Second, Pay Off the Debt

The medical bills from last year’s visit to the emergency room. The money you borrowed from cousin Charlie that has been hanging out there for over a year. The credit card balance that has bounced around for more than a decade. You don’t need a scrapbook. Your bills tell your history. Every debt, every monthly payment, every dollar you owe is a claim against your future. Americans from all walks of life are carrying more debt. Kids still in college, married couples with kids, single men and women, rich people and poor people—debt is everywhere. And yet, when most people think about planning for retirement, debt is nowhere in the picture. (And when experts talk about retirement, many seem to assume that no one has any debt.) But the reality is that the over-50 crowd is carrying more debt than ever before in history. They have credit cards and car loans, and many are responsible for student loans they took on to help their

children through college. The average Social Security payment is about $12,000 a year—not even enough to live safely in many places, let alone comfortably—and certainly not enough to cover extra debt payments. And that debt is taking its toll: The elderly are now the fastest growing group in bankruptcy. Debt can be tough on anyone, but hitting your retirement years dragging along a pile of IOUs is a recipe for disaster. So how do you do it? Getting rid of your debt is a two-part process. The first part is to stop taking on new debt. This is the moment to look yourself in the mirror and say out loud: “No more debt.” If you are ready to get really serious, then it is time to give your credit cards a rest, and stop making new purchases for non-essential items. Once you have made the commitment not to take on any new debt, it is time to start tackling the old debt. We wish there were some magic secrets to quick and painless debt repayment, but there isn’t. Getting out of debt is basically just a matter of paying off your old bills, one at a time, until they’re gone. Start by adding up all your debts—the credit cards, doctor bills, past-due bills—everything down to the money you borrowed from your cousin. Include all your debts except your mortgage, student loans, and car loans. Write them down, whip out the calculator, and add them up. Then start paying them off, one at a time. Meanwhile, keep right on making your minimum monthly payments on the other debts. Once the first debt is paid off, pick another debt, and get that one paid off. Go through your debts one at a time until you are debt-free.