Setting Financial Goals: Debt

    Setting Financial Goals: Debt

    > Taking the Next Step

    Consider setting a goal to have your debts (excluding your mortgage) paid down within 20 years

    Many Americans today are struggling to keep up with their debts. Credit cards, student loans, and personal loans are all contributing to what many feel is an overwhelming situation: living paycheck to paycheck with no relief in sight.

    It’s about balance

    Debt can quickly spiral out of control, affecting your financial goals and putting all your plans in jeopardy. But the key is to find the proper balance between debt, income, savings, and retirement. Often, you can start to find that balance by viewing the elimination of your debt as a long term financial goal; one that is planned for, reviewed, and assessed regularly.  Consider creating a debt management plan with a completion date of no more than 20 years. If you can eliminate your debt sooner, even better.1

    Good debt vs. bad debt

    Start developing your debt payment plan around ‘good debt’ and ‘bad debt.’ Good debt is that which can provide value over the long term, such as a student loan. Another way to define ‘good debt’ is if it helps to generate income or increases in worth.

    Bad debt, on the other hand, is debt incurred for things that will lose value over time – or not increase in value – like consumable goods charged to your credit cards. The ‘bad’ in this type of debt is often compounded through higher interest rates and the inability to pay the credit card balance in full each month.  

    Identify which of your debt is good, and which is bad, and focus first on paying off the ‘bad’ debt – which is often associated with higher interest rates (and therefore more expensive). Other things you may consider are:

    • Target one debt at a time; tackle it, and move onto the next
    • Pay more than the minimum balance due whenever you can
    • Take advantage of balance transfers onto lower rate credit cards
    • Halt new credit card spending

    Light at end of tunnel

    While 20 years may seem like a long time, consider that according to US News & World Report, the average bachelor's degree holder takes 21 years to pay off his or her loans.2 The goal is to have a clear path towards debt elimination, one that gives you opportunity to balance your obligations and your goals.  Start developing your debt pay down plan with a 20 year horizon, then shorten the timeframe as appropriate and as you are capable.

    Bottom line: you want to have a light at the end of the debt tunnel, one that helps you become free of debt by the time you retire.

    1MassMutual, its employees and representatives do not offer services or advice related to debt management.
    2US News and World Report - Student Loan Expectations: Myth vs. Reality, Oct. 7, 2014 

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