If you're facing a mountain of bills, chances are you've drowned out even the most urgent warnings to save for retirement.
You're not alone. No matter who's doing the polls or studies, results show that Americans are awash in debt.
Three-quarters of households have debt with a median level of $55,300, according to the policy group Demos. Just 41 percent of American households save on a consistent basis. Roughly half of all credit card holders have lingering balances that now average $12,000 to $13,000, says the Consumer Federation of America. Among the six out of 10 households that haven't saved for retirement in the past six months, 27 percent were allocating extra funds to pay off credit cards, a Fidelity Research Institute study found.
No wonder all that traditional retirement advice about saving abundantly and investing shrewdly seems like a ridiculously unrealistic goal for so many.
Professional financial planners generally agree that getting rid of debt should be your No. 1 priority. "The best investment you can make is to pay off credit card debt first," says Stephen Brobeck, president of the Consumer Federation of America.
Not convinced? Stocks have historically gained 10.4 percent annually while bonds have earned 5.4 percent a year on average, according to Ibbotson Associates. But credit card fees frequently run higher than that -- 18 percent and higher. "All the people who are making two or three late payments are paying penalty rates of 25 to 30 percent," says Brobeck.
That said, paying off debt is not a free pass to put your retirement on permanent hold. Instead, you need to embrace strategies that can help you achieve the dual goal of digging out from under the bills so you can then catch up on retirement and move ahead in the future.
9 steps to save for retirement
- Get help.
- Make a budget.
- Take advantage of a 401(k).
- Pay off high debt.
- Make power payments.
- Be wary of consolidation or home equity loans.
- Build an emergency fund.
- Catch up on retirement savings.
- Don't quit.
1. Get help.Talk to someone who's in serious debt and it soon becomes clear that there are few things so stressful as being burdened by financial worry. It's not uncommon to lie awake at night, fretting about the bills. Financial stress can take an emotional and physical toll on the entire family.
With that in mind, the first thing you should do is make life a little easier for yourself and get support. A reputable counselor can help you craft a specific plan to tackle your debts. This may entail anything from making a budget you can stick to, acting as a mediator to negotiate lower interest rates from creditors or offering continuing encouragement as you tackle the hard work of becoming debt free.
How do you find such assistance? Be aware that debt counselors aren't created equal, so you don't want to flip open the phone book and pick just anyone. If a so-called expert demands fees for their services or promises overnight results, look elsewhere. Instead, look for a nonprofit counseling center that will help you regardless of your ability to pay.
You can find this kind of reputable help from the National Foundation for Consumer Counseling (NFCC). The NFCC offers a nationwide network of nonprofit agencies that are accredited to help debtors, on their Web site www.nfcc.org. Fees range from $25 to $60, but don't let that put you off. If you can't pay, the fees should be waived.
"Our primary tenet at our agencies is that no one will be turned away, regardless of their ability to pay," says NFCC spokesman Nick Jacobs.