Episode Transcript
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Speaker 1 (00:00):
Today we're diving
into a crucial topic reducing
debt before retirement.
Whether you're just a few yearsaway from retiring or still
have a decade or more to go,managing and reducing your debt
can make a significantdifference in your financial
stability and peace of mindduring your retirement years.
We're going to go over someactionable steps you can take to
(00:20):
get rid of debt so that you canbe financially healthier.
Let's get started.
Welcome to Low Income Rich Life, the podcast that helps you
prepare for a secure andfulfilling retirement, even on a
limited income.
I'm your host, kevin Bass.
Each week, we'll explorepractical tips and strategies
(00:42):
for getting out of debt,lowering expenses, living a
simpler life and finding truecontentment.
Whether you're nearingretirement or just starting to
plan, join me as we navigate thejourney to a brighter future.
Let's discover together how tomake the most of our golden
years without breaking the bank.
First, let's talk about whyit's so important to focus on
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reducing debt before retirement.
When you're no longer receivinga regular paycheck, managing
monthly debt payments can becomeincreasingly challenging.
High-interest debt, like creditcards or personal loans, can
eat away at your fixed income,leaving you with less money to
cover essential expenses andenjoy your retirement.
It can also give you moreflexibility to handle unexpected
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expenses, such as medical billsor home repairs, as an added
benefit.
The sooner you can eliminatedebt before retirement, the more
money you will have to puttowards your retirement savings.
So how do we go about reducingdebt effectively?
Here are some practical stepsthat you can take.
Step one is assess your debtsituation.
The first step in tackling debtis to get a clear picture of
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your current situation.
Make a list of all your debts,including credit cards, personal
loans, car loans and mortgages.
Note the outstanding balances,interest rates and monthly
payments for each.
It's important not to skip overanything.
Sometimes we tend to forgetabout smaller debts or bills
that we put on the back burner,for example, that store credit
card you only used once in awhile, or the small personal
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loan you took out for some homerepairs a few years ago.
Even though they might seeminsignificant, they add up and
can still impact your financialsituation.
Once you have a completeoverview, you'll be better
equipped to prioritize andstrategize your debt reduction
plan.
This is the foundation of yourjourney to financial freedom, so
take your time and be thorough.
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Step number two is create abudget.
Creating a realistic budget isessential for managing your
finances and finding extra moneyto put toward debt repayment.
Start by listing your monthlyincome and expenses.
Be honest and thorough,including everything from
groceries and utilities toentertainment and dining out.
Identifying areas where you cancut back or eliminate expenses
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is key.
For instance, how much do youspend on dining out each month?
Can you cut back on that, evenif it's just a little?
Are there subscription servicesyou no longer use?
Every dollar saved can beredirected toward paying down
debt.
Let me give you an example frommy own life.
I just recently went on a dietand swore off fast food.
I decided to look at theprevious month's debit card
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spending and realized that Ioften spend over $500 per month
on fast food alone.
I was shocked.
It made me think.
Can y'all imagine how far anextra $500 a month could go
towards paying off debt orbuilding your retirement savings
?
This leads me to anotherimportant point.
Budgeting is not just aboutcutting costs.
It's also about reallocatingresources to things that matter
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most, like paying down debt, anddon't forget to set aside a
little something for yourself.
Budgeting doesn't have to meandeprivation.
It's about smart choices.
Step three is prioritize highinterest debt or tackle low
balances when it comes to payingoff debt.
There are two camps of thoughton what order to work on paying
off your debt.
Some folks think it's best tofocus on high interest debt
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first.
These debts cost you the mostin interest charges and can
quickly spiral out of control.
Credit cards and personal loansoften fall into this category.
This strategy is known as theavalanche method, where you pay
off debts with the highestinterest rates first, while
making minimum payments on otherdebts.
Once the high interest debt ispaid off, move on to the next
highest, and so on.
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The idea is that by reducingthe amount of interest you're
paying over time, you'll be ableto pay off your debts more
quickly and save money.
On the other side of thediscussion are those who decide
to use the snowball method,where you pay off the smallest
debts first to gain momentum anda sense of accomplishment
Anytime you're paying off debt.
You can't go wrong, so choosethe method that works best for
you and keeps you motivated.
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Now let me break this down witha simple example.
Suppose you have three debts acredit card with a $5,000
balance at 18% interest, apersonal loan with a $2,000
balance at 12% interest andanother credit card with a $500
balance at 25% interest.
If you're using the avalanchemethod, you'd start by attacking
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that $500 balance first,because it has the highest
interest rate, even though it'sthe smallest balance.
If you're using the snowballmethod, you'd start with that
$500 balance because it's thesmallest and you can knock it
out quickly, then move on to thenext smallest balance.
Both methods have their prosand cons and it's really about
what works best for youpsychologically.
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Do you need the quick wins tostay motivated, or are you more
driven by saving the most moneyin the long run?
Take some time to think aboutit and choose the path that
aligns with your personality andgoals.
Step four explore additionalincome sources.
Increasing your income canaccelerate your debt repayment
plan.
Consider taking on a part-timejob or freelancing or starting a
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side hustle to bring in extramoney.
Even a few hundred dollars amonth can make a significant
difference in your ability topay down debt.
Or you can do like me and cutout double cheeseburgers and
fries.
Now I know what you're thinking.
Adding more work to your platemight sound exhausting,
especially if you're alreadyworking full-time.
But think of it this way thisis a temporary measure with
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long-term benefits by putting injust a little extra effort now,
you'll be able to pay off yourdebts faster and enter
retirement in a much strongerfinancial position.
While we're at it, let's talkabout some practical ideas for
additional income.
For instance, you mightconsider I don't know tutoring
or pet sitting, or, if you'recrafty, you could sell some
(06:24):
crafts online or on FacebookMarketplace and, if you're handy
, you could even offer homerepair services in your
community or, you know, be ahandyman.
The key is to find somethingyou enjoy or are good at, so it
doesn't feel like a chore, andremember, every little bit helps
.
You could also explore passiveincome opportunities, such as
renting out a room in your homeor investing in dividend paying
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stocks.
While these might require someupfront effort or investment,
they can provide ongoing incomethat can help you pay down debt
faster.
Step five is avoid taking on newdebt.
While you're focused on payingdown existing debt, it's crucial
to avoid taking on new debt.
Resist the temptation to usecredit cards for financing large
expenses.
This step might seem obvious,but it can be one of the most
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challenging.
Credit cards can be a slipperyslope, especially when you're
trying to live within your meanson a limited income.
It's so easy to justify apurchase by thinking I'll pay it
off next month, but thatmindset can quickly lead to more
debt.
Instead, try to adopt acash-only policy for
non-essential items.
If you can't afford to pay forsomething in cash, consider
whether you really need it.
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If you do need to make asignificant purchase, try to
save up and pay cash wheneverpossible.
This will help you stay ontrack with your debt reduction
goals.
Here's a tip that might helpTry the 30-day rule.
If you want to buy something,wait 30 days before making the
purchase.
If, after 30 days, you stillfeel that you need it, then go
ahead and buy it if you canafford it.
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More often than not, you'llfind that the impulse to buy
fades over time and you mayrealize that you really didn't
need the item after all.
Step six is seek professionaladvice.
If you're struggling to manageyour debt on your own, consider
seeking advice from a financialadvisor or credit counselor.
They can help you create apersonalized debt repayment plan
, negotiate with creditors andprovide guidance on managing
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your finances.
Many nonprofit organizationsoffer free or low-cost credit
counseling services, so don'thesitate to reach out for help
if you need it.
I would not look to debtconsolidation companies.
The personal experience of myfriends and family has not been
positive with using those.
It's important to note thatprofessional advice isn't just
for those who are in direstraits.
Even if you feel like you havea good handle on your finances,
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getting a second opinion from aprofessional can provide
valuable insights and strategiesthat you might not have
considered.
Let me share a quick story abouta friend of mine.
She was overwhelmed by hercredit card debt and wasn't sure
where to start.
She reached out to a creditcounseling service and they
helped her develop a repaymentplan that she could manage.
Not only did they help herlower her interest rates, but
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they also provided budgetingtips that she still uses to this
day.
Within a few years, she wasdebt-free and felt a huge weight
lifted off her shoulders.
Sometimes, just having someoneguide you through the process
can make all the difference.
Before we wrap up, let's go oversome common questions that
people have when it comes todebt reduction before retirement
.
What if my income is too low tomake a dent in my debt?
(09:19):
This is a common concern,especially for those living on a
fixed income or low wages.
The key is to start small, evenif you can only afford to pay
an extra $10 or $20 a monthtowards your debt, it still
makes a difference.
Over time, those small paymentsadd up and help you reduce your
balance faster.
Also, consider cutting expenseswhenever possible or increasing
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your income, even if it's justa little bit.
Every little bit helps.
How do I stay motivated whenpaying off debt feels like a
never-ending process?
Well, staying motivated can bechallenging, especially when
your progress feels slow.
One way to stay on track is toset small, achievable goals and
to celebrate each milestone youpass.
For example, you could rewardyourself when you pay off a
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certain amount of debt or whenyou finally pay off a specific
credit card.
Another strategy is to focus onthe long-term benefits, such as
the peace of mind you'll havein retirement.
Visualizing your debt-freefuture can be a powerful
motivator as we wind down.
I want to share some resourcesthat can help you on your debt
reduction journey.
There are several great booksout there that offer practical
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advice on managing debt andpreparing for retirement.
One of my favorites is theTotal Money Makeover by Dave
Ramsey.
It provides a step-by-step planfor getting out of debt and
building wealth, and it's a verysimple plan to follow.
I'm sorry, it is a simple plan.
It's challenging to follow.
Another great resource is yourMoney or your Life by Vicki
(10:43):
Robin and Joe Dominguez, whichteaches you how to transform
your relationship with money andlive a more fulfilling life.
I'll have a link in the shownotes for each one of those
books.
For you, there are also plentyof tools and apps available to
help you stay on top of yourfinances.
Budgeting apps like Mint andYNAB or you Need a Budget can
help you track your spending,set financial goals and stay
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accountable.
I'll also provide a couple oflinks for those, too.
And if you're looking for moreguidance, consider working with
a financial advisor, who canhelp you create a customized
debt repayment plan and offeradvice on managing your money.
As we come to the end of thisepisode, I want to challenge you
to take action today.
Start by assessing your debtsituation, create a budget and
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prioritize your debts.
Whether you choose theavalanche method or the snowball
method, the key is just tostart now.
Remember, the sooner you tackleyour debt, the sooner you'll be
able to enjoy a stress-freeretirement.
And don't forget to share yourprogress with us.
I'd love to hear how you'redoing and any tips or strategies
that are working for you thatmaybe I didn't include today.
(11:45):
You can reach out to me onsocial media or leave a comment
on our website.
Let's support each other onthis journey to financial
freedom.
Reducing debt before retirementis one of the best things you
can do for your financial healthand peace of mind.
It's not always easy, but withthe right strategies and a
little determination you canmake significant progress.
Strategies and a littledetermination, you can make
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significant progress.
Remember every step you taketoday brings you closer to a
more secure and enjoyableretirement tomorrow.
Thank you for tuning in to LowIncome Rich Life.
I'm your host, kevin Bass.
If you found this episodehelpful, please subscribe, rate
and review the podcast.
Your support helps us reachmore people who can benefit from
these tips and strategies.
Join us next week as we discussmore ways to prepare for and
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live a rich life in retirementon a limited income.
Don't forget to visit ourwebsite at lowincomerichlifecom
for additional resources, shownotes and links to everything we
discussed today.
You can also join theconversation in our Facebook
group at facebookcom slash groupslash low income rich life for
more updates and retirement tips.
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And always remember a trulyrich life is not about how you
spend your money, but how youspend your time.
I'm Kevin Bass, wishing you aprosperous and joyful retirement
journey.
Stay well and stay inspired.