By: Cate Riley

Many are already feeling the crushing burden of too much debt. Retirement may no longer be an option unless and until you get your debt under control, preferably eliminated. You may need to create a second or third stream of income to really cover expenses.

Inflation in basic necessities is raging and expected to increase. There’s no time to lose in getting rid of debt that’s dragging you into the ditch.

Excessive debt can cause depression, anxiety, health issues and problems within a relationship or marriage. Most have at one time or another experienced too much debt for a multitude of reasons. Many have lost everything as a result. There are steps you can take now to turn your ship in the right direction.

Your mission, should you decide to accept it, is to muster the strength and determination to cut corners where needed, spend only when necessary and live within your means each and every month, with no excuses or exceptions to the rules you will be setting up for yourself. If you think this is sacrifice, what is it exactly will you be giving up? Debt . . . you should be thrilled about giving it up.

It will require a hard, honest look at your income, spending habits and most importantly, how much your income will need to grow as inflation continues to spike up. And don’t forget, the longer you live the more money you’ll need just to survive. With ongoing advances in medical technology, many boomers can expect to live to their 90’s and beyond.

Here are three things you can do to help you get started:

1 – Revise (or Create) Your Monthly Budget – If your first thought is ‘I don’t have a budget’ . . this could explain a big part of the problem. Creating or revising your budget will definitely open your eyes and help you make necessary changes to succeed in your debt reduction plan.

Take a look at where you’re spending money and set a goal to start cutting back immediately to free up cash needed to begin reducing your debt, especially the high interest rate credit cards (more on credit cards later).

Don’t just prepare your new budget and stick it in the drawer either. It is your weapon to help in fighting a debt-ridden and potentially catastrophic future. Set realistic goals to reduce unnecessary spending. It’s similar to a diet. You can’t do it all at once, but if you start slow, remain committed and consistent, you will succeed.

Start by asking yourself the tough questions: where am I spending money? What am I spending money on? Am I earning enough money to cover my expenses? Fibbing will doom you to failure.

Setting a budget and sticking with it will also help when working with a spouse/significant other. Financial challenges are a common source of angst in families and couples, and having a positive and achievable plan of action makes a huge difference. You can help each other ‘stay on your diet’. A good starting point if you’re working with a significant other is to make a pact that you will work together, not blame the other person, and be honest with the recognition that you are working together to achieve financial freedom.

2 – Home Mortgage – Historically low mortgage rates have lulled many into a false sense of security. If our federal government continues to spend more than it takes in and the Fed continues to print money, interest rates will rise. Now is the time to refinance from a variable rate mortgage to a low fixed rate.

A difference of one or two points on an adjustable interest rate loan can make a home mortgage unaffordable. Add to that if you should become injured or unemployed, where will you be if your savings or retirement is insufficient to pay your living expenses and an increased mortgage payment every month? The question is not if your rate will increase but when and by how much.

Beware of Reverse Mortgages. They are in the news a lot these days, being touted as a solution for financially strapped baby boomers. These instruments may have some merit for more aged seniors who definitely won’t outlive the program, but it’s not a solution for those with potentially 30 or 40 years remaining on the yardstick.

According to the National Council on Aging, the percentage of 62 to 64 year old reverse mortgage borrowers has more than tripled, from 6% to 21%, since 1999 even though they have lower available loan limits. Not only are they very likely to outlive the program and potentially be faced with losing their homes, they will have less time to find a new solution due to those lower loans amounts. This is a good program to generate fees and interest for financial planners, bankers and mortgage brokers, but it’s definitely not good for most baby boomers.

Better solutions may include selling in today’s market to your beneficiaries, thereby reducing estate taxes down the road, or downsizing and taking your equity to an area where you can get more real estate for your money while remaining near supporting services like first class medical care.

3 – Credit Cards – If you use credit cards, make sure to pay the balance in full every month before the due date, making it an interest free loan. You may elect to use credit cards for various rewards programs but don’t allow the perks to entice you into carrying debt. That’s how they make their money. Once you start incurring interest charges, typically at very high rates, you run the risk of sinking further into debt which will then be compounding those high rates every month.

Paying credit cards in full may be difficult if you are in the habit of overspending. You probably know better than anyone else if this is the case. With what is happening financially, overspending cannot and will not be sustained.

Looking at your budget should tell you where to start on reducing credit card debt, with either one account at a time or if you’re able, do more than one to get them paid off sooner. Start with the highest interest rate cards first.

If you’re already under water with credit cards, don’t be embarrassed to call the issuing company and discuss settling the account for a severely reduced amount. Remember, many of these banks received billions of dollars in bail out money . . . taxpayer money . . . your money. Virtually every credit card company is now working out solutions for 25%-40% of the outstanding balance and allowing a short payment plan to be set up to be paid off on average in 2 to 4 monthly payments. Again, start with the highest interest rate card(s) first.

Typically this results in the closure of the account. You should look at this as a benefit. Also, be prepared to receive a Form 1099-C for the cancellation of debt so you may need to speak with your accountant or tax preparer to make sure that is not an issue with any social security, retirement or other income you are receiving.

If you need assistance in putting together your plan and sticking to it, you may want to consider consulting with a reputable debt consolidation company. You should be able to receive a no obligation consultation to help plan your attack. Make sure to thoroughly research any company you may be considering and look for forums or blogs with reviews of the company to find out if other users were or were not satisfied. Before talking with them, make sure you have reviewed your budget, thought about and discussed with your significant other your long terms plans, and written down all of the questions you come up with to make sure you don’t forget to ask. Whether you end up proceeding with a debt consolidation company or just hearing what they might recommend, it will only help you as you continue on your path to freedom from debt.

It’s going to be a rough ride before our economy gets straightened out. Those with unsustainable levels of debt will be adversely affected as low interest rates and inflation wipe out pensions, 401(k) plans, savings and other investments. You want to make sure you can cover your necessary living expenses without having to worry about taking care of yourself and your family. Start now and stick with it. It may be critical to your very survival.