Millions of Americans spend their working days dreaming of retirement. yet millions of americans Too They should fail to take significant financial steps before retiring.
While many people understand that paying down debt is important, they are often focusing on the wrong ones — prioritizing their mortgages with low-interest rates rather than expensive high-interest accounts.
Here are the three debts Americans must pay off first Considering retirement,
college loans are some longest term loan Americans deal. What’s more, if you’re nearing retirement, those debts can add up if you’ve borrowed money to help kids through college.
While federal student loans are cheap right now, the payment and interest freeze initiated by the Biden administration only lasts until the end of August.
And these loans last for a long time.
according to a 2022 report from the Education Data InitiativeIt takes the average borrower about 20 years to pay off their loan.
Unlike a mortgage, many student loans are not tax deductible, and data from StudentAid.gov shows that 2.5 million borrowers were 62 and older.
And many are paying for their children’s education as well, as rising interest rates and everyday costs make it harder for everyone to pay. About 25% of borrowers age 50 or older make loan payments on private student loans because the student failed to do so. according to AARP,
So all those payments take away from your retirement income.
so the americans must find a strategy pay off their student loans It’s the same way they make mortgage payments. This would include fixed payments made on a regular basis, paying off that loan faster and getting you closer to your retirement goals.
Personal Loan and Credit Card
Personal loans and credit cards generally have the highest interest rates. According to LendingTree, this is especially true with credit cards, which currently have an average interest rate of 23.55% in the United States. This is the highest rate since the company started tracking monthly rates in 2019.
It’s not unusual to end up on a credit card for personal expenses — costs expected from moving or paying for a wedding as well as unexpected medical bills or funeral costs.
While credit card balance should be be paid promptly And before you retire, you shouldn’t delay them in saving for your retirement.
Instead of putting off savings, consider reducing your mortgage payment to use those funds to pay off other high-interest debt.
Read more: Experts say the “decade of lost property” has arrived This Is Where to Invest a $500K Portfolio
Mortgages have low interest, which will allow you to keep your savings and pay off the loan.
Experts like Suge Orman say you need to start setting aside cash in a emergency fund Do it as soon as you can and experts generally recommend that you save about three months’ salary. That way, if an unexpected expense comes your way, you’ll be prepared.
As of December 2022, the average new car loan for a buyer with great credit is 8.6%, according to MyAutoloan.
but if you have bad credit, this average rises to 22.16%. This is equivalent to the interest rate on a credit card.
Your interest rate is probably somewhere in the middle, but it’s still going up. Average monthly car payments with many recently rose to $700 Struggling With a $1000 Car Payment,
If $700 goes to a car payment, and $300 more goes to a credit card and student loans, you suddenly have a lot less cash on hand for your retirement.
However, if you put aside retirement to pay off these loans, aggressively setting aside wages to pay them off, you could save yourself thousands in interest. making a cushion to retire,
What about my mortgage?
So why not pay off your mortgage too? It’s not just the cheaper borrowing costs, though average national mortgage rate For a 30-year fixed rate at 6.73%, this is an advantage.
This is because there are tax benefits available to you for your mortgage as well. Homeowners can claim federal and state tax deductions on mortgage and home equity loans that you don’t get with most personal loans and credit cards.
So while you may feel completely secure with your home, you may end up paying a higher interest loan while putting Extra Cash in Your Retirement Fund The strategy is more likely to get you closer to retirement.
need help? talk to an expert
Preparing your finances for retirement can be taxing, especially given the current inflation rate and looming recession.
According to Federal Reserve Board data, only 40% of non-retirees feel confident about their retirement savings—clearly many Americans could use help navigating their finances and making sure their assets are safe,
Working with a financial advisor is often a smart move, and it’s better to start sooner rather than later.
Since many people find it overwhelming to find a suitable and trustworthy professional, there are free online services Designed to match you with a pre-screened financial advisor who will meet your unique needs.
This article provides information only and should not be taken as advice. It is provided without warranty of any kind.