Month: September 2017

Ideally, we would all retire debt-free, but we’re a nation of borrowers. As of December 2016, the average American household debt totals more than $135,000, according to a NerdWallet credit-card debt study. Credit card debt for the average household carrying a balance totals more than $16,000.

Debt is particularly dangerous for those heading into retirement, because it puts pressure on an already limited budget. Yet the Consumer Financial Protection Bureau reports that 30% of homeowners age 65 plus still have mortgage debt. And according to consumer financial information source ValuePenguin, the average credit card balance of Americans 65 and older is $6,351.

Here are some suggestions for paying down your debt before you retire:

Live below your means. Try creating a budget that represents only a portion of your income. If, for example, you earn $6,000 a month, pretend 10% ($600) of that amount doesn’t exist by transferring it automatically into a savings account.

Get an affordable mortgage. The average American’s highest monthly expense is housing; try to keep it low. Work to improve your credit score; it can make a big difference in your interest rate. Refinance when your score – and the economy – can offer you a better interest rate. Remove private mortgage insurance by having at least 20% equity in your home.

Avoid credit-card debt. Credit-card debt can be tough to pay down due to its typically high interest rate. Pay it down as quickly as possible, and from then on, pay it off completely every month.

You’ll find it well worth it when you retire.

Money in a bank account doesn’t earn a robust return in today’s lower-interest-rate environment, but savings accounts still serve an important purpose.

These savings act as a safety net in case of emergencies, but in that case, you might ask, how much should you keep in that account?

According to the Federal Reserve Bank of New York, which conducts a regular survey on the topic, the average amount an individual will need to resolve a crisis is $2,000.

But that refers to an “average” individual. Those who experience emergencies may actually require more, depending on the emergency and the state of their finances.

As well, crises don’t always come one at a time. For example, a car breakdown might be followed by an illness that prevents you from working. You may want to prepare for several crises happening at once.

Are you concerned about a major crisis, such as losing your job or seriously injuring yourself?

Or are your concerns simpler, such as replacing an older car or needing home repairs? Answers to these questions will help clarify how much you’ll need for your savings account to be well funded.

Also evaluate your support system. If you’re single, have a stable job, and have parents who can help out in a pinch, you may not need as much in savings.

If you are the sole breadwinner in a five-person family and your income is based on commissions, you may need more.

So, while $2,000 is the minimum amount you should consider in funding your “emergency” account, you may want to aim much higher.

Clearly it’s not easy. The Federal Reserve Bank has estimated that only about 67% of Americans would be able to scrape up $2,000 if necessary.

If you don’t fall into this category, it may be time to revisit – or start – an emergency savings fund. Your financial professional can help.