There are some studies out there that connect the fact
that if you have higher debt going into retirement, you may
have a lower probability of finding the satisfaction you're
looking for in retirement. In this video, I want to share with
you how to deal with that debt you might have. So you may have
a happier retirement journey. But before we get there,
subscribe to my channel, click on the notification bell. So
you're alerted to when we post new videos, I have over 30 years
in this business. And I want to share with you what I know, and
some of the conversations I have with my clients. So you make can
make sure you don't step on the same landmines they may have. So
I find this interesting and that I've always believed that our
industry has done a lousy job of preparing you for retirement.
You know, they talk a lot about money management and portfolio
diversification. But they don't touch on debt. And I believe the
industry just doesn't think it's a sexy topic to deal with that,
you know, it's not something that can provide smiles or
growth, or something that we can understand. But the reality is,
because we don't prepare you properly, that many end up going
into retirement with more debt or more of the kind of debt they
shouldn't have. And it is this type of situation, that studies
show may impact the level of satisfaction that people have,
when they transition into retirement. There was a study
done in September of 2020, done by the Employee Benefits
Research Institute, EBRI. And they took a look at a couple
thousand different people and their their conclusion was based
on the feedback they got from these people. And they separated
them into three different groups of folks, those who had the
highest degree of satisfaction, those who had a moderate degree,
and those who had the least amount. And without question,
those who had the least amount of satisfaction, were typically
those who had the most debt, because that debt was impacting
their current cash flow. And cash is king in retirement. It's
not necessarily how much you have an assets or how well your
portfolio did. It's how much cash you have and the freedom to
spend it. So I want to share with you in a condensed version,
a class that I give to organizations to help their
employees get a better better handle on debt as they're facing
retirement. So let's get started with it. So everything we do is
a juggling act, I'm not here to just focus on one particular
line item. That's not what life is all about. We all have number
of different things we have to deal with, but a lot of it does
deal with. And we need to focus on the impact of the type of
money that we have and how much we owe the debt. And there are a
number of different financial obligations in general that
we're dealing with. So as a general rule, and I put down six
different items, day to day cash flow and debt, and that those
are connected together because typically the higher debt that
you have, and the higher the payments that you have, it'll
impact how you're feeling. And studies show that it is the day
to day cash flow that can impact how you feel about your journey.
Second is and I'll talk about it from if you haven't retired yet,
in terms of funding for college for your kids, or if you've
already retired and you're about to sign off on a college loan
for your grandchild, then I want to share with you a very
important tip here. And this is about debt. And it's about how
it could impact your cash flow. So if you as a grandparents are
doing the good thing and signing off on a loan for the
educational funding that your grandchild needs, but if things
don't work out perfectly, and that child has an issue and or
that loan goes into default, that's the real key. If the
government loan goes into default, then the government can
come back because you are the signatory and garnish
It's part or all of your social security income. So again, this
gets back to a cash flow situation. So the message here,
just be careful understand what you're signing, and what could
happen if it goes wrong. You know, we want to make sure that
we're accumulating a nest egg for retirement, then we've got
good things, right, we want to go on vacation, we want to
create, you know, and deal with the home improvement projects,
we want to make sure we have enough emergency reserves,
because that oftentimes gives us the sleep at night, the peace of
mind that we're looking for, I think it's really important as
we take a look at the cash flow and debt management, I want you
to either go Google Cash flow worksheet, or sign up for
Quicken or mint.com. But I want you to understand what your cash
flow is now, and what impact debt is having on it. So what I
really want to dive into now, is what I call five tips for
managing your credit score. And the reason I really want to dive
into this is because oftentimes, it is the credit card debt that
is impacting your cash flow. And I want to make sure that we
understand this. And we've heard the mantra Hold on, you know, if
you have a low FICO score, then you're going to have high
interest rate payments. And in historically low interest rate
environment that we're at right now, you can really get those
payments down really low. But if you don't, those credit cards
can be 1215 18%. And they're not tax deductible. So you want to
make sure that you have the highest FICO score possible,
I'll talk about that in just a moment, you want to make sure
you don't pay just the minimum. And I want to share with you a
particular tip. And I want to give you sort of a caveat here,
I want you to go back to your financial advisor, or your tax
accountant, and find out that this is something that is
appropriate for you. But let me give you the idea, the strategy
right now, let's say for example, you have high credit
card debt 10,000 20,000 $50,000. And let's assume that you own a
home. And for many during this time, we've been very fortunate,
we've seen our home values increase a fair amount. And if
you do have equity in that home that has increased, then maybe
you go back and do a refinance. And with that refinance, paid
down all or most of that credit card debt transferring, if you
will, that 12 or 15, or 18%, non tax deductible debt to a
possible three or 4% mortgage rate that is tax deductible
could save you a lot of money. But part of the issue here is if
you think that you're going to end up with that kind of debt,
again, in another year or two, don't do this, because it's more
about your behavior. And I want you to address that. So again,
I'm not recommending this to you, I'm just saying it's a
potential strategy. And you need to talk to your advisors about
whether or not this is going to be good for you. So on this
slide, we'll go into some details, you can get your score
at this URL, I would make sure that you check your Experian,
your TransUnion or your EC for Equifax reporting agencies,
you always want to make sure you can correct your information.
There is a series of studies out there that indicate somewhere
around 70% of those who check on their scores, find there's some
misinformation or disinformation on the score that could impact
your FICO score. One tip for you is to know how to improve your
score. It's interesting, my daughter a couple of years ago,
she was having some issues with her credit. And she fortunately
paid down one of the cards, and she called the company up and
cancelled it, you would think that was a good thing to have
been done. But unfortunately, there was actually a five step
process. You can google five step process to canceling your
credit cards, because you have to not only call them up but
then follow up with certain communications to make sure it's
reported properly. Because if you do it right, it will improve
your score. But the way my daughter did it turned into a
negative event. So make sure you do this properly. The final step
is there are some debt negotiation companies that are
available make sure you do your due diligence. You can free up
hundreds of dollars a month. If you find the right company and
they do what they You need to do for you. But again, you need to
do your due diligence. Here, I want to talk about a very
important concept. And you need to understand the difference
between good debt and bad debt. I am not suggesting to you that
you're going to be debt free or that debt free is the way to go.
It's not right. My recommendation, it's different
for everybody. It's a, it's a personal decision. It's an
economic decision, and everybody's choices are
different. But let's go through this for a moment to understand
the difference between the good debt and the bad debt, you want
to really rank your debt, not only by interest rates, but by
utility. So a good debt, if you will, is a debt on your house,
the mortgage, most people cannot pay for a house free and clear.
Many people end up having some sort of mortgage on their house.
But that's a good debt. And the reason is that the property
should be over time, certainly no guarantees, but it should be
appreciating, it's an appreciating asset over time,
and the interest rates are low and their tax deductible. A bad
debt, on the other hand, is your credit card debt, or a debt for
a car loan, which I find to be just there's no right answer for
car loans, for buying cars. But when you buy the car, the value
of the car depreciates for most every car that you buy as soon
as you take it off the lot. So you have a higher interest rate
non tax deductible loan on an assets that have an asset that
is depreciating. Or you have a credit card balance, where there
really is no asset, but you're paying a high rate of interest,
and it is not taxed ductable. Make sure you pay off your bad
debt first, before you pay off the good debt. So when managing
your debt and planning, I want you to make a plan set small
goals for yourself. And I want to share with you a couple of
strategies that you might want to think about in terms of
paying off your debt. There's one of two ways to have it. If
you have a number of credit cards first, you may want to
find those with the lowest balances and pay those off
first, that's how my daughter did it. And you start to then
eliminate some cards that way. Or take a look at the cards that
you have and see what is the highest interest rate then the
next than the next and the next and start paying off the ones
that have the higher interest rates.
First, I don't mean just eliminate, you know our not pay
the lower ones, but accelerate the payments on those that have
the highest interest rates. And one of the important items to
remember is it's okay to pay debt before savings. In other
words, if you want to put more money into your emergency
reserves, because believe it or not, if you do pay off the debt
and accelerate that it'll free up more cash flow, and you'll
have more for your savings. So that's a condensed version of
how to think about and take a look at the debt that you have.
I hope that some of these tips were good for you. Because the
more you can get a handle on your debt, the higher
probability you will have that when you enter into this next
chapter of retirement, you'll find more satisfaction