MANAGING DEBT

^{By Louis Green, CFA®, CFP®, CRPS®}

Managing Debt 

Carrying debt into retirement can become a significant problem for you. If you have a large debt balance with a high interest rate on that debt, making only minimum payments can negatively affect your credit score and make it harder to get out of debt.¹ The payments needed to manage that debt in the future will use up vital resources.

Below are two hypothetical examples which illustrate the principal balance and interest payments made on a $15,000 credit card balance over time. Example 1 illustrates a $300 a month payment. Example 2 illustrates a $600 a month payment. As illustrated below in example 2, paying $600 a month significantly reduces the total interest paid and eliminates the debt in a little under 3 years versus almost 9 years for the $300 a month strategy.²

Example 1: Pay $300 a month on a $15,000 credit card balance with a 20% interest rate²

Example 2: Pay $600 a month on a $15,000 credit card balance with a 20% interest rate²

Create a plan to prioritize paying off high-interest debt first or build momentum by paying off smaller balances first. Include extra debt payments in your budget and identify savings or additional income (from a raise or bonus, for example) that you can use to reduce your debt.

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All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).

1 https://www.experian.com/blogs/ask-experian/what-happens-if-you-only-pay-the-minimum-amount-due/

2 https://www.calculator.net/credit-card-calculator.html?balance=15%2C000&rate=20&payoffoption=1&fixedpaymentamount=600&year=2&month=0&x=Calculate