Overcoming a large amount of debt, whether it's credit card debt or mortgage debt, can be challenging, but it is possible with careful planning and discipline. Image: otnaydur/Shutterstock.com
By: Abraham GrungoldThere is 1.1 trillion dollars of credit card debt, 49 percent of all card holders. And there is 12.2 trillion dollars of home mortgage debt, 70 percent of all households. Let us take these figures and evaluate how this may affect active federal employees and federal retirees.
1. How does debt affect active federal employees contributing to the Thrift Saving Plan (TSP)?
When you have a considerable amount of debt you may not be contributing to the maximum of what they can afford or even contribute the five percent to the TSP in order to receive the matching five percent employer contribution. It is important to pay yourself first before paying your daily bills or paying down your debt. This ensures that you will have a retirement savings in your TSP when you reach your estimated retirement age.
2. How does debt affect federal retirees?
Soon to be retirees may have to postpone their estimated retirement date due to the amount of debt that have. Also, retirees have more time on their hands and they usually spend more when they are retired. Their day-to-day spending maybe having lunch with friends, playing golf or other similar activities. Having a considerable amount of credit card or mortgage debt or both may prevent retirees from enjoying retirement the way they would hope and perhaps they may have to return to work part-time in order to supplement their retirement income stream.
3. How much debt should you have in Retirement?
The best scenario would be retiring with zero debt. This allows you to use your retirement income for the things you want to do most such as travel, helping your grandchildren and living without financial worries.
General Tips:
Overcoming a large amount of debt, whether it’s credit card debt or mortgage debt, can be challenging, but it is possible with careful planning and discipline. Here are some general strategies to consider:
For Credit Card Debt:
1. Create a Detailed Budget: Track your income and expenses.
2. Contact your credit card companies to negotiate lower interest rates.
3. Snowball or Avalanche Method: Choose a debt repayment strategy: pay off the smallest debt first (snowball method) or the one with the highest interest rate (avalanche method).
4. Consolidate Debt.
5. Cut Unnecessary Expenses.
6. Temporarily cut back on non-essential expenses to free up more money for debt repayment.
7. Increase Income: Look for opportunities to increase your income, such as taking on a part-time job or freelance work.
For Mortgage Debt:
1. Refinance: Explore refinancing your mortgage to secure a lower interest rate, potentially reducing monthly payments.
2. Accelerated Payments: Consider making extra payments towards your mortgage principal whenever possible.
3. Downsize or Sell: If your home is more than you need, consider downsizing or selling and using the proceeds to pay off a significant portion of the mortgage.
4. Increase Income: Look for ways to boost your income, such as a part-time job or a side business.
5. Cut Non-Essential Expenses: Identify and cut back on unnecessary expenses to redirect funds toward debt repayment.
Seek Financial Counseling to achieve your financial goals. Remember proper planning prevents poor performance.
Abraham Grungold is a retired federal employee with 36 years of federal service – including with the USPS Inspector General, the VA Inspector General, the US Dept of Justice, and the US Dept of Labor. Through his company AG Financial Services he helps federal employees with their TSP and federal retirement planning and decisions. Mr. Grungold has written over 50 articles regarding the TSP and FERS retirement and been a guest on several podcasts with the Federal News Radio and Government Executive Magazine.
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