Royce Shook

3 years ago · 2 min. reading time · visibility 0 ·

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Paying down debt

When you are retired and living on a fixed income, debt can literally creep up on you and before you comprehend your situation you could be thousands of dollars in debt. These debts could be credit card debts, a line of debt, an unforeseen disease which increased your amount of medical bills or other unforeseen circumstances in life that we could not control. 

There are people who love to spend money entirely too much, only they do not have the cash, so they charge they're purchases assuming they can carry the debt by paying off the minimum amount each month. The problem is that an unforeseen circumstance may increase their debt or decrease their income and when that happens debt completely take over their life.

When you are thinking of making some sort of purchase and you know you may not be able to afford the item, be careful. Think do I really need this or do I just want it? Understanding the difference between a want and a need is a good starting point for controlling your spending. 

One of the best course of action to reducing your debt is to cut up most of your credit cards and start on a system to pay off the debt. Set a goal for yourself as the first step. There are many ideas on how to best reduce debt, but the one I like is the Snowball Method.

Here's how it works The following is from the Credit Counselling Service of Canada:

Use any extra money you can come up with to pay off your credit card with the smallest balance first (ignore the interest rates and just focus on the card with the smallest balance). Paying off this card will give you a quick win and a sense of satisfaction and accomplishment use the snowball method to pay off and pay down credit card debt.
Don't pocket the minimum monthly payment that you used to pay every month on your smallest credit card. Instead, start paying down your next smallest credit card balance with that money. Of course, throw all the extra money you can at this debt to get it paid off as quickly as possible, but the key here is to free up money as you pay off your smallest credit card balances first. The monthly payments you free up will help you pay down the next larger credit card even faster. By doing this, you're essentially creating a snowball effect.
Repeat the process of focusing on paying off your next smallest credit card balance using the money freed up from the smaller cards you paid off earlier. With the snowballing monthly payment this method creates, your debts will get paid down faster and faster as you go, and you'll get more and more motivated as you pay off one card after another.

Once the debt is paid down Stay away from having too many credit cards and become more educated about finances and problems with debt. So, to all you grandparents and parents reading this blog post, speak to your grandchildren and children about the value of not spending money that you do not have and talk to them about the problems that can come from too much debt. 

The earlier that you can relieve or reduce your debt, the better off you are going to be in every aspect of your life. Nobody is going to fix your money difficulty, it is all in your hands. Nobody is safe from getting into in debt even if you are taught young about the risks and dangers of debt. Controlling your spending is hard, but is a needed life skill now that you have retired and are living on a fixed income. 


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Royce Shook

3 years ago #2

#2
Hi Phil, Some people are motivated by numbers some are motivated by feeling that they accomplished something and seeing that they are actually making progress. If you are motivated by numbers then your method works for you, if you are motivated by seeing your debt paid down fast, then the method above works. Having said that, you are mathematically correct as you will save money by following your method. However, there are people who may not continue to pay down their debt, if they don't see tangible results fast. Both methods work and which is the best method is open to debate, and so use whichever method works for you. You are correct I should have provided the alternative view which is to pay off the credit card with the highest interest first and once it is paid off, pay off the credit card with the next highest interest and add the payment from the first card to help pay off the second card. I also should have added your advice in the second paragraph. Thank you for your great suggestions.

Phil Friedman

3 years ago #1

Royce, with all due respect, with the exception of your admonition to avoid spending money you don't have, I have to take exception to much of the advice you offer here. For example, it makes no mathematical or financial sense to pay off the "smallest" credit card balances first. What makes sense is to pay off or down the card balance or balances that carry the highest interest rates first. In fact, the best advice is to pick any cards that are carrying really high interest rates, contact the credit lenders involved, shut down those cards and, at the same time, negotiate an immediate reduction in interest rate (which could be as much as a 60% or 70% reduction in monthly interest being paid) on an agreement for a pay-off over a fixed term. The effect of that kind of move can often be amazing... and it is done all the time now. Cheers!

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