Actionable Steps You Can Take To Get Rid Of Credit Card And Mortgage Debt


  "Get out of debt.” Four words we all hear when talking about financial advice, and even more whenever we near retirement. Sure, you understand why it’s beneficial to get out of debt... but people always seem to glaze over the strategies on how you can get out of debt.

You'd much rather have your money compounding through your investments rather than paying interest on debt… but how? How do we get to the point that your money can be put to work for you while also giving you more flexibility by reducing your fixed expenses?

Two of the biggest debts that we see users and clients carry are credit card debt and mortgages. Figuring out how to pay down and ultimately get rid of these two types of debts will help us have more money to invest and compound so that we can later give ourselves an income in retirement.

Credit card debt tends to be the bigger hurdle for people these days given the high-interest rates that they charge. There are two practical ways to start eliminating your credit card debt today.

1.  Reducing your interest on credit card debt from 15% to 9% or 10% will greatly reduce the amount of money that you pay towards interest, and shorten the length of time it will take for you to pay off this debt. In order to do this, you can use consolidation companies like Sofi to take out a personal loan at a lower interest rate and pay off the high-interest rate credit card debt.

2. Another option is to look at zero percent balance transfers to other credit cards. Basically, you are moving your credit card debt from one credit card to another one at a lower interest rate. Both of these solutions either reduce or remove your interest rates, however, you still must continue to pay that credit card debt off quickly. Focus on putting your available cash flow towards this debt to get it paid off. For ideas on how to find that cash flow to put towards your debt, be sure to read our ebook on holding an Economic Shutdown.

Mortgage debt is the other major debt we see... and it’s a beast!

Mortgage rates have fallen low and have remained there for an extended period of time which means that this debt has inhibited people less than in the past. With that said, though, we recommend that people pay off their mortgage by the time they retire.

There are a few different tactics you can consider when conquering this debt.

 1. The first way to tackle this larger debt is to look at putting an additional $100 or $200 towards the mortgage every month. If your mortgage payment is $1,000 a month that would mean you are making a little more than an extra payment every year. This could help cut a few years off your mortgage and save you money on interest. This is a good strategy if you’re further out from retirement.

The key to quickly paying down your mortgage boils down to how many extra payments you are able to make every year. If you can make three, four, or even five extra payments every year you will find yourself cutting a more significant number of years off your mortgage.

If you are closer to retirement, we suggest you consider paying off your mortgage in full if you can follow the one-third rule. This rule from Wes Moss says that you should pay off your mortgage in full if (and only if) you can do so using no more than one-third of your non-retirement savings. So don’t pull from your IRA or Roth IRA to pay off your mortgage, but if you have enough savings outside of these accounts then you should consider paying off your mortgage in full.

One quick reminder before you start on your debt-crushing crusade. You should have an emergency reserve in order to keep from getting into more debt. This is a savings account where you have 3‐6 months’ worth of expenses, and it’s only used in emergencies.

These tips may help you get out of debt now, but you will constantly be using them if you don’t have an emergency reserve. Starting your emergency reserve and paying off debt can be difficult. For help on finding the right balance of these things, chat with a Wela advisor and download the Wela app. Our team can help you plan out and optimize your financial strategy.