Debt Reduction Plan
By now your laundry list of things to do as you prepare to Retire Well should be growing. There are a lot of things we want to take into retirement with us, but one thing we want to leave behind is HEAVY DEBT. Since most of us will be living off of an income that is decidedly less than what we earned as active employees, reducing our debt is a key laundry list item.
Unlike our parents and grandparents, our mortgage obligations may not be retired when we retire. Therefore, taking that debt into retirement may be unavoidable. The good news is that you might be able to trim the cost of your mortgage. One way of doing that might be to downsize, since the nest might be empty and the space you once needed while raising your family may no longer be needed. There are also other choices and options concerning your mortgage liabilities that you may want to research and examine to see if they fit your lifestyle and budget. Some of those options will be discussed in subsequent posts.
As for now there are many steps we can take to reduce our debt. First step, identify and categorize your debt as small, medium or large in terms of the balance owed. Second, we are going to evaluate the interest owed on all debts. Third, we should analyze how long we have been carrying the debt. The fourth step is to assess what percentage of your debt is comprised of NEED and what percentage is comprised of WANT.
Once you have taken the suggested steps, then begin to pay down little, small, nagging debts no matter the interest rate. After you have taken care of that, begin to pay down the debt that has the highest interest rate first because the more interest you have to pay out, the more of your hard earned money you are handing off to someone else. Then follow through by paying the remaining debts with lower interest rates. The key to making your debt reduction plan work is once you begin to pay down the debt take care not to accumulate additional debt. Dividing your debts into things you purchased because you needed them versus things you wanted, will help you avoid impulse spending.
Regardless of whether you are eligible for CSRS or FERS, part of your Retirement Plan should be to make sure you have as little debt as possible (and hopefully one at all) as you enter retirement.  Think about establishing a debt reduction plan at least five years before you retire so that you can get a handle on how to use your restructured income to enjoy some of the things you wanted to do that were otherwise restricted by your commitment and obligation to work.
P. S. Always Remember to Share What You Know.
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