“Bad” debt such as credit card debt can significantly damage your long-term retirement savings plan. It’s best to pay it off as soon as possible. Although it might be counterintuitive to send money towards debt service when you are trying to accumulate money for retirement, in the long run, you’ll be better off.
The average credit card interest rate for those assessing interest is 14.99 percent. This means that even without charging a single thing on your card going forward, the balance on that card will increase by nearly 15 percent every year if you don’t pay it off completely. If the card has a big balance, you could be looking at a hefty annual increase in your debt.
If your debt is already crippling, there are additional options. Most unsecured debt, which includes credit card debt, can be discharged in bankruptcy. You can usually qualify for Chapter 7 bankruptcy if you fall under the median income for your state and are otherwise eligible. For example, the California median income as of April 2018 was $77,500.
You might also be able to negotiate your debt to a lower interest rate or even a lower balance — if you can make your case to your creditors. Either way, reducing or eliminating your credit card debt will go a long way toward making your retirement more secure. If you’re paying $500 per month in credit card debt, eliminating that payment could translate to an additional $6,000 per year in retirement savings.
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