Consolidating debts is the first step towards the improvement of your finances. Debt can restrict your finances in many ways. It can keep you from reaching a lot of financial goals. It can compromise your savings and even the assets that you have worked hard to accumulate over time.
If you let debt grow, it can also keep you from your dream retirement. According to reports, we need $1 million to be able to retire at the age of 65 years old. Unfortunately, a lot of Americans might not be able to reach that fund. In fact, there are some Americans who do not have any amount in their retirement fund. 1 out of 3 Baby Boomers who are either in retirement or approaching it has $25,000 or less in their fund. How exactly can they afford to retire with that amount?
These retirement statistics are quite alarming. And if you add debt to that, it becomes even scarier. You want to make sure that you can take care of both your debts and retirement savings at the same time. While some experts would say that you should focus on paying off debt first, it can be very beneficial if you can save for retirement at the same time. You can save only a small amount at a time and the compound interest will help make it grow significantly. You need to take advantage of this if you really want to reach your retirement goals.
Boost your retirement savings while consolidating debts
Although we know that saving for retirement is important, how is it possible to do that while consolidating debts?
Admittedly, it will be hard. However, you need to make a couple of sacrifices if you want to be able to do both. You have to discipline yourself and practice self-control. You can also benefit from getting a couple of tips that will make this task easier to accomplish.
Here are some tips that you can use.
Get the lowest monthly payment
If you want to be able to save for retirement while consolidating debts, you need to make sure you get the lowest monthly payment. Debt consolidation is about restructuring your debt payments. You need to make sure you end up with a monthly payment that will leave you room to save for retirement. That means looking at all your expenses so you can make room for both your debt payments and retirement contributions. To do this, you need to look at your budget plan first.
Live a frugal budget
When you start consolidating debts, you should probably change your budget plan. In order to maximize your funds for both debt payments and retirement savings, you need to create a bare-basic budget plan. This is a type of plan that prioritizes the basic necessities. Anything that you do not need to survive should not be included in this.
Of course, you need to be honest with yourself regarding what you need to survive. Some people need to put funds in the entertainment category because it helps them be more productive. It keeps them from feeling discouraged. Since paying for debts and saving for retirement can be hard, you need to give yourself a break every now and then.
Increase your income
Finally, to pay for your debt and save for retirement at the same time, you need to increase your income. If you rely on cutting back on expenses, there is only a limited amount for you to put towards your retirement funds and debts. However, if you increase your income there is a higher chance of putting more money towards consolidating debts and saving for retirement.
There are so many options for you to earn more. You can sell off the items that you are no longer using. You can also choose to get more shifts in your work. Explain to your employer that you need to earn more. If they have extra shifts to give, that will help you increase your monthly income. If that is not possible, then you might have to look for another source of income from a second job.
Tips to successfully save and pay off debts at the same time
The three previously discussed tips should make it easier for you to save for retirement while consolidating debts. However, most of these are meant to help you increase your extra money so you can afford to do both.
Sticking to that plan is another story. According to a survey, 6 out of 10 consumers are concerned about paying down their debts. Sometimes, the struggle is not in learning how to increase your debt payment fund and retirement savings. It is more of figuring out how you can sustain both payments and contributions. At least, sustain the effort enough to complete your goal.
Consolidating debts is not the end of your efforts. You still have a long way to go and it can take some time before you can really get over your debt situation. You want to make sure you will not be tempted to stop your efforts.
Admittedly, it will be a constant struggle. However, if you can change your mindset, you should be able to motivate yourself to complete your chosen debt relief program. Here are some tips that you can consider to help make this a huge success.
Do not be discouraged by small contributions
While you are consolidating debts, you will have limited finances to contribute towards your retirement fund. That should be okay. Do not feel discouraged. Just stick to the small amount that you are contributing. As long as you do not stop, you should be able to build up your savings. A small amount is always better than nothing.
Stick to your monthly contributions
No matter what happens, you should make a commitment to stick to your contributions. If you have to sacrifice something, look for another expense. Keep your debt payments and retirement contributions secure. Unless it is a matter of life or death, do not compromise these two expenses.
Have an emergency fund
Finally, you have to make sure that you have enough emergency fund. If you have none, split your retirement contributions so you are saving up for this too. This is very important because it can help you find financial security after consolidating debts. In case something happens, you do not have to compromise your debt payments or retirement contributions.