First Person: I Stopped Accumulating Debt Faster Than Retirement Savings

Yahoo Contributor Network

When I compared my retirement savings to the amount of money after the recession ended, it dawned on me I was just going in circles. It didn't make a lot of sense to have $30,000 sitting in a 401(k) account when I owed just as much on my credit cards. For every $100 I set aside for retirement, it seemed my credit debt increased by an equal amount. According to a recent HelloWallet research report, people like me are called "debt savers." The study found 60 percent of households accumulate debt faster than retirement savings. Experts say the results of the study show the need to provide 401(k) participants with holistic personal finance advice. I started treating my debt like an emergency so that my retirement savings wasn't overshadowed by the growing liabilities on the other side of my net worth ledger. After a few years of being more disciplined with my finances, I stopped being a debt saver and started being a debt-free saver.

Setting an aggressive budget

My first step was to aggressively pay down my debt by pretending that my life depended on it. Instead of paying the minimum on my credit cards, I sent $500 to my high-interest credit cards when I received a paycheck. If I was able to save money in my budget during the month, I used my online banking to immediately send an extra $20 or $50 to my credit card.

Temporarily decreasing contributions

I also temporarily decreased the percentage that I was having automatically deducted from my paycheck for the company-sponsored retirement plan. Since my company was stopped matching employee contributions during the recession, I wasn't missing out on any free money. I lowered my contribution to just 5 percent.

Getting everyone to pitch in

Before the recession, my children were too young to contribute to the family finances. Once they started working, they offered to pay some of their own bills, which freed up money for us to pay off our credit-card debt. According to the report, 46 percent of workers accumulated debt faster than retirement savings before the recession compared to 64 percent after the recession. Since my income decreased during the recession, it became essential for everyone in the family to share expenses.

According to a related Washington Post article, the results of the study show the retirement readiness of Americans is slipping. Experts were alarmed that the report showed the near-retirement households spent 22 percent of their paycheck on debt, which was the same as all 401(k) participants. In 1992, near-retirement households used only 13 percent of their paychecks to pay off debt. Now that we have paid off our credit-card debt, we are focused on paying down our mortgage debt. If we can retire without a mortgage, we will feel grateful for our assets instead of being stressed about our debts. As long as the stock market cooperates, our investments in our retirement accounts will carry us to age 100 and beyond.

More from this contributor:

My Kids Won't Die in Debt

We Stopped Paying the Grandparents' Debt

Fighting Fair About Money


View Comments (0)