Debt can slow down retirement goals

Making a spending plan helps gets you there faster

By Todd Ossenfort

The Credit Guy

The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues. Ask a question 'The Credit Guy' archives

Dear Credit Guy,
I have approximately $800 in medical bills where I pay $10 here and there, but the total I pay monthly is about $80. I need a card that I can get for 0 percent  interest for one year to hopefully get this paid off sooner. I also ran across major car repairs and home repairs, so I ran up my Sam's and two major credit cards that I would like to consolidate. My husband and I are currently bringing in $3,613 monthly, but with our home mortgage, utilities and credit cards, we're left with only $550 a month. Is there a program for us? We hope to retire in about 4-5 years, so we are in a hurry to get out of debt. Plus, we still have a teen at home and a 21-year-old we're also sending to college. -- Rose

Dear Rose,
It sounds to me like you and your husband are in need of a plan, specifically a spending plan. A family's spending plan is a road map to assure that you reach your financial goals and are prepared for the financial bumps in life that we all encounter. Your plan will need to include, among other things, money for paying down your debt and for college for your 21-year-old and your teenager.

Creating a plan is simply a matter of determining your income, which you appear to have done, and then deciding how best to spend that income. You will, of course, have some fixed costs such as your mortgage and car or other installment loans. The rest of your expenses you have some control over. For instance, you can make adjustments in your thermostat and make other changes to bring down your utility bills. Likewise, you can cut out premium channels and lower your cable bill --  you get the idea.

One of your short-term goals is to pay down your medical and credit card debt. When you create your spending plan, keep in mind that you want to pay down your debt fairly quickly. You may need to make some short-term sacrifices in order to make that happen. I suggest that you make use of these credit card calculators and determine what monthly payment you will need to make to be debt free in four to five years.

Plug in the amount that you would need to pay monthly to pay down your credit card debt into your spending plan and see if you can make it work. If you are not able to cut expenses in other areas enough to make the monthly payment needed to pay off your cards quickly, you can contact your creditors and request assistance.

Should your creditors be unwilling to work with you, you can contact a quality credit counseling agency for help. In fact, your credit counselor can help with your spending plan as well. You can find an agency at the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. One thing to keep in mind when working with a credit counseling agency is that if you decide to enter a debt management plan to pay off your credit card debt, the accounts will be closed and you will not have access to them. Since you want to get rid of your debt and not add to it, this may not be a problem.

Once you have progressed through the process of completing your spending plan, you may find that your income is not sufficient to cover all your expenses and your financial goals of retiring in four to five years and sending both your children through college. If that is the case, you are faced with the same types of decisions governments, companies and families face every year. Prioritizing your spending and making the tough decisions of what doesn't get funded. For you, it may mean you and you husband have to work a few more years and your children may need to acquire school loans to pay a portion of their college expenses.

Take care of your credit!

See related: 8 myths about settling credit card debt, Income down, bills up. Time for credit counseling?, After creating a debt management plan, stick to it

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to The Credit Guy.

Published: November 2, 2009

	Three most recent The Credit Guy stories: In default on car loan: What to do? – If you are in default on a car loan, but want to make amends, it might help to sit down with the lender and discuss possible payment options ... How to pay $12,000 in credit card debt quickly – When it comes to paying off card debt, it's important to remember that there's no quick fix. Determination and patience will do the trick ... How credit card interest charges accrue on a daily basis – With daily periodic interest charges adding to your credit card balances, the odds of making a dent in your debt by paying just the minimum is minimal ...

	CreditCards.com's newsletter Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!