This week, I’m talking about being debt free in retirement - why this is so important and how to take steps now to become debt free by retirement. 

Yesterday, I talked about the easy first step of eradicating debt from your life - just taking inventory. I had you list all of your debts, the amount owed, the number of years left, and the interest rate on each debt. 

Now that you have your debt inventory list, let’s look today at probably the most well-known debt reduction strategies - the debt snowball method. If you are a Dave Ramsey fan, you know how this works, but if not, let me explain:

In the debt snowball method, you list your debts, smallest to largest, and start knocking out the smallest debt first. And then move on to the next smallest, knock that out, and continue down that path until all of your debts are wiped out. It’s called the snowball method, because the snowball starts small, but grows over time. 

The debt snowball works well because you get quick wins from eradicating those smaller debts, which for many people will give you the motivation to keep going. 

If you try to tackle a $30,000 car loan first or the $100,000 mortgage first, it could take a year or more before you feel like you’ve made any meaningful progress, and that can be discouraging and could cause you to throw in the towel on paying off your debt - and we definitely do not want that!

One last thing I want to mention is that a critical component of using any debt reduction method, and one that is all too often overlooked is to familiarize yourself with a debt amortization calculator. Debt amortization sounds like a scary accounting term, but what it allow you to do is figure out how long it will take to pay off a given debt. 

Just google debt amortization calculator and you can find a free one where you just enter the items from your debt inventory list - debt amount still owed, how long you have left on the loan, and your interest rate. Find one that allows you to enter extra payments. Because you can enter the extra monthly payment amount, and see how much time it knocks off the loan. 

For larger loans like your mortgage, it’s amazing how an extra $100-200 a month in payments will take years off your loan. This will allow you to put a concrete and realistic time frame on eliminating each of your debts. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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