You do not have to sacrifice your retirement savings just because you are consolidating debt. If you are nearing retirement and you still have a lot of debts to pay off, you do not have to choose between the two. It is equally important for you to get out of debt and have sufficient retirement funds. It will take a whole lot of discipline and sacrifice but this is something that you can accomplish.
Considering the fact that Baby Boomers are retiring in worse financial shape than the generation before them, you might want to pay attention to your own retirement. You do not want to be old and poor. That is not the retirement that you deserve. After all the hard work that you did in your youth, you deserve to live a peaceful and comfortable life.
To have that, you need to get rid of your debt and have enough retirement funds.
How to boost retirement savings while consolidating debts
Giving your retirement savings a boost while you are consolidating debt is possible as long as you know the right techniques that will make it easier. According to reports, you need an average of $46,000 a year on living expenses when you retire. With the current life expectancy rate, you will need a lot of money in order to retire early. Factor in the inflation rate and the high healthcare costs and you know that even a $1 million retirement fund is not enough to pay for comfortable retirement life.
This is why you need to take debt consolidation seriously. It can help you boost your retirement savings as you pay off your debts.
Opt for a longer repayment plan
If you want to get extra funds to save for retirement, you need to restructure your debts through consolidation. As you do that, make sure that you choose one that has a longer repayment plan. This will lower your monthly payments. Your debts will be stretched over a longer payment period and that lowers the monthly dues that you have to pay.
While this will increase the interest that you will pay, it will also free some extra money that you can use to increase your retirement savings contributions.
Live on a frugal budget
To increase your retirement contributions, you need to lower your spending. The most effective way to do this is by using a frugal budget. This is a great budget plan that can support your debt consolidation efforts. It encourages you to prioritize your expenses. This can lower your monthly expenses without making it feel restrictive. Since your expenses are lower, you can put more funds towards your retirement fund.
Find ways to increase your income
As you lower your expenses, you can also opt to increase your income. The more money that comes in, the more you can put towards your debt consolidation payments and your retirement savings. You can ask for extra shifts in your work. Or you can straight up ask your employer for a raise. If you had been a very productive employee, they might just relent. You will never know until you ask.
There is also the option to get a 2nd job. Or you can set up a passive income that can increase your income. Be creative and you should be able to find ways to increase your monthly cash flow.
Keep debt from compromising your retirement
If you really want to succeed in paying off your debts and saving for retirement, you need to find the determination and self-discipline to make it happen. You do not just want to improve your financial position. You also want to make sure that whatever results you gt will last for a long time. If you succeed in paying off your debts completely, you should develop the habits that will help debt consolidation effects last. Doing that will ensure that your retirement savings will not be compromised.
The truth is, you do not have to stop borrowing money to keep your retirement money secure. It is okay to keep on using debt as long as you can be smart about it.
Here are some tips that you can use to practice smart credit use.
Budget your credit card use
While credit cards have a very high-interest rate, there is a way to keep it from negatively affecting your finances. First of all, you have to make sure it is a part of your budget. Look at your monthly budget plan and allocate an amount – like $100 a week. Make sure you do not use your card beyond this limit. That way, when the billing statement comes, you have the money to pay it in full. If you pay your balance in full within the grace period, your payment will not be affected by the interest rate.
Borrow only if it will improve your financial position
You should also borrow for a reason. Do not just use your credit card or apply for a loan if you know that it will not improve your financial position. For instance, borrowing money to buy a house is acceptable but if you borrow money to buy designer clothes, that is something that you can live without. Be smart with your spending choices especially if you will use credit to pay for it.
Create a repayment plan before borrowing money
In case you plan on borrowing a huge amount of money, you have to make sure that you have a repayment plan before you proceed. If you will borrow a mortgage or a car loan, draft a repayment plan. This will give you an idea about how it will affect your budget. If you know that you cannot afford the payments, you can make adjustments on your spending. As long as it will not affect your retirement savings contribution, then you can continue to borrow money.