Debt is a reality for most of us, no matter the state of our credit, the amount of income we’re earning or the circumstances of our household. Even if we watch our spending, it’s nearly impossible to avoid the primary sources of debt like student loans, car loans and mortgages. The key is finding a way to manage that debt so it doesn’t become a burden. Here are a few ways you can stay in control of your debt at every phase of life.
1. Be vigilant of your debt-to-income ratio
From the moment you enter the professional working world (ages 18-24), you should never lose sight of the amount of debt you’re taking on compared to the amount of income you’re taking in. If you attend college, student loan debt will be nearly impossible to avoid, and this isn’t the only debt that will begin sneaking up on you shortly after you graduate. Credit cards, medical bills and car loans (among other things) can accumulate quickly and threaten to compromise a healthy debt-to-income ratio. As you approach the phase of life where you start to consider owning a home and will need to be approved for a mortgage, you’ll want to be especially careful to ensure you’re maintaining the right balance.
A good rule of thumb for starting off adulthood on the right track? Research your career field and gain a good understanding of the salary you can expect to make your first year. This will provide a solid guideline for managing your budget going forward.
2. Aim to have all debt paid off by age 45
Believe it or not, your mid-40s are a sweet spot for becoming debt-free. While many of us will have taken on a mortgage, car loan and credit card debt somewhere in our late 20s to early 30s, shortly thereafter the focus should begin shifting to paying this debt off. Most of us begin our careers in our 20s and end them in our mid-60s, so if you can perfect the art of saving by your late 30s to mid-40s, not only will you put yourself on track to start accruing capital instead of debt, you can eliminate some of the stress that comes with adequately preparing for retirement.
3. Make sure you’re well prepared for retirement
When your planned retirement age is still decades away, it may be tempting to skimp on 401(k) allocations, or worse yet, withdraw from your retirement fund to devote to your current expenses. But you’d be well advised to reconsider. Before you know it, retirement will be just around the corner (age 50+), and you don’t want to find yourself ill-prepared to enjoy the golden years. Making adequate retirement plan contributions—and starting this practice early in life—can help you build compound interest which will result in a higher return on your savings and investments over time. You can also avoid working longer than you planned by implementing smart wealth management practices like following an investment strategy and having your investments reviewed annually by a professional.
How Verve can help
In 2018, we helped Verve members Melissa and Dean consolidate and completely refinance their debt, which helped them save $545 a month in loan payments, lower their interest rates and make it possible for them to pay off loans months three months sooner than anticipated. They’re just one example of the many Verve members who have eliminated burdensome debt by taking advantage of our smart savings and refinance options.
If you are nearing, at or above national debt averages or just want to reduce your debt, call Verve at 800.448.9228. One of our team members can help you start applying real action steps to pay off the debt and get back on track quickly.
It’s Verve’s goal—in line with our guiding seven Cooperative Principles—to provide education, training and information to help our members stay financially fit. Verve is committed to keeping our members educated when it comes to their finances by providing details on financial risks and ways to stay safe. Help your friends and family implement stress-free debt management by sharing this blog post.