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Eliminating Credit Card Debt to Experience Financial Freedom

When it comes to handling credit card debt, student loans, and saving for retirement, each of these financial concerns can seem overwhelming. And yet, you can tackle all three – and at the same time, too.

How? Let’s take a look.

Erasing Debt

Look at repaying your debts by how much this process will work the best to help shape your retirement strategies. Its most essential to pay down your high-interest debt – which encompasses both credit card debt and private student loans.

Pay Off Credit Card Debt

Paying off high interest credit cards should be an easy choice to make. Afterall, credit card debt essentially means you pay $1 for every $5 that you’ve borrowed at current, 2021 interest rates for credit cards.

The process starts by eliminating your use of credit cards as much as possible, beginning with paying off whatever cards have the highest interest rates. While you’ll want to continue to make your minimum payment on all credit card debt, paying off the highest-interest rate cards first saves you the most money. Tackle it one card at a time and make sure you start paying more than the minimum payment.

It is crucial to create a budget and review it daily! Once all that credit card debt is gone, your retirement planning will be much smoother indeed.

Repay Student Loans

Just like credit card debt, student loans can be a big problem when it comes to retirement. Federal student loan debt, if defaulted upon, can mean garnishment of your Social Security benefits up to 15% every benefit payment. High interest private student loans can be rough on the wallet.

Additional Debt Payments

When it comes to retirement strategies, once you have student loans and credit card debts under control, you can look toward additional debt repayment strategies – but also put a focus on saving for retirement.

These additional debts include car loans – which can often be refinanced through your bank at a lower interest rate than that offered by the automotive company itself.

Another option to consider is trading in a more expensive car for a less costly model. Or, perhaps you can move from a two to one vehicle household as retirement approaches, or reduce insurance costs by reducing the number of miles you drive after retirement and making sure your insurance policy reflects this.

Still, many people may opt to put car loan repayment on hold, as these loans are usually low interest rates overall, and your car will remain an asset over time.

Paying Off Your Mortgage

Tempting, isn’t it? Eliminating the large expense of housing certainly seems prudent on paper.  But while you may consider paying off your mortgage, it’s probably more important to let this low interest loan go for now, as you may want to keep the tax write-off. Instead of a full pay-off, you can reduce payment costs through a refinance if interest rates have lowered since your home purchase.

And, if you do elect to pay off your mortgage, the easiest way to do so is by making an additional principal-only payment each month.

Retirement Strategies

When it comes to planning for your retirement, along with paying off high interest credit card debt and student loans, you should consider taking advantage of simple, employer-matching savings, such as matching 401(k) plans and any similar investments your employer may offer. These options are essentially free-money savings for you. As such, they should be a priority for you, particularly during your younger years.

Also important for retirement: having back-up security for emergencies. This means that rather than ending up using those same costly credit cards you want to eliminate in emergency situations, save for them instead. Plan to keep 10% of your income aside for savings in case of need.

Financial pros assert that if possible, you should have between three and six months of funds for your living expenses available in an accessible, liquid account. These include a savings account with high interest rates, or a Roth IRA, from which money can be withdrawn without penalties or taxes. Roth IRAs are a solid investment idea in the first place, as well as being a good way to establish your personal emergency fund.

Only once you have a liquid emergency fund in place, then it’s time to look at longer term investment strategies for retirement, or more aggressive, stock market related investment.

Pay off Debt or Save for Retirement?

This is the question that many people wrestle with: should you save anything at all before you’ve eliminated high interest credit card debt and paid off student loans? Should you let these debts stand while you accumulate an emergency fund and further savings for retirement? The answer is simple: neither one, but some of both.

Make paying down debts monthly a priority over time, and likewise, put money aside into savings for emergencies monthly. After that savings contingency is taken care of, put money into more robust-growth savings plans.

As to how much money you use to pay off debts vs. saving, you want to do both if possible.  Make sure you have your emergency fund set up, take advantage of any free employer matching and then start aggressively paying down debt with every extra dollar. You don’t need to be paying 18% to the credit card companies!

Contributions for Retirement

Whether you save first or wait until you’ve paid off at least some of your high interest debts, retirement contributions should receive maximum priority. From a 401(k) to a Roth IRA, putting some of your savings in an account with a strong tax-advantage is key to help you save for retirement and save on taxes as the same time.

And remember, when you maximize your retirement contributions as soon as possible, you’ll have a very large impact indeed on the stability of your financial future. Even if you haven’t been able to maximize contributions toward retirement early, small contributions over the years can really pay off in the long run.

Retirement Ahead

It should be “save” travels ahead when looking toward retirement, but you will have more flexibility to save if you don’t owe money on high interest credit card debts or student loans. In short, creating a balance between paying off loans and credit accounts and saving prudently for retirement and any emergencies you may encounter along the way is the best way to go when it comes to retirement strategies.

However you balance these important aspects of planning for retirement, it’s your choice to save, or pay off at least the highest interest debts, as an investment in and strategy for a successful retirement.  Eliminating debt and saving for retirement is not mutually exclusive – you can take down debt and save for the future at the same time, one month at a time.

Written by Matthew Delaney


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