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.
- Also Read: 3 Reasons Certain Federal Employees Can Retire Years Earlier Than Their Peers Without Penalties
- Also Read: CSRS Retirement in 2024: Are You Making the Most of What This Classic Plan Has to Offer?
- Also Read: Roth IRA Basics for Beginners: What’s There to Learn?
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.
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