment on assets such as home, you need to tackle our debt situation. Even though there’s more that’s involved with becoming debt free, we have narrowed down some of the critical steps, to begin with.
An average person can expect to live until at least 85. And for instance, if you are earning 500 pay cheques between the ages of 25 to 65. This means they need to use these limited pay cheques to fund a retirement income of at least 250 months. However, at this rate, it is onerous to meet day-to-day expenses in retirement without being saddled with debt repayments – so any successful retirement savings strategy must include a debt repayment plan. And for that to happen, the first step to becoming debt free is changing our money mentality. Analysing your spending could yield similar opportunities.
Make minimum monthly payments
In order to avoid paying higher interest and late fees, you have to always pay your minimum payments on time for every debt you have. The best way to stay on top of monthly credit card payments is to go by the card’s closing date, rather than the payment due date. The closing date wraps up your bill for that month, so any transaction after that date is included in the next month’s statement. So if you pay off the balance before that date, your statement will show a zero balance, which will allow you to avoid interest charges on credit card.
Do away with short-term debt
Short-term debt could derail retirement planning, so paying these off is highly important. Draw up a list of all the short-term debts and calculate the date the last debt will be paid off. Those who find that their debts will not be paid in time for retirement should make significant lifestyle changes now in order to accelerate debt repayments. It is absolutely essential that no further debts are taken during this time.