The biggest problem ,most of the Americans face at the time of retirement, is carrying forward debt balances in their retirement lives. These can be debt against the personal finances; education loan; credit- card balances or the unpaid mortgage loan. The limited earnings after the retirement are further stressed as a lot of money goes every month in payment of these loans/ debt, which seriously affect your retirement life. Therefore, it is always advised that try to repay most of the debt/ loan during your working life so that your retirement period is comfortable and tension-free.
Dealing With DEBT : –
The Debt can be classified as – Bad Debt and Good Debt.
The consumer Debt like buying room furniture or a new car, that you really can’t afford, is like living on a diet of sugar and caffeine; a quick fix with little nutritional value and/or borrowing on credit card is known as Bad Debt, whereas,
When you use Debt for investing in your future like borrowing money to pay for an education; to buy real estate; or to invest in a small business is like eating fruits and vegetables for their vitamins. This type of Debt can be called Good Debt.
Calculating how much Debt you have relative to your annual income is a useful way to size up your Debt load. Ignore, for now, Good Debt. To calculate your Bad Debt Danger Ratio, divide your Bad debt by your annual income. For example, you earn $40,000 per year. Between your credit cards and an auto loan, you have $20,000 of Debt. In this case, your bad debt represents 50 percent of your annual income.
Bad Debt/ Annual Income = Bad Debt Danger Ratio
The financially healthy amount of Bad Debt is Zero. When your Bad Debt Danger Ratio starts to push beyond 25 percent, it can spell real trouble. Such high levels of high- interest consumer debt on credit-cards and auto loans grow like cancer and we have to put all out efforts to control and reduce it.
Finding The Funds To Pay Bad Debt : –
To repay Bad Debt or consumer Debt, the following few steps can be helpful : –
— Borrow against your cash value life Insurance policy.
— Sell investments held outside of Retirement Accounts.
— Tap the Equity in your Home. You can generally borrow against real estate at a lower interest rate and get a tax deduction.
— Borrow against your Employer’s Retirement Account. The interest rate is usually reasonable.
— Lean on Family. Borrow money from your loved ones. But don’t forget to pay them back. Treating the obligation seriously is important.
Identifying And Treating A Compulsion : –
No matter how hard we try to break the habit, some people become addicted to spending and accumulating Debt. It becomes a chronic problem that starts to interfere with other aspects of life and can lead to problems at work and with family and friends.
Debtors Anonymous(DA) is a non-profit organisation that provides support to people trying to break their Debt Accumulation and Spending habits. DA has a simple questionnaire that helps determine whether you’re a problem debtor. If you answer “YES” to at least 8 of the following 15 questions, you may be developing a Debt Accumulation Habit.
— Are your Debts making your home life unhappy?
— Does the pressure of your Debts distract you from your daily work?
— Are your Debts affecting your reputation?
— Do your Debts cause you to think less of yourself?
— Have you ever given false information in order to obtain credit?
— Have you ever made unrealistic promises to your creditors?
— Does the pressure of your Debts make you careless when it comes
to Welfare of your family?
— Do you ever fear that your employer, family, or friends will learn the
extent of your total indebtedness?
— When faced with a difficult financial situation, does the prospect of
Borrowing give you an inordinate feeling of relief?
— Does the pressure of your Debts cause you have difficulty sleeping?
— Has the pressure of Debts ever caused you consider getting drunk?
— Have you ever borrowed money without giving adequate
consideration to the rate of interest you are required to pay?
— Do you usually expect a negative response when you’re subject to
A credit investigation?
— Have you ever developed a strict regimen for paying off your Debts,
Only to break it under pressure?
— Do you justify your Debts by telling yourself that you are superior to
“Other” people and when you get your “Break”, you’ll be out of Debt
Assessing GOOD Debt : –
As for Bad Debt, the following are the important questions to ponder and discuss with your loved ones about the seemingly “Good Debt”,you’re taking on : –
— Are you and your loved ones financially able to save what you’d like
To work towards your goals?
— Are the likely rewards worth the risk that the borrowing entails?
— Are you and your loved ones able to sleep well at night and function
Well during the day, free from great worry about how you’re going to
Meet next month’s expenses?
CONCLUSION : –
If you have a knack for spending more than you should with those little pieces of plastic – only one solution exists – Get RID of your credit- cards. You can function without them. Try to live within your Budget and pay in cash. Never purchase consumer items or cars etc. on credit cards or loan/debt. Try to get maximum information about the various charges/ fees and the credit- card limit before purchasing a credit- card. It is always advisable to pay off your Debt early but definitely before you retire. This will make your retirement life stress-free, enjoyable and comfortable.