Getting financially fit at 50 isn't too late

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I will be 50 this year. I have no retirement and now earn at my new job $32,000 a year. I owe $7,000 on credit cards and made a lot of wrong choices in life. Where do I begin? Will I be on the street when I get old? Is there a possibility of saving at this point? I am really scared and not married. Please tell me what to do. My new job will have a 401(k) plan in three months, but I have to pay off credit cards. I rent also, don't own. Again, what do I do? -- Theresa

Answer for the expert

Dear Theresa,
Congratulations on your new job. Since you seem quite concerned in your letter, let's start with some good news. You have $7,000 in debt, but I have seen much worse. I believe you will be able to slowly but surely pay off what you owe. In addition, you can begin to address some of your other financial concerns right away.

When dealing with personal finances, it is important to have a road map for reaching your goals. The road map you will use is a spending plan. Begin by writing down all of your expenses for a month. Keep a spending diary and write down every time you spend money. That includes the $3 morning cup of coffee to your monthly rent payment. Once you have captured all expenses for the month, you will have a good idea of how you are spending your money.

Using the information from your spending diary, write down what you spend each month in a budget form. Here is a sample budget form. Review your monthly expenses and determine if there are areas where you are overspending. Most people can cut back on eating out and other entertainment expenses. What I would like to see you do is adjust your spending to pay off your credit card debt, begin an emergency savings account and then contribute to your 401(k).

Start with tackling your credit card debt. Strive to make the same payment on your credit cards each month until the balance is paid. For example, your minimum payment on $7,000 right now would be approximately $157 -- assuming you're paying an average interest rate and your card issuer uses the most common way of calculating the minimum. (Minimum payments vary, use our  minimum payment calculator to get a precise amount.)

Instead of paying the lower minimum payment amount that would be included on your subsequent statements, continue to pay $157 each month. If you follow that plan, you will pay off your debt in 66 months. While you are making the regular payment, remember to not add to your balances. And of course if you can afford to pay more, by all means do so.

Next, start saving something each month. Even if you must skip a morning coffee once a week to place $15 in savings each month, start there. Increase the amount you save as you can. Your goal is to save six to 12 months' worth of living expenses in this account. Your savings will provide you with extra cash when an unexpected expense occurs and keep you from adding to your credit card debt.

Last but not least, begin a 401(k) contribution. Determine if your employer offers a match or potential match for your contribution and if so, I suggest you make the spending adjustments necessary to make the 401(k) contribution that qualifies for a match. Remember, the 401(k) contribution will be made with before-tax dollars. If you are able to work until you are 70, which is not an unrealistic goal, you will have 20 years to build retirement savings. Will it be as much as if you had started at 30? No, but you will be surprised how much your retirement will grow in 20 years, especially if you contribute the maximum allowed by law per year.

And speaking of maximum contributions, if your plan allows it, you will be eligible for a "catch up" contribution this year and moving forward. The IRS allows persons 50 years of age and older to make additional contributions above the maximum annual limit. The catch-up contribution limit for tax year 2010 is $5,500 for traditional and safe harbor 401(k) plans and $2,500 for simple 401(k) plans.

Take care of your credit!

See related:  Minimum payment calculator, Calculator: How long until you pay off your debt?, Your first budget in 3 easy steps, 8 tips for squeezing a budget even tighter, 10 ways to pay down credit card debt

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Updated: 03-26-2019