Dancing With Debt
Joseph A. Davis, CDFA®
May 4, 2017
After age 30, you are expected to really begin thinking about not only your own future but the future of your children as well. Appropriately named, Generation X-ers are at the crossroads of life and often have to care for growing children and aging parents simultaneously.
Because of this sandwiching it becomes more important than ever to manage, and hopefully reduce, debt – credit cards, student loans, auto loans and now mortgages – to allow for adequate income budgeting that can provide for all the members of your family while saving for your own future retirement.
According to Experian’s’ Generational Credit Trends Report, Americans age 30-46 have 42 percent more overall debt than other generations. And while this age group has likely been out of college for close to a decade, they still have 14 percent more student loan debt than the national average.
With an average student loan balance of about $28,500, and a total average debt balance of $111,121, it can be difficult to worry about saving for the future when you’re still paying for the past. And while there is still much debate over what is more important when it comes to saving for retirement: steadily increasing your nest egg or paying off debts; one thing is certain, you should pay off all your credit card debt as soon as possible to avoid continually paying high interest rates and fees.
The average 30-46 year-old has $5,343 in credit card debt, and this age group also makes the highest amount of late payments. This amount accounts for a lot of wasted money between interest and fees. Also, revolving debts such as credit cards have a more negative impact on your credit score than installment debts. Student loans and automobile loans may make up a larger portion of your debt, but they also typically have lower interest rates than credit cards. These loans are also typically fixed amounts that need to be paid-down, while credit card debt can easily increase overnight with the unconscious swipe of a card.
While the majority of Generation X debt is with a mortgage, this is typically viewed as a positive debt. Mortgages usually have lower interest rates and the interest is often tax-deductible, so while you pay to borrow the money for your home, you often save on your tax bill later. You should always pay your mortgage payments on time, but paying off excess mortgage debt should typically become a focus after all other debts have been eliminated.
While it may seem better to charge now and pay later, you could easily end up spending twice as much on credit card bills and interest overtime. By paying off your credit cards followed by installment debt, besides your mortgage, you can avoid wasting money on high interest rates and will have more money available to pay for future dreams, for you and your family, debt-free. If you or someone you know needs help balancing debt reduction with saving for the future, contact our office today for a consultation or review.
Throughout the past two and a half months I have continued to ask myself, did we jump off a financial cliff? The answer was no. How did I know? The answer, while somewhat complex, is profoundly simple.
While it’s true that retirement accounts can be used to save for college, there may be negative consequences to doing so. It’s best to talk with a financial professional to determine the appropriate course of action and to make sure you’re on track to meet your goals.
A 401(k) isn’t the only option for retirement, but it’s definitely one of the most attractive. In many cases, it offers free money and is relatively easy to roll over when you change jobs. A financial professional can help you prepare for retirement with a 401(k) that fits your current investment style and stage in life and adapts to changes in career or investment styles.
Qualified plans, such as 401(k), profit sharing, defined benefit pension and money purchase pension plans, have defined benefits or defined contributions. A qualified domestic relations order, or QDRO, is required when dividing qualified plans.
Davis Financial LLC
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Securities offered through Purshe Kaplan Sterling Investments, Member FINRA & SIPC., Headquartered at 80 State Street, Albany, NY 12207. Advisory Services offered through BEAM Wealth Advisors, Inc., a SEC Registered Investment Advisory Firm. BEAM Wealth Advisors, Inc. is a separate entity from Purshe Kaplan Sterling Investments. Joseph Davis, Registered Representative. Tax services provided by Davis Tax & Associates. Advisory services offered by Beam Asset Management. Joseph Davis, Investment Advisor Representative. Davis Financial LLC, Beam Asset Management, Davis Tax & Associates, and Purshe Kaplan Sterling Investments are separate, unaffiliated entities.