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Retirement planning: Handle debt wisely

With the flick of the graduation cap into the air and the promise of a new job waiting, the last thing most college graduates want to mull over is paying for retirement.

They just can't see it. Most can't imagine being 30, let alone 65. And yet many financial choices that twentysomethings make now will help determine whether they'll be working away in their twilight years or kicking up their heels and swapping stories of how things were way back in the 20th century.

Slay the debt dragon
Step one on the financial march is to get a handle on debt. A top priority is to get rid of as much credit card debt as possible. As you know, credit card debt loads have steadily risen especially among college students and graduates.

"If you want to be serious about being healthy financially in later years, that has to be taken out," says Meg Green, a certified financial planner based in Miami.

Double or triple minimum credit card payments whenever possible. Plot out a realistic spending plan. Lots of recent college grads, especially young doctors and young lawyers, are so sick and tired of living as "poor students" that they spend like mad in their early- and mid-20s. Much of that spending goes on credit cards.

This strategy, while filled with plenty of "I've made it" euphoria, can mean trouble later.

It's just not wise to spend with abandon and pile up high credit card debt in your 20s, especially for people who are facing a good 10 years or so of student loan payments. It only makes that financial hole you're trying to climb out of that much deeper.

"You'll never survive if you're starting out in life with a lot of debt and you don't dig yourself out right away," warns Marilyn Steinmetz, a certified financial planner in West Hartford, Conn.

Of course, not all debt is negative. Some debt is necessary to meet goals. A college education and a mortgage, for example, are worth going into the red for.

"I don't think there's anyone I know who gets through life all cash," Green says.

Beware the too-big mortgage
Twentysomethings lucky enough to swing a mortgage should not go overboard with their "dream" home. Make sure those mortgage payments are manageable each month. Who wants to eat peanut butter and jelly sandwiches on a card table each night -- even if you do own the joint? Overwhelming home expenses can eat into all aspects of your financial life, including long-term goals such as retirement. Find out how much house you can afford using this checklist.

"It's a matter of balancing," says David Morganstern, a certified financial planner in Portland, Ore. "You don't want to put everything in so that you're house poor. People need to budget themselves so that they have enough cash flow after they've bought the house and fixed it up to save for retirement."

Begin saving
OK, so you've got a handle on your debt situation. And if you do buy a house anytime soon, you'll be sure not to let it suck you dry financially. So far, so good. Now don't forget about saving.

As Green points out, "Debt should not stop you from socking away even the littlest bit away for retirement."

An easy way to do this is to join your company's 401(k) program.

Most employers allow their employees to sign up as soon as an initial probationary period ends. An employee can request that as much as 15 percent be deducted from each paycheck toward the retirement plan. Many companies will match whatever the employee contributes, dollar for dollar, up to a certain limit. If 15 percent is too high, start with 5 percent and gradually work your way up to the maximum, advise some financial planners.

Next: Scrimping a bit now will pay off in the long run.
Page | 1 | 2 |
Part 2: 25 years to go
Part 3: 15 years to go
Part 4: Approaching retirement?
Winners and losers: Certificates of deposit
Winner or loser: Mortgage shopper
Winner or loser: Home equity loans

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