(IntegrityTimes.com) – Millions of Americans are in debt with no end in sight for many. Becoming self-reliant means ridding oneself of bad debt and preparing in earnest for retirement. Only then can we see the light at the end of the tunnel — and it’s not an oncoming train! It’s best to avoid bad debt altogether, but it’s not always possible. Let’s take a look at the forms of debt and how preparing now for retirement can set us up for enjoyment later on in life.
Good Debt vs. Bad Debt
There is such a thing as good debt, and we typically find it in the form of mortgages and car loans. These make it possible to own a home and vehicle. They’re fixed, which means they have a specific payoff date, and they have set payments, except for an adjustable-rate mortgage (ARM).
Bad debt comes mostly in the form of credit cards. For many, these increase their buying power, but they also come with high — sometimes even exorbitant — interest rates. Racking up a balance is very easy. While it’s a good idea to have one on hand for emergencies, that’s all it should be used for. The general rule of thumb: If you can’t afford to buy it for cash, don’t charge it.
If you find yourself struggling with credit card debt, it’s a good idea to get it under control as soon as possible. Start by paying off one card at a time — the method you choose, whether snowball or avalanche, is up to you. The object is to make progress on one, and once it’s paid off, put that balance toward paying others.
Being debt-free is a great feeling and it sets us up for an easier retirement as well.
The Student Loan Conundrum
There are two sides to student loans, meaning it could be good or bad debt — it all depends on the borrower. On the plus side, they allow young adults who don’t have the finances to go to college the ability to get a degree and increase their earning potential. On the negative side, many students over-borrow and get themselves into a pitfall from which they can’t extract themselves.
Responsible borrowing is the key to student loans, and many lack the education to fully understand what they’re signing up for. Don’t borrow more than you need to pay tuition and cover books, even if the money is available. It still needs to be paid back, and you’re only going to rack up a higher payment when you graduate.
FIRE – Preparing for Retirement
In addition to having a huge debt burden, many Americans are ill-prepared for retirement. The FIRE method helps many, regardless of age, get started on the way to financial independence.
FIRE stands for Financial Independence, Retire Early. While the primary objective is aimed at younger folks — say in their 20s and 30s — it works for anybody, at any age. The older you are, the more aggressively you’ll need to save, but it does work. The key to FIRE is being free of bad debt. Mortgages are considered good debt, but this method does argue against taking out a loan to buy a car. The theory is that’s more money you could be saving each month and putting toward your retirement pool.
Every American should be planning for retirement and being self-reliant is the key to enjoying your golden years instead of working part-time because you have to. With Social Security estimated to run out by 2035, it’s a good idea to start preparing now, rather than later.
Copyright 2020, IntegrityTimes.com
