Take steps to control your debt
Debt Can Be Avoided
Even though the US Economy is improving there are still some disturbing factors that suggest that there are still many problems in society, not least the level of credit card debt. The average card debt is over $5000 but the real problem is that there are as many as 15% of users carrying a level of debt that has got out of control. Every card in the USA carries a double figure rate of interest at the end of each month and the most expensive ones are in the mid-teens. Anyone carrying such debt is unlikely to have the ingredients of a good and stable financial life; a surplus each month, a retirement fund and savings towards retirement.
The earlier people start to get into the habit of saving the better. The Social Security System does provide money for retirement but there are certainly several concerns about it as the sole source of retirement revenue. It is a fairly complex system and it appears that only a small minority of Americans fully understand how their benefits are calculated. It clearly therefore suggests that people are in the ‘dark’ about what they will get. A recent survey by the Financial Planning Association and AARP reveals that financial advisers believe that virtually none of their clients has much knowledge at all.
The basis for calculation is a worker’s best 35 years of taxable income but after that the layman will have difficulty in working out the calculations. Anyone seeking expert advice, and that is certainly advisable, will get a projection of probable benefit at 62, the earliest age it can be taken, 66 retirement age and 70 which is the last year that benefit can still grow after which there will be no increase. There can be a huge difference between entitlement at 62 and 70, the latter getting eight extra years of growth.
A Good Strategy
Interest rates are low so it can be better to use savings rather than access Social Security where growth is guaranteed to be higher; the difference can be as much as 8%. It is important to divorce the Social Security System from retirement age to some extent. Many are looking to work longer, and if they can do so and not draw benefits then they will be better off. That of course presupposes that the same rules continue to apply; there is no guarantee of that. Indeed the System is in urgent need of extra funding which logically can only come from increased taxation. There is currently a majority in Congress opposed to that. If funding is not forthcoming benefits will have to fall.
This all adds up to the fact that everyone needs to have a financial plan throughout their working life. Financial responsibilities begin for many at 18; those proceeding to college will not earn significant income for a few years yet need a student loan to fund their education. Credit cards first become available at 18 as well and credit can be tempting.
Those in late middle age cannot really do a great deal to improve their current situation; they are running out of time but they certainly should take action to get rid of any expensive debt, perhaps carrying just the final years of a mortgage. That said any credit card balances should be paid off with something like a consolidation loan paid back by instalments. It will definitely be at a lower rate of interest even for someone whose credit score is poor. Anyone carrying a significant amount of credit card debt into retirement could be in difficulties and will also find it more difficult to get a online loan.
Those graduating and starting out on a career are so much younger but that does not mean they can forget about budgeting. In the early years of a career money may well still be tight so it is not a time for extravagance, nor credit card debt. That consolidation loan is a solution for someone of any age. Monthly living expenses are bound to rise for someone moving away from home to start a career but it does not mean that renting an apartment for example has to be stretching the budget.
If there is a regular surplus each month, it makes much more sense to save rather than buy something that is an indulgence as opposed to a necessity. The years of little sacrifices will not last too long for someone embarking on a career. What no one can retrieve are the years that have gone. Even small amounts each month grow with compound interest ensuring the growth is surprisingly quick. Saving becomes a habit, particularly if a fixed sum is taken once the pay check comes in so it is not available to spend. Such discipline will help avoid the scenario of unmanageable debt.